- Riverstone has seen a rise in volume commitments from US-based customers due to the impending US tariff hike on China-made medical gloves.
- Riverstone plans to commission six new cleanroom lines and three healthcare lines by the end of 2024, with an additional three healthcare lines in early 2025.
- Risks for Riverstone include a stronger Malaysian ringgit against the US dollar, which could affect profit margins.
Riverstone Holdings Ltd (SGX: AP4) is gearing up for a promising future, expecting strong sales volume growth particularly in the healthcare segment in 2025, with stronger margins from enhanced economies of scale.
This optimism is driven by several key factors, including increased volume commitments from US-based customers due to the impending US tariff hike on China-made medical gloves, as well as expansion plans.
Riverstone is a manufacturer of cleanroom and healthcare gloves, catering primarily to the healthcare and electronics industries. The company operates mainly in Malaysia, with key customers in Asia, the US, and Europe.
Earnings Highlights
Riverstone has shown a strong performance in the third quarter of 2024 (3Q 2024), setting a positive tone for the future. Riverstone reported a net profit of RM72 million in 3Q 2024, a 22% increase year-on-year (YoY), on the back of revenue growth of 34% YoY, driven by strong volume growth that offset margin pressure challenges from sharp movements in the exchange rate between the US dollar (USD) and the Malaysian ringgit (RM).
Future Outlook
a. US Tariff Hike Impact: The impending 50% tariff on China-made medical gloves starting January 2025, increasing to 100% by January 2026, is driving US-based customers to shift their purchases to Riverstone, potentially boosting sales volumes of generic healthcare gloves in the next four quarters.
b. Expansion Plans: Riverstone plans to commission six new cleanroom lines and three healthcare lines by the end of 2024, with an additional three healthcare lines in early 2025, supporting anticipated growth in demand.
c. Dividend Forecasts: Given Riverstone’s strong balance sheet, the company is expected to maintain a high dividend payout ratio of 150% for FY2024, with a special dividend likely to be declared with the fourth-quarter results.
Key Risks
a. Currency Fluctuations: A stronger RM against the USD could pose a risk to Riverstone’s financial performance.
b. Product Mix Shift: The shift towards lower-margin products, despite higher sales volumes, could result in slower gross profit growth.
In summary, Riverstone has potential for growth in the coming year, with several positive factors aligning to create a promising outlook for FY2025. For retail investors, this could be an opportune time to consider adding Riverstone to their portfolios.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of the company.
Reference
CGSI Note | Riverstone Holdings | Nov 14, 2024
