Strong 1Q21 results above expectations.  Revenue for 1Q21 surged 269% y-o-y (+43% q-o-q) to RM1,032.3m on robust demand from both the healthcare and cleanroom gloves. Despite higher production costs, the continued surge in average selling prices (ASPs) has led to a 956% y-o-y (+58% q-o-q) jump in gross profit to RM708.3m. Gross margin expanded to 68.6%, from 24% in 1Q20 and 62.2% in 4Q20. Net profit of RM522.7m (+1022% y-o-y, +58% q-o-q) accounts for 57% of our FY21F forecasts, while revenue accounts for 34%, above expectations.

Rising ASP trend to plateau?  On a sequential basis, the q-o-q growth in 1Q21 for both revenue and net profit is lower than the q-o-q growth in 4Q20, despite higher production capacity. This could suggest that the rising ASP trend may plateau soon.
 

Demand to remain elevated till 2Q22.  Despite the positive developments on vaccines for COVID-19, demand for healthcare examination gloves is still expected to remain robust as healthcare systems around the world continue to fulfil immediate supply shortfalls as well as replenish reserves. Furthermore, the recent resurgence of the COVID-19 pandemic globally, and the rise in awareness of hygienic practices globally has led to a higher usage of gloves in the medical as well as other nonmedical sectors such as F& B and retail.

According to  the Malaysian Rubber Glove Manufacturers Association (MARGMA), global supply of rubber gloves is projected to reach 420 bn pieces this year, about 80 bn pieces short of the projected demand of 500 bn pieces. Last year&rsquo s shortfall was 100bn pieces. Glove demand is expected to be robust until 2Q22 as new norms due to Covid-19 are expected to stay and sustain current elevated demand.

Orderbook filled till end 2021.  Orderbook remained strong. Riverstone is unable to fulfil any new orders until the end of 2021. The current orders are from its long-term customers, which provide more stability for the group.

Phase 7 to add 1.5bn gloves to 12bn by end of 2021.  Riverstone has completed construction of its new production facility for Phase 7 of its expansion plans. Overall, the Group will add seven production lines in total for Phase 7 which is expected to add up to 1.5 bn pieces of gloves to bring total annual production capacity by up to 12.0 bn pieces by the end of 2021. Similarly, another 1.5 bn pieces of glove capacity will subsequently be added each year in FY2022 and FY2023 to bring total annual production capacity to 15.0 bn pieces of gloves by the end of 2023. 

Cleanroom gloves to ensure earnings resiliency and sustainable growth over the long-term.  Riverstone remains committed to the cleanroom space. The group was able to secure new customers, including those in the trending semiconductor space. Hence, as the market leader in the high-end cleanroom glove space, Riverstone is poised to benefit from diversified income streams which allow the group to ensure earnings resiliency for sustainable growth over the longer term.

Planning for new cleanroom facility.  Riverstone has acquired an additional parcel of industrial land at Bukit Beruntung in Jan 2021 (6,740.76 sqm) for the development of its new cleanroom glove processing facility. This new facility will be able to process more than 2.5 bn pieces of cleanroom gloves per annum, up from the current 2.0 bn.

We have a BUY call on Riverstone with TP of S$1.85. More updates after briefing tomorrow.