GLOVEMAKER Riverstone Holdings has seen a surge in orders as the Covid-19 outbreak creates increased demand for healthcare gloves.

The Malaysia-headquartered company is now producing as many as it can in a race to meet global shortages.

" We are seeing such a large surge in demand for healthcare gloves that we are facing some difficulty in fulfilling these requirements," said Wong Teek Son, Riverstone' s executive chairman and chief executive. " We had to reject some orders from new clients as priority is being given to existing ones."

One customer, Mr Wong said, asked for a delivery of five million gloves to be airflown instead of shipped. This was the first time Riverstone had received such a request, he told The Business Times .

Even though Riverstone' s production facilities have been running at a utilisation rate of 90 to 93 per cent, orders placed in March will only reach end users in October.

The company can produce 25 million gloves per day at full operating capacity. It made eight billion gloves in FY2019, 85 per cent of which were for the healthcare sector.

The Malaysian Rubber Glove Manufacturers Association (Margma) has revised its estimated demand for medical gloves in 2020 to 345 billion, from 300 billion. This represents a 16 per cent increase from 2019' s figure.

Mr Wong is careful to emphasise that he is not trying to benefit from the current pandemic and has not raised his prices. But he admits that Riverstone will enjoy some operating leverage.

" Our operational efficiency has improved due to a higher utilisation rate and less downtime in production. This should see gross margins for the medical glove segment improve from the current 13 to 15 per cent," Mr Wong said.

Riverstone has also begun making face masks for its key customers. It makes 50,000 masks daily.

A recent movement control order (MCO) - in place in Malaysia since March 18 - has complicated Riverstone' s operations.

The MCO, intended to restrict the spread of the novel coronavirus in Malaysia, prohibits all business operations except those deemed essential.

Riverstone, alongside other glovemakers, has been permitted to continue commercial activities. But its manpower capacity has been capped at 50 per cent.

Margma has been lobbying the Malaysian government to return the industry to full capacity.

Fortunately, Riverstone has been reducing its reliance on labour in the last few years by adopting more automation.

Mr Wong says the company will take advantage of tax incentives from the Malaysian government to encourage automation. Plans are in place to speed up the installation of packing machines in FY2020.

Riverstone is also increasing its production capacity. Mr Wong hopes to be able to produce 10.4 billion gloves per annum by the second half of FY2020. A new facility will also allow the company to increase its production of the higher margin surgical component of its healthcare gloves business, Mr Wong said.

Riverstone is a relatively new player in healthcare gloves.

The company has long specialised in making cleanroom gloves, which are used by workers in high tech manufacturing operations. In fact, Riverstone was one of the first to manufacture nitrile variants of these gloves in South-east Asia back in 1994.

With a 60 per cent market share, Riverstone is the largest supplier of Class 10 and Class 100 cleanroom gloves globally. It counts Seagate, Western Digital and Texas Instruments as clients.

But the 2008 global financial crisis hit Riverstone' s customers hard, and its orders fell.

" We had to build up our resilience, so we decided to balance our cyclically sensitive but higher margin cleanroom segment with the more defensive but lower margin healthcare glove segment," Mr Wong tells BT.

Growth in Riverstone' s healthcare glove segment - which consists of examination and surgical gloves - is now faster than in its cleanroom glove segment. This has impacted the group' s margins.

Riverstone' s proprietary cleanroom gloves generate gross margins of between 37 and 40 per cent.

Margins for healthcare gloves are much lower, in part due to stiff competition.

" When we started manufacturing healthcare gloves in 2009/2010, we were able to get gross margins of about 25 to 26 per cent. But that has since changed due to increased competition from other glove makers globally," Mr Wong said.

Cleanroom gloves accounted for just 15 per cent of production by Riverstone in FY2019, but generated 30 per cent of revenue and 55 per cent of gross profit.

Nonetheless, research houses covering Riverstone remain positive on its outlook. CGS-CIMB expects FY2020 revenue to hit 1.14 billion ringgit (S$376 million) and net profit to reach 157.3 million ringgit.

Last year, Riverstone posted a 7.4 per cent increase in revenue to 989 million ringgit. Net profit edged up 0.6 per cent to 130.4 million ringgit.

DBS Group Research has revenue clocking in at 1.1 billion ringgit and net profit at 148 million ringgit.

DBS analyst Ling Lee Keng says Riverstone' s net cash position makes it attractive relative to its Malaysia-listed peers. As at end-FY19, the company had net cash of 117.4 million ringgit.

Shares of Riverstone have not escaped the broad market sell-offs of the past month. They are down 1.6 per cent this year, although they have outperformed the broader market' s more than 20 per cent decline.

On March 27, Riverstone shares closed 6 cents or 7.1 per cent higher at S$0.91.