Riverstone Holdings

[Semper Incertus]

The average EPS for Riverstone pre-Covid (from 2015-19) is MYR 0.15. (Average FCF/share over this period was a lot less at MYR 0.06).

Just mathematically, if one assumes EPS mean reversion to this value due to an improving Covid situation in 2022, a 10% hurdle rate and a 10% growth rate for FY2022, and assuming a 2% drop in EPS every year from 2023 with a long term (no terminal value) growth rate at 3%, a DCF model would yield a "fair value" of MYR 2.51. The company has net cash of around MYR 0.90/share (based on 1HFY21 financials) so adding this to "fair value" yields MYR 3.41 or around SGD 1.10.

Doing the same with FCF/share yields a "fair value" of around SGD 0.60.

If the above assumptions hold true, it would appear that "fair value" may lie around SGD 0.84 (just taking the average of "fair value" of EPS & FCF/share). There therefore appears to be a margin of safety of around 20% at the current market price (if the above assumptions hold true).

Riverstone CEO's recent share purchases may be a reflection of similar thinking.

(The above is just personal opinion & not to be construed as investment advice or inducement to trade).

[amperex]

I think Riverstone's average earnings for the 3 years pre covid of 2017,2018 and 2019 was about 129 million MYR. With around 1.482 billion shares outstanding EPS should be 8.7 sens if earning dropped back to pre covid levels. 

Earnings may increase in FY2022 (compared to pre covid) if ASP of gloves ( health care and clean room ) stay above prices of pre covid days as volume is likely to be higher due to higher demand for both health care and clean room gloves going forward. ASPs will definetely be much lower compared to 2020 and 2021.

Capacity expansions from around 10 billion gloves to projected 12 billion gloves in 2022 should also help unless ASP drops drastically to below 2017-2019 days.
Riverstone should also have net cash of about MYR 1.8 billion at year end 2021 after taking into account their distribution of 10 cens interim dividend and likely cash addition of 200 mio MYR in Q4.

So approximately 40 cents SGD cash per share at year end 2021. So it depends on your estimation of their EPS going forward. If net earnings stay around MYR 180 million to 200 million in 2022 and beyond PE will be about 17.5. It will be about 7.5 times ex cash. One is assuming that ASPs and volume are higher than pre covid days here.

Another point to consider is that their payout ratio can be higher going forward compared to 30/40% earnings pre covid as they have much more cash than before.

[BlueKelah]

I think Riverstone's average earnings for the 3 years pre covid of 2017,2018 and 2019 was about 129 million MYR. With around 1.482 billion shares outstanding EPS should be 8.7 sens if earning dropped back to pre covid levels. 

Earnings may increase in FY2022 (compared to pre covid) if ASP of gloves ( health care and clean room ) stay above prices of pre covid days as volume is likely to be higher due to higher demand for both health care and clean room gloves going forward. ASPs will definetely be much lower compared to 2020 and 2021.

Capacity expansions from around 10 billion gloves to projected 12 billion gloves in 2022 should also help unless ASP drops drastically to below 2017-2019 days.
Riverstone should also have net cash of about MYR 1.8 billion at year end 2021 after taking into account their distribution of 10 cens interim dividend and likely cash addition of 200 mio MYR in Q4.

So approximately 40 cents SGD cash per share at year end 2021. So it depends on your estimation of their EPS going forward. If net earnings stay around MYR 180 million to 200 million in 2022 and beyond PE will be about 17.5. It will be about 7.5 times ex cash. One is assuming that ASPs and volume are higher than pre covid days here.

Another point to consider is that their payout ratio can be higher going forward compared to 30/40% earnings pre covid as they have much more cash than before.

Good post. I think the capacity expansion wont happen so soon but production should resume back to precovid levels as malaysia MCO is over. Also RS has some flexibility to shift back to cleanroom glove production from healthcare gloves, whichever is more profitable.

The cash could either be used as capex for a fourth factory I reckon to further boost cleanroom glove production, ( maybe in USA?) or as a big bumper bonus div. 

Boss took a day off yesterday after buying 600lots on monday, but buying up another 300lots today. Looks like he sees value or the chance to MOP up EPF sellings. 

THere is also possibility with so much cash in the company we are looking at a GO soon.

[¯|_(ツ)_/¯]

RS@69

I had been watching RS for a long time but did not make any move. The reason why I'm interested in RS was it's cleanroom product.  Valuebuddies might recalled MMH business - that cleanroom product has its stickiness and customers are willing to pay a bit more premium for the quality goods.

Having says that, among many reasons, I felt that the price is not right (ripe), besides, there are other opportunities that I'm hunting and so was keeping my eye off RS.

With RS moving into non-cleanroom product.  On one hand, I'm happy because it's opportunistic - strong demand from C19 - but on the other hand, I was thinking, is this a diversion from their strength/vision/mission?

For those valuebuddies who had been following RS, you should get the answer. Would you consider the move to non-cleanroom product opportunistic or it's inline with RS's long term plan?

As I read thru VB.com posts, I think I'm going to keep watching for a long while.


Stay home and stay healthy, everyone.

[BlueKelah]

RS@69

I had been watching RS for a long time but did not make any move. The reason why I'm interested in RS was it's cleanroom product.  Valuebuddies might recalled MMH business - that cleanroom product has its stickiness and customers are willing to pay a bit more premium for the quality goods.

Having says that, among many reasons, I felt that the price is not right (ripe), besides, there are other opportunities that I'm hunting and so was keeping my eye off RS.

With RS moving into non-cleanroom product.  On one hand, I'm happy because it's opportunistic - strong demand from C19 - but on the other hand, I was thinking, is this a diversion from their strength/vision/mission?

For those valuebuddies who had been following RS, you should get the answer. Would you consider the move to non-cleanroom product opportunistic or it's inline with RS's long term plan?

As I read thru VB.com posts, I think I'm going to keep watching for a long while.


Stay home and stay healthy, everyone.

They are a glove maker, ASP for healthcare gloves was very profitable so they just lower the quality,  repackage  and sell more to get more profits. 

Its very easy for them to switch more capacity back to cleanroom gloves depending on the margins and customer demand. 

I had been watching for a long time too but this is one of those quality businesses to own at a fair price, its very hard for it to trade cheaply due to its high cash flow generation and excellent balance sheets. The only time you can get in is probably now that its at a mature stage is when negative sentiment undervalues the stock like during a GFC crash type event or like now when you have a majority shareholder selling out a big stake. 

Without EPF selling RS would be still  sitting at $1+ price range i reckon.

Another good high cash flow/earnings/cash cow company is UMS. You will never get in unless the industry has a short downturn or market crashes . Otherwise the higher multiple for a quality company will always be there.

RS price going forward barring any market shocks will probably be sustained in this range as it seems Boss is serious in increasing his stake and company is so cash heavy it can just initiate share buybacks to pump up the price. Lets not forget this is likely to be an excellent quarter as cleanroom is doing well and HC glove demand is still pretty robust with rise in covid infections and restocking.

Another Msian glove maker got banned a couple days back too for bad labor practices, look like Riverstone will be enjoying some extra orders from that...

https://www.channelnewsasia.com/business...ur-2391976

[amperex]

I had been watching for a long time too but this is one of those quality businesses to own at a fair price, its very hard for it to trade cheaply due to its high cash flow generation and excellent balance sheets.  

Some back of the envelope numbers on the above, adjusted for the 1 for 1 bonus.

FY 2015 - FY2019  (5 years) average EPS 2.77 cents SGD.
Traded at average PE of 18.

Average cash at FY end for the 5 years was 109 million MYR.
About 2.37 cents per share. Rather insignificant compared to average share price of
around 50 cents during the period. Thus not really necessary to take into account when valuing the business. 

At share price of 68.5 cents today projected net cash of 40 cents per share at end FY2021 is pretty significant. Even if earnings drop back to 2.77 cents per share of pre covid days you pay only 10 times earnings ex-cash. 

But will earnings really fall all the way to 127 million MYR with increased demands for both types of gloves and impending increase in capacity ?
Maybe I should add that despite revenue increasing from 560 million MYR in 2015 to 989 million MYR in 2019, net profits remained stagnant due to decreasing margins.
Investors will have to come to their own estimate of RS profits which is the not easy part of investing.

[CY09]

Been monitoring it, clean glove demand will continue to be robust. It is the healthcare that is the one that will definitely fall.

This is because the barriers of entry for healthcare glove is very low so nearly anyone with no technical expertise can set up a factory and make gloves. In my view, the company should maintain only CAPEX for cleanroom gloves, I doubt another wave of pandemic will happen within the next year. Odds of two black swans happening in 3 years is very low

[Behappyalways]

There was this particular person called wavehunter that posted many postings in share junction on Riverstone. He said that the big boys are already out of the glove companies and with so many people stuck in the stocks, the big boys probably would not touch because it would be hard to push up with so many people who are stuck trying to offload. Not sure if his postings are still there, I think they are gone. You can check.

I kinda agreed with his judgement because I was kinda looking at the glove companies share performance because of stake in a shipping company. The shipping company is kinda mirroring the glove companies, a big surge in earnings that are probably not sustainable. By looking at the glove companies, one has a rough idea when shipping company's share price will peak. The glove companies like top glove and medtecs share price peak around Oct 2020 whereas their earnings continue to post record. Riverstone's share price peak last year too. The big boys offload around that time and after that the share price for glove companies is down.

So right now there are many retail players holding the baby at the peak and don't understand why the earnings hit record yet share price is down. Why share price is down even when the virus is still so active.....they don't understand....the big boys has already left the market.....in search of the next meal.

It is hard to estimate Riverstone's earnings but the next quarter will be a better gauge. The nta is also a kinda support for the share.

[weijian]

So right now there are many retail players holding the baby at the peak and don't understand why the earnings hit record yet share price is down. Why share price is down even when the virus is still so active.....they don't understand....the big boys has already left the market.....in search of the next meal.

It is hard to estimate Riverstone's earnings but the next quarter will be a better gauge. The nta is also a kinda support for the share.

Hi behappyalways,

You raised a very good point with such "cyclical" companies.

There is earnings in the P/E ratio, and also the ratio itself. Traditionally, the market prices of cyclicals peak at low P/E ratios and vice versa (ie. prices bottom at highest P/E ratios).

Generally, it pays to look at cyclicals via the capital cycle. And when we look at the capital cycle, it would also be instructive to look at supply rather than demand.

eg. I remember VB Big Toe tried his luck at making/selling masks in the early phase of the pandemic. His valiant effort eventually failed. The problem wasn't the demand, it was the supply.

[BlueKelah]

There was this particular person called wavehunter that posted many postings in share junction on Riverstone. He said that the big boys are already out of the glove companies and with so many people stuck in the stocks, the big boys probably would not touch because it would be hard to push up with so many people who are stuck trying to offload. Not sure if his postings are still there, I think they are gone. You can check.

I kinda agreed with his judgement because I was kinda looking at the glove companies share performance because of stake in a shipping company. The shipping company is kinda mirroring the glove companies, a big surge in earnings that are probably not sustainable. By looking at the glove companies, one has a rough idea when shipping company's share price will peak. The glove companies like top glove and medtecs share price peak around Oct 2020 whereas their earnings continue to post record. Riverstone's share price peak last year too. The big boys offload around that time and after that the share price for glove companies is down.

So right now there are many retail players holding the baby at the peak and don't understand why the earnings hit record yet share price is down. Why share price is down even when the virus is still so active.....they don't understand....the big boys has already left the market.....in search of the next meal.

It is hard to estimate Riverstone's earnings but the next quarter will be a better gauge. The nta is also a kinda support for the share.

Market is said to be forward looking. Lots of pandemic hit stocks started rallying last october onwards as news of new covid vaccines came and the Covid fears subsided. Most healthcare stocks and other pandemic stocks like food type and internet types like ZOOM , that were pushed up and overbought were then sold off all around that time.

You could say big boys left the market, but a lot of retail holders who bought in during march lows or even during rebound up in april had also made a lot of money. 

Despite coming somewhat out of the pandemic, Covid is still around at least for the coming year and glove use is still very high at most hospitals and healthcare facilities. In fact, many have adopted more stringent infection controls which involve more glove use than before pandemic and those practices are unlikely to go away. Its not like tomorrow GPs will stop wearing new gloves and examine every patient with bare hands again. 

So the question is will supply drop or will new glove factories go bust due to lower ASPs? News is that HC glove ASP is startign to stabilize already, so likely the glove companies will probably be flat for a while until there is some upside in glove ASPs. 

In the mean time, I believe RS is nimble enough to swtich capacity back to cleanroom gloves. Their margin may have been compressed but they are still churning in the profits. I dont see any other glove company with such a high net cash balance sheet, every other glove company seems to have quite a bit of ongoing debt. And if interest rates rise, you gonna see them go bankrupt one by one, who will be the winner then ?