Results First Take: FY21 broadly inline; bumper dividend declared
- FY21 results broadly inline; net profit surged 119% y-o-y on higher volume and ASP
- Bumper dividend of total 48 sen; dividend payout ratio of 50%, similar to FY20
- Demand for healthcare gloves improving but pricing pressures still persist; meanwhile, strong demand and stable ASP for cleanroom gloves providing earnings resiliency and sustainable growth for the group
- Rising raw material prices to affect margins hereon, capacity expansion plans delayed
- BUY call and S$1.20 TP under review
FY21 results broadly inline. FY21 revenue surged by 68.5% y-o-y to RM3.08 bn due to higher sales volume and average selling prices (ASP) for both healthcare (HC) and cleanroom (CR) gloves as demand climbed for these products. Gross profit margin improved to 61.9% from 49.1% in FY20. Overall, net profit saw a 119% y-o-y jump to RM1,417.9m.
Bumper dividend of total 48 sen. The group has declared a final DPS of 28 sen and a special interim DPS of 10 sen. Including the interim DPS of 10 sen declared earlier, this brings total DPS to 48 sen for FY21 (22 sen in FY20), or a dividend payout ratio of 50%, similar to FY20. The special DPS will be paid on 6 April 2022 (record date: 15 March 2022) and the final DPS on 19 May 2022 (record date: 5 May 2022).
Demand for healthcare gloves improving but pricing pressures still persist. Current demand for HC gloves has improved from 4Q21. Riverstone’s utilization rate has improved to c.85% from c.70% to 75% in 3Q21 and 4Q21. According to Malaysian Rubber Glove Manufacturers Association (MARGMA), the demand for gloves in 2022 and 2023 will be 10% to 15% higher than the pre-Covid 19 level, due to the global spread of the Covid-19 Omicron variant. ASP, however, is still trending lower.
Strong demand and stable ASP for cleanroom gloves on the other hand. Demand for CR remains strong. The ASP is expected to remain firm at around the US$100 level. Going forward, the CR segment is expected to provide earnings resiliency and sustainable growth for the group.
Rising raw material prices to affect margins. On the back of the weaker ASP for HC gloves and the rising raw material prices, margins are expected to be lower. Prices for butadiene, which accounts for the bulk of the raw materials prices for nitrile gloves, have surged c.80% to cross the US$1000 level per metric tonne, from c.US$600 as at end of 2021, on the back of the rising oil prices.
Delay in capacity expansion plans. The group faced temporary delays for the Phase 7 expansion plans, as a result of the disruption to construction and other related works caused by the MCO in Malaysia. Hence, the additional 1.5 billion pieces of new production capacity will only come online by the end of 2022 instead of by end of 2021. The group is preparing for Phase 8 expansion plans, which is slated to add up to 1.5 billion pieces of gloves to bring the total annual production capacity to c.13.5 billion by FY2022/23.
Significant exposure to the cleanroom space a key differentiating factor among peers, and to provide earnings resiliency for sustainable growth in the longer term. With the significant drop in the ASP for HC but the stable CR price, Riverstone stands out among its peers as the market leader in the high-end cleanroom space. CR gloves currently accounts for c.20% in terms of production volume and about 30% out of the total revenue and earnings. Earnings from the CR segment accounted for c.70% of total earnings pre-COVID. The CR segment is expected to provide earnings resiliency for sustainable growth.
We will review our numbers post the results briefing this morning. We currently have a BUY call with TP of S$1.20.