Incident: The company disclosed its 2021 semi-annual report, which achieved revenue of 10.674 billion yuan during the reporting period, an increase of 139.88% over the previous year; achieved net profit of 5.879 billion yuan, an increase of 205.98% over the previous year; achieved net profit of 5.850 billion yuan after deduction, an increase of 204.29% over the previous year; and basic earnings per share of 16.11 yuan, in line with market expectations. The company plans to use the Capital Provident Fund to transfer 5 shares for every 10 shares to all shareholders.
Comment:
Unafraid of PVC price reduction pressure, Q2 gross margin increased, and performance increased positively. The spot price of PVC gloves declined significantly in the second quarter. The main reason was that PVC gloves had a shorter expansion cycle and lower barriers. After entering 2021, new production capacity was released one after another. However, it is very difficult to expand production of nitrile gloves, which are the company's main source of profit. There are few companies with production capacity, and the price drop is small, helping the company still achieve positive growth in Q2. Specifically, the company achieved revenue of 3,940 billion yuan in Q2, an increase of 7.16% over the previous year; Guimu's net profit was 2,143 million yuan, an increase of 19.58% over the previous year. In terms of profitability, the company's Q2 gross margin did not decrease but increased, reaching 70.76%, fully reflecting the role of scale advantage after expanding production and the driving effect of increasing the share of high-margin products such as nitrile.
Continue to promote production capacity investment and consolidate the leading position in the global glove industry. The company continues to promote the optimization and upgrading of production capacity, globalization, and the layout of all categories of production capacity. It has built three production bases in Huaibei, Anhui, Qingzhou, Shandong, and Zibo, Shandong. As of the first half of 2021, the company's annual production capacity of disposable non-latex gloves had reached 51 billion. During the reporting period, the company added an annual production capacity of about 15 billion disposable non-latex gloves, a growth rate of over 40%.
The company continues to promote the construction of disposable protective gloves production bases in China and Vietnam, consolidating its leading position in the global glove industry.
Actively lay out the rehabilitation industry, and the industry pattern is expected to be optimized after demand for gloves stabilizes. The company continues to promote business development in the rehabilitation and nursing sector and get rid of dependence on a single product. As of the first half of 2021, the company's Zhenjiang wheelchair production base has the capacity to produce 500,000 manual wheelchairs, 50,000 electric wheelchairs and other rehabilitation and physical therapy equipment and products per year. Furthermore, as the company's glove production capacity continues to expand and the cost advantage becomes more obvious, as industry demand stabilizes, the company is expected to use the cost advantage to accelerate the elimination of the industry's backward production capacity, and eventually form an optimized industry pattern, and bargaining power is expected to eventually increase significantly.
Profit forecasts, valuations and ratings: The company's 2021 performance is expected to accelerate, driven by accelerated production capacity investment and normalized protection against the epidemic. Considering the decline in the prices of PVC and nitrile gloves, the company's net profit forecast for 2021-23 was lowered to 97.72 (down 21.42%) /58.11 (down 48.60%) /48.49 billion yuan (down 41.99%). The current price corresponds to PE 4/7/8 times 2021-23. Maintain a “buy” rating.
Risk warning: delayed production capacity investment; rising raw material prices; domestic demand falling short of expectations; exchange rate risk, etc.
