Event: 2021H1 achieved revenue of 10.674 billion yuan, an increase of 139.88% over the previous year, and achieved net profit of 5.879 billion yuan back to the mother, an increase of 205.98% over the previous year. Among them, 2021Q2 achieved revenue of 3,940 billion yuan, an increase of 7.16% over the previous year, and achieved net profit of 2,143 million yuan to the mother, an increase of 19.58% over the previous year.
Comment:
Glove prices fell, falling sequentially in the second quarter. The company's Q2 revenue and profit declined 42% and 43%, respectively. Benefiting from an increase of 9 billion nitrile production capacity at the Q1 Anhui base, Q2 production increased month-on-month; as the Q2 global epidemic eased compared to the beginning of the year and the increase in the supply of superimposed gloves, glove prices have rebounded. Among them, PVC gloves have clearly fallen in price due to the production capacity of many small factories and falling demand, and the nitrile glove barrier is relatively strong compared to higher prices. At present, the Delta mutated virus has spread globally, and outbreaks have been repeated again in various countries. It is expected that normal prevention and control will continue to be maintained for a long time to come, and demand for disposable gloves will remain strong. At present, the company's nitrile orders are full. Some nitrile orders have been scheduled for the fourth quarter, and some long orders in Europe and the US will continue until the first quarter of next year. As new production capacity is put in place one after another starting in the second half of the year, the company's performance is expected to increase month-on-month.
Profit margins remained flat month-on-month, and expense ratios declined year-on-year. The company's Q2 gross margins and net profit margins were 70.76%/54.48%, respectively, with a month-on-month change of +0.28/ -0.97 pct. Although Q2 glove prices declined somewhat, thanks to improved efficiency in new production lines, lower raw material costs, and increased share of nitrile gloves, profit margins remained at a high level and profitability performance was excellent. Looking at the cost side, the 21H1 fee rate fell 3.63 pct to 5.35% year on year. Among them, the sales/management/R&D/finance expense ratio changed 3.48/ +0.39/ -0.25/ -0.29 pct to 1.68%/2.21%/1.72%/-0.26%, respectively. The decline in sales rates was mainly due to freight charges included in operating costs and an increase in the company's revenue scale.
New production capacity has been released at an accelerated pace, and comprehensive cost advantages have been highlighted. As of the end of July, the company had a total production capacity of 52.1 billion gloves, of which 28.1 billion were nitrile. Starting in the second half of the year, the company's production capacity will be released at an accelerated pace. In early July, Anhui's production capacity of 6 billion nitrile units was successfully put into operation. It is estimated that from the second half of the year to next year, production capacity in Shandong, Jiangxi and Anhui will be put into operation one after another. By mid-2022, the total production capacity of gloves will reach 120 billion pieces (of which about 80 billion nitrile). The company's new production lines are all the most advanced production lines in the world. Furthermore, with the gradual commissioning of Kaize in Anhui in the future to reduce raw material costs, the company's comprehensive cost advantage will be further demonstrated.
Profit forecast: Taking into account the adjustment forecast and target price of gloves, the net profit returned to the mother for 2021-2023 is estimated to be 100/ 61/64 billion yuan, corresponding PE of 3.86/ 6.34/ 6.04x. Maintain a “buy” rating.
Risk warning: demand for gloves falls short of expectations, risk of glove prices falling short of expectations, production capacity falls short of expectations, etc.
