Introduction to this report:

On March 31, 2023, the company first launched a restricted stock incentive plan. According to the performance assessment target, the 2022-2025 revenue/non-return CAGR is expected to be no less than 26%/44%, demonstrating the company's confidence in development.

Key points of investment:

Investment advice: Considering the impact of the 2022-Q4 epidemic on the company's production, the 2022-2024 EPS was lowered to 0.91/1.10/1.55 yuan (0.96/1.16/1.64 yuan respectively before the adjustment). Considering the company's strong future growth, the company was given 23 times higher PE than the industry average in 2023, maintaining the target price of 25.3 yuan, and maintaining the “increase in holdings” rating.

A stock incentive plan was introduced, with positive performance assessment goals, demonstrating the company's confidence in development. On March 31, 2023, the company first launched a restricted stock incentive plan. It plans to grant 1,884 million shares of stock equity to 63 core executives and technical cadres, accounting for 1.3% of the company's total share capital, with a grant price of 9.6 yuan/share. According to the performance assessment indicators, the growth rate of 2023/2024/2025 operating income compared to 2022 was not less than 40%/50%/100%, or the growth rate of net profit after deducting non-return mothers was not less than 40%/100%/200% compared to 2022. Corresponding to 2022-2025 revenue/net profit CAGR after deducting non-return income was no less than 26%/44% respectively, demonstrating the company's confidence in future development.

The gradual release of production capacity for ultra-high molecular weight polyethylene fibers is expected to significantly increase performance in 2023.

At present, the first phase of ultra-high molecular weight polyethylene fiber has reached full production capacity of 600 tons in 2021, and the production capacity of the second phase of 2,400 tons is being put into operation one after another. We estimate that the output in 2023 will be about 2000-2,500 tons, which is expected to contribute greatly to the increase in performance. Looking at the long term, the company will further plan to expand the production capacity of fiber and its composite products in the future. The new materials business is expected to become the company's second growth curve and continue to strengthen the company's core competitiveness in the field of individual security.

The production of traditional gloves, the main business, expanded smoothly, helping to cultivate the domestic sales market. The company currently has a production capacity of 18 million tons of security gloves. The first phase of the Hengyue Industrial Park project under construction (planned production capacity of 72 million dollars) is expected to be put into operation in mid-2023, and production is expected to be completed one after another in the next three years. The new production capacity is expected to help the company open up sales channels in the domestic market and help the company explore emerging markets overseas.

Risk warning: production capacity investment progress falls short of expectations, raw material prices fluctuate