Kanglongda is the leader of domestic labor protection gloves, which was established in December 2006. at present, the products are mainly labor protection gloves, supplemented by ordinary labor protection gloves. Categories include wear-resistant gloves, anti-cutting gloves, anti-tear gloves, anti-collision gloves, anti-chemical gloves, anti-static gloves, heat-resistant and cold-resistant gloves and other functional labor protection gloves.

R & D drives development, and the R & D of new materials successfully opens up a new space for development. The company focuses on independent research on the production technology and technology of new polymer fiber materials and products. from the perspective of investment, the company's research and development expenses are between 20 million and 27 million yuan in 2014-2017, 26.5236 million yuan in 2017, and the R & D rate is 3.46%. Higher than the average of the domestic industry and the international leader Ansier In terms of material research and development, the company has a wholly-owned subsidiary Zhejiang Jinhao Special Fiber Co., Ltd., which is responsible for the research, development, production and sales of ultra-high-strength high-modulus polyethylene fiber for anti-cutting, and currently launches new products of ultra-high molecular polyethylene fiber. break the Dutch international new materials giant Royal DSM Group technology monopoly, the future application of new materials has a huge space. In addition, in 2015, the company also established Zhejiang Kanglongda Glove Research Institute, which is responsible for the research and development of various special hand protection products, new materials, new production processes and methods, and constantly improve the intelligence and automation level of the production line.

The rise in raw material prices suppresses short-term growth, the launch of a new generation of products and the emergence of performance inflection points. Due to the bottleneck of production capacity, the operating income CAGR of 2014-2016 was 6.71%. In 2017, the operating income was 767 million yuan, an increase of 7.15% over the same period last year. However, the product structure was optimized and the profitability improved rapidly. The net profit of home ownership in 2014-2016 was 44.58%, CAGR increased by 49.74% to 93.76 million yuan in 2016. Under the influence of exchange rate fluctuations, the net profit of homing in 2017 decreased by 22.94% to 72.2513 million yuan compared with the same period last year.

We believe that with the stabilization of raw material prices, the upgrading of new high-margin products and the improvement of product prices, the inflection point of performance has been established.

Domestic sales space and OBM business development open up a new space for the main business. (1) large domestic sales space and fast growth rate. The company's overseas sales revenue has increased steadily. In addition, at present, the domestic protective glove market has great potential, and the company is actively exploring the domestic market. From 2014 to 2016, the average annual compound growth rate of domestic sales reached 30.37%. In 2017, domestic sales income reached 143 million yuan, an increase of 9.49% over the same period last year, accounting for 18.59%. (2) OBM business is progressing smoothly. At present, the company continues to provide innovative products and high-quality services, strives to become business strategic partners of OEM and ODM with more international brands, and mainly sells its own-brand products through GGS in the United States and Kansman in Shanghai.

In 2014-2016, the company's OBM business income CAGR was 6.31%. Sales revenue in 2016 reached 184 million yuan, an increase of 6.68% over the same period last year, accounting for 26.01%.

The protective glove industry in developed countries is mature and growing steadily, and the potential domestic demand is huge. The European Union, the United States and Japan are the main importers of functional labor protection gloves, with stable growth. The total import volume of the three countries from 2008 to 2015 was 6.36%. China is a major exporter of labor protection gloves, with CAGR of 21.82% in 2008-2015, reaching US $1.66 billion in 2015, accounting for 50.72% of the world's total exports, making it the largest exporter in the world. The popularization rate of functional labor protection gloves in China is low, but due to the large working population base and broad potential demand, according to our estimates, the demand for special gloves in the United States, the European Union and Japan is about 790 million, 980 million and 270 million pairs. Based on the employment statistics of China in 2015, it is estimated that the current annual demand in China is about 5.25 billion pairs. As the domestic industry norms are not yet perfect, the huge market development potential is still waiting to explode. In addition, taking into account the promotion of industrialization in other developing countries, the overall global demand for labor functional gloves is still very large.

Based on the research and development of new materials, the international leaders Ansier and DSM have a huge space to explore in the field of new model, multi-brand and multi-category.

(1) Ansier Group: founded in 1905, its products cover industrial protective gloves, medical latex protective gloves, condoms and other civil health protective equipment. With sales of US $1.573 billion and EBIT of 236 million yuan in 2016, it is the leader in the international health and safety protection industry. The group's advantage lies in having a sound OBM model, focusing on building global brands for a long time, and its multi-business has a number of global famous brands. The strategic focus is to ensure sustainable growth through innovation, brand building, focusing on emerging market development, improving technological processes, etc., quickly open and seize the international market with the help of epitaxial mergers and acquisitions, accelerate global production allocation, and expand and enrich product categories. And provide customers with customized integrated security and protection solutions.

(2) Royal DSM of the Netherlands: the world's leading life sciences and materials science company with a history of 115 years, is active in the fields of health, nutrition and materials. The company's high-performance materials are represented by the high-end brand Dinima Dyneema of ultra-high molecular weight polyethylene fiber (UHMWPE). Dyneema fiber has excellent tensile properties, nodular strength, wear resistance, chemical resistance and other properties, which can well replace traditional steel materials and aromatic polyamide fiber in practical application and has been recognized by the market. At present, as a global Dyneema provider, the company has developed a variety of product forms and six major technology platforms, including marine engineering, heavy lifting, national defense law enforcement, labor protection, aviation, commercial fishing, sports and leisure and other industries, covering 13 sub-areas. The CAGR of Dyneema sales in 2011-2016 is 4.9%. Personal protection, labor protection gloves and sports will be the bright spots for future growth.

There is a huge space for vertical and horizontal expansion of the industrial chain. Vertically, the current business structure of the company shows an "olive shape"-that is, the intermediate manufacturing link is strong, but the upstream materials, R & D, downstream brand building and sales channels still need to be developed. we believe that the company has a huge space to extend both upstream and downstream of the industrial chain. Upstream, the company's multi-functional, high-performance, ultra-high-strength, high-modulus polyethylene fiber and rubber and other new glove materials research and development achievements continue to land, downstream OBM business and sales channels have potential, and is expected to launch customized services From a horizontal point of view, in addition to hand protective equipment, Ansier also includes other protective products (protective clothing, sleeves, aprons, etc.), condoms and other product categories. Considering that Kanglonda has a high comparability with Ansier in terms of customer base and technical mastery, there is a broad space for product category expansion in the future.

Investment suggestion: the company is the leader of domestic labor protective gloves, and is expected to be based on American companies GGS and Shanghai Kansman in the future, focusing on the transformation from OEM/ODM to OBM, with huge room for domestic market development. Referring to the experience of Ansier, the industry leader, we believe that Kanglonda has a huge space to extend vertically and horizontally to the industrial chain, and with the help of the advantages of listing platform, it is expected to achieve rapid development driven by both endogenesis and extension. Considering that the increase in the price of upstream raw materials will bring short-term cost-side pressure on the company in 2018, and the company's comprehensive gross profit margin will decline in 2017, we expect this impact to be reduced or eliminated in 2018. The company is expected to achieve net profit of 0.91 yuan and 102 million yuan per share in 2018-2019, with PE of 0.73 yuan and 0.81 yuan per share respectively, corresponding to 49 and 44 times PE, considering that the company's performance inflection point has been established upward. And the successful research and development of new products and new materials correspond to the huge potential space, which is given the rating of "increasing holdings".

Risk factors: global economic fluctuations bring risks to the company's export business; exchange rate fluctuations; OBM business and domestic business are faced with management risks.