Event

The company announced that in accordance with the deployment requirements of the epidemic prevention and control work of the Binzhou Municipal Government, combined with the needs of the company's market development, it intends to use self-raised funds of 10 million yuan to invest in the construction of a sterile workshop in Huafang Industrial Park to produce medical masks and protective clothing. The production workshop covers an area of 1500 square meters and the construction period is 3 months.

Brief comment

1. 44-year history of textile printing and dyeing state-owned enterprises, one of the leading printing and dyeing companies, promoting brand strategy

The company is located in Binzhou, Shandong Province. its predecessor was founded in 1976 and has a history of 44 years. It is a listed enterprise recommended by the State Textile Industry Bureau and the people's Government of Shandong Province to the CSRC in 1997. In 1999, Huatou Company and Shandong Binyin were the main sponsors, together with Yaguang Textile, Shanghai Xueling and Huifeng Textile to set up a joint stock co., Ltd., which was listed in 2001.

At present, the company belongs to Binzhou State-owned assets Supervision and Administration Commission, focusing on printing and dyeing processing, forming a diversified development model including textile, printing and dyeing, home textile products, clothing, thermoelectricity, real estate and financial and information services. According to the company's official website, the main industrial field can achieve annual production capacity: 450 million meters of printed and dyed cloth, more than 10,000 varieties of colors; 20.7 million pieces of bed products (sets); 3 million pieces of clothing. In 2018, the company's income from printing and dyeing, home textile, clothing, cotton yarn and grey cloth accounted for 83.5%, 7.9%, 3.0%, 3.0% and 1.1%, respectively.

The company's sales network covers all major domestic textile markets and some international markets such as North America, Africa, Southeast Asia and other international markets. partners include large international brands and retailers, accounting for 84% of export revenue in 2018. At the same time, the company continues to cut into the terminal market mainly by home textile, promoting brand strategy, and has its own brands such as "Huafang", "Blueplatinum", "Xiao Ni", "Enod" and "Textile Wei". Among them, Blueplatinum Home Textile has Tmall and JD.com flagship stores, as well as brand experience stores in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Xiamen, Qingdao and other major cities in China.

2. Ensure the supply of epidemic prevention materials and add new medical masks / protective clothing as a long-term business.

During the epidemic, the demand for protective clothing in hospitals and other scenarios also soared. Under the guidance of the government, a number of listed companies in the textile and clothing sector actively transformed and expanded the production capacity of masks and protective clothing to support the overall situation of epidemic prevention.

The company said on the investor relations interactive platform on February 7 that in accordance with the requirements of the Binzhou municipal government's epidemic prevention deployment, part of the company's temporary production capacity has been used for the production of civilian masks, and the output has reached 20,000 pieces per day, some of which are for their own use, and the rest are handed over to the government for storage and not for foreign sales. The company invested 10 million yuan to build an aseptic workshop in Huafang Industrial Park to produce medical masks and protective clothing. The construction period of the project is 3 months, which needs the approval of Shandong Drug Administration Bureau. The company announced that after the project reaches production, it is expected to achieve an additional annual sales income of 80 million yuan, accounting for 2.45% of the total revenue in 2018, but the new profit and tax is expected to reach 13.05 million yuan, accounting for 61.7% of the total profit in 2018, and its net interest rate is significantly higher than that of the company's current business. it is expected to significantly thicken the company's performance. The company expects that all the fixed asset investment will be recovered within 1.63 years after reaching production, and the actual production capacity will reach 77% of the original design capacity to maintain capital, and has a strong ability to resist external market risks.

The company's income from medical tooling exported to the United States accounts for about 10%, mainly surgical clothing, medical care clothing, medical tooling, nursing clothing, etc., which has been continuously supplied for more than a decade, accumulating rich production experience and market channels. The construction of the aseptic production workshop will be more powerful for market services and expansion, directly provide all kinds of medical-grade protective equipment, and occupy a certain market share in this market segment in the United States.

3. The supply of medical masks and protective clothing has been continuously restored, and the non-woven links of the mask industry chain have been accelerated to make up and smooth.

According to the Ministry of Industry and Information Technology, the maximum production capacity of face masks in China is more than 20 million per day. As of February 3, the output of masks in 22 key provinces across the country had reached 14.806 million per day, an increase of 3.1% over the 2-day ring, a capacity utilization rate of 67%, and an increase of 2 pct. Among them, the most scarce N95 masks has reached 116000 per day, an increase of 48 per cent. There were 9.98 million other medical masks per day, an increase of 36%, and the production capacity was gradually restored.

The National Development and Reform Commission, the Ministry of Finance, and the Ministry of Industry and Information Technology also issued a circular clearly giving full play to the role of government reserves to support the increase in production and supply of materials in response to the epidemic shortage, and all key medical protection materials produced by enterprises are purchased and stored by the government. The first batch of products purchased and stored by the government included medical protective clothing, N95 medical-grade protective masks, medical surgical masks and medical disposable masks. It can be predicted that the increase in the production capacity of masks and protective clothing will be a continuous event throughout the epidemic.

Medical masks in China are mainly divided into three types: (1) medical protective masks with the highest level of protection (2) medical surgical masks commonly used in invasive operating environments such as operating rooms (3) general-level disposable medical masks. The general medical surgical mask is composed of a mask and a rubber belt, and the mask is mainly composed of three layers of nonwovens: the inner and outer layers of spunbonded nonwovens, in which the inner layer has a certain moisture absorption function; the outer layer is waterproof to isolate the spread of droplets, etc. The middle layer is polypropylene melt-blown nonwovens, as the core part of medical masks, it can provide bacterial filtration efficiency in line with national standards, which is the key to ensure that the protection of medical masks is higher than that of civil masks. Melt-blown nonwovens are generally produced from materials weighing 20 grams, and virus particles are attached by electrostatic absorption (according to the National YY 0469-2004 "Technical requirements for Medical Surgical masks", the filtration efficiency of Staphylococcus aureus aerosols with an average particle diameter of (3 ±0.3) μ m is not less than 95%), so it is necessary to electret the melt-blown nonwovens.

From the perspective of the medical mask industry chain, the upstream raw materials are mainly polypropylene, as well as butadiene, styrene and other rubber raw materials, the middle reaches are non-woven manufacturers, and the downstream manufacturers are those with medical mask production license. the terminal channels are mainly hospitals and pharmacies.

(1) Polypropylene: its main suppliers are China Petroleum & Chemical Corp, Petrochina Company Limited, CNOOC and other refineries, which are used to make melt-blown nonwovens by turning polypropylene particles into high melt index polypropylene fiber. According to Zhuochuang data, China produced about 1.7 million tons of polypropylene fiber in 2019, of which about 950000 tons of high-melting polypropylene fiber can be used for masks. In order to meet the demand of epidemic prevention, some refineries of China Petroleum & Chemical Corp will continue to increase production of high-melt polyethylene fiber in February.

(2) Nonwovens: China is the world's largest producer, consumer and exporter of nonwovens. According to data from the China Industrial Textiles Industry Association, the output increased from 2.409 million tons to 5.9322 million tons in 2009-18, and the CAGR output was 10.5% from January to November 2019, an increase of 11.1% over the same period last year. At present, spunbonded, acupuncture and spunlaced products account for about 50%, 23% and 11%, which are the three main categories, while melt blown nonwovens account for about 1%. At present, the non-woven production capacity is mainly concentrated in Guangdong, Zhejiang, Hubei and Fujian provinces, among which Pengchang Town, Xiantao City, Hubei Province is the national non-woven production capacity center, the main manufacturers include Xinlong Holdings, re-Sheng Technology, Nuobang shares, Taida shares and so on. The main manufacturers of melt-blown nonwovens include Jiangsu Liyang, Xinlong Holdings, Shanghai Jingfa, Teda shares and so on, which will gradually improve with the resumption of work during the Spring Festival and the continued coordination of the government.

(3) masks: the production process of masks has a high degree of automation, and it is not difficult to produce in large quantities. According to the Textile Economic Information Network, a typical mask production line machine can produce 54 masks per minute, with a full load of up to 50,000 pieces per day. According to Tianyan survey data, there are more than 21000 enterprises involved in the production and operation of masks (covering upstream and downstream related enterprises), but according to the statistics of the Beijing News think tank, only 353 enterprises hold medical mask licenses at present. Due to the high aseptic conditions for the production of medical masks, it is difficult for ordinary textile enterprises to increase the production capacity of medical masks. And the medical mask also needs ethylene oxide disinfection, the follow-up analysis passed before officially leaving the factory, analysis of the disinfection standard process takes 7 days to half a month.

Investment suggestion: the company responds to the call of the government to actively respond to the impact of the epidemic, converting part of its production capacity into civilian masks, and taking this as an opportunity to add new medical masks and protective clothing business. After being successfully put into production, the company will become one of the few listed companies in the textile and clothing sector that can provide medical masks and protective clothing, and will also become one of the domestic suppliers with medical masks. After the epidemic, the state will pay more attention to the balanced layout of the production capacity of medical products, and is expected to give some support, and the company, as the first local medical mask and protective clothing, has strong order stability and profitability far exceeds the existing textile printing and dyeing business.

Risk factors: the follow-up development of the epidemic; macroeconomic and overall retail fluctuations affect the company's main textile industry; future sales and profits of medical masks and protective clothing are lower than expected.