Industry oversupply and inventory surplus has been alleviated, is gradually entering the normal replenishment stage, demand is expected to gradually pick up, the industry is expected to usher in an upward inflection point. The company started to lead the rapid improvement of the industry, with the price of sets picking up, we expect its profit end to improve steadily. In the medium and long term, Yingke Healthcare has significant advantages in cost, technology and channels. It is expected that with the steady progress of the existing base capacity reserves and overseas capacity layout, the company will have the potential to become the global leader of disposable gloves. Combined with changes in glove prices and changes in the company's equity (the total equity is about 20% higher than the previous forecast), we adjust the company's EPS forecast for 2022-2024 to 0.88 EPS 0.97max 1.81 yuan (the original EPS forecast for 2022-2023 is 4.66 EPS 6.22 yuan, and 2024 is a new forecast), and maintain a "buy" rating corresponding to the target price of 30 yuan in 2023.

Downstream destocking has come to an end, and the inflection point of the industry is gradually emerging. Looking back on the market, the glove industry encountered a serious imbalance between supply and demand in the early stages of the global epidemic (2020-2021), resulting in soaring glove prices and leapfrog expansion of industry capacity. Immediately since 2021Q2, the industry has experienced the double challenges of oversupply and inventory oversupply, and during the superposition period, raw material prices fluctuated sharply and other factors, the head enterprises began to lose money, and small and medium-sized suppliers continued to clear. Standing at the current point, we observe that positive changes are taking place at both ends of supply and demand in the industry: 1) the plan for large-scale production expansion is slowing down. According to company announcements, TopGlove has slowed down its expansion plan, lowering its 2025 production capacity target to 110 billion units (only + 10% compared with 2022); Hartalega announced that it will adjust the production capacity release cycle of NGC1.5 projects to balance market supply and demand; Yingke Healthcare announced that it will dynamically combine market supply and demand, and will not rule out slowing down the pace of capacity release of Shandong and Anqing projects (a total of 90 billion). Most of the other small and medium-sized manufacturers or new entrants to the industry directly cancel the relevant capacity expansion plans. 2) the serious excess inventory of downstream customers at the beginning of the epidemic is one of the key factors affecting the continuous downward price of the glove industry since 2022, which leads to the loss of the industry and the continuous decline of the operating rate. According to our industry chain research, the leading generation of orders in the industry has begun to pick up, and the operating rate has increased rapidly. We believe that this reflects that the clearing of excess inventory of downstream customers is coming to an end, and it is expected that the demand for regular replenishment will pick up.

The cost of raw materials is low, and the price side has upward momentum. 1) the price of raw materials for gloves fluctuated greatly in the past due to the price of crude oil, the epidemic situation and other factors, and has been basically stable at a low level since the second half of 2022. According to Longzhong Petrochemical data, the price of PVC paste resin recently runs at a low level of 7400-8300 yuan / ton, which is about 20% lower than the average price in 2022; the price of nitrile latex fluctuates at a low level of 5800-6100 yuan / ton, which is about 10% lower than the average price in 2022. 2) from the price point of view, the current price of a thousand nitrile gloves in the industry is between $15-16 (about $20-22 before the epidemic), and the price of a thousand PVC gloves is between $11-12 (about $12-13 before the epidemic). At present, the price of gloves is lower than the average level of the industry before the epidemic, while the destocking of glove manufacturers in the industry, the clearing of small and medium-sized manufacturers, and the destocking of downstream customers are all coming to an end. at the same time, industry organizations represented by the Malay Glove Industry Association are also actively exploring price increases to cope with the upward pressure on energy prices and labor prices. we expect glove prices to gradually pick up and move closer to the price range of the balance between supply and demand before the epidemic.

The medium-and long-term logic of the glove industry remains unchanged, and the core barriers to British medical care continue to strengthen. Although the epidemic has caused great disturbance to the global disposable glove industry, from the medium-and long-term perspective, the core value of disposable gloves as one of the largest single consumables in the health care system remains unchanged, and the per capita glove consumption in developing countries and other emerging markets is gradually closer to that in developed countries, and the growth logic such as nitrile gloves gradually replacing PVC gloves remains unchanged. The core competitive advantage of Yingke Medical continues to strengthen: 1) the cost advantage continues to strengthen. Coal-fired indicators to ensure energy cost advantage; through Shandong Haode, Anhui Kaiser extension of the upstream layout, nitrile latex self-supply ratio continues to increase, strengthening the cost advantage of raw materials. 2) continuously promote the optimization of production process and production line automation, leading the industry in unit gram weight and line speed. 3) the advantages of sales and channel expansion are solid. With the supply and demand of the industry gradually over the most difficult stage, it is expected that the company's existing base capacity reserves and overseas capacity layout will continue to advance steadily, and will have the potential to become the leader in the global glove industry.

Risk factors: the price of raw materials rose; the price of gloves fell further due to the intensification of market competition.

Investment advice: industry oversupply and inventory surplus has been alleviated, is gradually entering the normal replenishment stage, demand is expected to gradually pick up, the industry is expected to usher in an upward inflection point. The company started to lead the rapid improvement of the industry, with the price of sets picking up, and the profit side is expected to improve steadily. In the medium and long term, Yingke Healthcare has significant advantages in cost, technology and channels. With the steady progress of the existing base capacity reserves and overseas capacity layout, the company is expected to have the potential to become the global leader of disposable gloves. Combined with changes in glove prices and changes in the company's equity (total equity is about 20 per cent higher than the previous forecast), we adjust the company's EPS forecast for 2022-2024 to 0.88 EPS 1.81 yuan (the original forecast for 2022-2023 was 4.66max 6.22 yuan, and 2024 is a new forecast). In terms of valuation, the one-time profits brought by the epidemic stage have caused a great disturbance to the valuation range of the relevant comparable companies in the industry, while with the disturbance of the epidemic basically faded, the supply and demand of related products and industries gradually returned to the relative balance before the epidemic. We believe that the valuation range of industry-related companies will be closer to that before the epidemic. We refer to the profit elasticity brought by the valuation center of Yingke Medical, Blue Sail Medical and Yuyue Medical before the epidemic (2017-2019), combined with the overall industry status, growth (we expect the company's income and net profit CAGR to be 19% and 44% respectively in 2022-2024) and the product price gradually moving closer to the pre-epidemic balance of supply and demand, we give the company 2023 30xPE, corresponding to the target price of 30 yuan. Maintain a "buy" rating.