We have been deeply involved in functional security gloves for many years and have established a leading position in the industry. The company was founded in 2004. Currently, it is mainly engaged in the production and sale of security products and new polymer materials. The sales channels are mainly direct sales. Product sales cover domestic and foreign markets, and the products it operates include functional safety gloves, ultra-high molecular weight polyethylene fiber materials, etc. In 2023, the company achieved revenue of 977 million yuan, an increase of 9.39% over the previous year, including 940 million yuan of functional safety gloves, driving the company's revenue to continue growing. In 2023, the company achieved net profit of 106 million yuan, a year-on-year decrease of 13.05%, mainly affected by factors such as product restructuring.
The market demand for security products and new materials is growing, and the market prospects are broad. Security supplies, represented by functional safety gloves, are in high demand in markets with strong security awareness such as Europe, America, and Japan.
China is the world's largest exporter of hand safety protective equipment. In 2022, the export value of functional safety gloves was US$38.36 billion, accounting for 59.35% of the world's total imports. Demand for ultra-high molecular weight polyethylene fibers in China has continued to grow in recent years, and there is a large market gap. In 2020, the country's total demand was about 491,000 tons, and the actual output was only about 21,000 tons. Leading companies quickly occupy the market with their high level of technology, sales channels and brand effects, and industrial concentration is expected to increase further in the future.
Continuously optimize brand marketing strategies and promote intelligent digital production transformation. In terms of sales model, the company promotes simultaneous efforts of independent brands and ODM/OEM, and actively explores domestic sales markets while deploying to emerging overseas markets. In terms of brand strategy, the company has launched independent brands such as Quansheng for the domestic sales market, and at the same time adopted “one enterprise, one policy” to actively meet the needs of major customers. In terms of R&D and design, the company is deeply involved in the core technology and technology of functional security gloves, and R&D investment has been further increased through industry-academia integration and the establishment of research institutes. In terms of intelligent production, the company established Hengkun Intelligent Equipment Company to serve internal production, achieve deep integration of flexible management and intelligent production, improve production stability, reduce production costs, and promote the company's digital transformation.
The Glove Smart Factory promotes cost reduction and efficiency, and issues convertible bonds to expand production of new materials. In terms of security gloves, as users' awareness of security generally increases, the industry is growing well in the future, and the company's penetration rate in the domestic market is expected to continue to increase. The company has set up new intelligent factories in Vietnam and China, which is expected to reduce costs and increase efficiency and further expand the global market. In terms of new materials, the company issued convertible bonds for the construction of 4,800 tons of new ultra-high molecular materials, which will promote the expansion of production capacity of new materials. The future application fields of new polymer materials are broad, and the industry prospects are good profit forecast and investment ratings: We are optimistic that the company's functional protective gloves will have more room to grow, and the rapid growth of the UHMW polyethylene business will contribute marginal increase. It is predicted that the company will achieve revenue of 13.75/18.97/2,469 billion yuan in 2024-26, an increase of 40.7%/37.9%/30.2%, to achieve net profit of 1.79/2.52 /339 million yuan, up 69.5%/40.3%/34.6%. There is plenty of room for performance growth. The current stock price is 14.93 times PE in 2024, which is at a lower level compared to the industry. For the first time, it covered a “buy” rating, and is highly recommended.
Risk factors: risk of trade friction, risk of RMB exchange rate fluctuations, risk of new business expansion falling short of expectations, etc.