Investment logic

Global demand for gloves has resumed steady growth, and export prices have rebounded steadily. Looking at the export price of nitrile gloves, the export price of gloves continued to decline from the beginning of the decline in global demand in 2022 to the end of 2023, but there was a steady upward trend in prices in Q2 2024. According to data from the General Administration of Customs, the average export price of medical nitrile gloves reached 16.57 US dollars/1,000 units in May, up +4.0% from April, and has been increasing monthly month-on-month prices for 3 consecutive months. We judge that the main reasons include: 1) demand in the global glove market has resumed growth; 2) some old small and medium-sized production capacity has gradually been cleared under low prices. The company's capacity utilization rate continued to increase in the first half of 2024, and the order acceptance cycle has increased to 2 to 3 months. The trend of glove price recovery is expected to continue in the future.

The production capacity of nitrile gloves is leading, and the capital reserves for expanding production are abundant. Currently, the company has a total production capacity of 79 billion gloves, including 48 billion nitrile gloves and 31 billion PVC gloves. The production capacity ranking first among domestic manufacturers, and ranked first in revenue among major global glove manufacturers in 2023. The glove industry is also a capital-intensive industry. Large-scale construction of a glove factory requires a large amount of capital investment. The company currently has a clear advantage in the same industry with monetary funds on the books. In the future, in Anqing, Anhui, Qingzhou, Shandong, and overseas Vietnamese bases, workshop production line construction will be carried out in due course according to changes in market demand to release new production capacity. Compared with domestic competitors, the production capacity advantage is expected to expand further.

Take the lead in laying out upstream raw materials and energy projects, and cost advantages bring profit margins. The company's gross profit margin in Q1 2024 was 20.65%, showing a higher level of profit margin compared to the industry, mainly due to the manufacturing side's ability to reduce costs. In terms of raw materials, the company holds two nitrile latex manufacturers, Haode Plastics and Anhui Kaize, and continues to develop low-weight nitrile gloves to reduce raw material costs. In terms of energy, the company has obtained quotas for the use of clean coal for all production sites in operation. Compared with competitors using natural gas, etc., it has obvious advantages, and exclusively invested cogeneration projects will further reduce energy costs.

Profit forecasting and investment advice

We are optimistic about the company's development prospects in the field of gloves and medical protection. We expect the company's revenue in 2024-2026 to be 92.95, 10.801, 11.97 billion yuan, +34%/+11% year-on-year; net profit to mother of 1.022, 1.229, 1.472 billion yuan, +167%/+20% over the same period last year. Referring to the comparable valuation situation of listed companies in the same industry, considering the company's rapid future performance growth expectations and leading position in the domestic glove industry, the company was given a 22 times PE valuation in 2024, a target market value of 22.5 billion yuan within 12 months, and a target price of 34.73 yuan/share, covering the first time to give a “buy” rating.

Risk warning

Increased competition due to industry capacity expansion; risk of price fluctuation of upstream raw materials; risk of tariff policy changes; risk of exchange rate fluctuation