Incident company released its 2020 annual report, achieving revenue of 13.84 billion yuan (+564.29%), net profit of 7.07 billion yuan (+3829.56%), net profit of 7.00.6 billion yuan (+4045.04%), EPS of 21.98 yuan/share; net operating cash flow of 8.59 billion yuan (+2505.62%) for every 10 shares; it plans to distribute a dividend of 30 yuan (tax included) for every 10 shares, using capital provident funds to increase 5 shares for every 10 shares.
The pandemic has driven an explosion in demand for personal protective products, and disposable gloves have achieved rapid growth. The global COVID-19 outbreak has brought about a surge in demand for personal protection. Sales of disposable gloves products have increased dramatically, and product prices have risen dramatically. As a leading domestic disposable glove manufacturer, the company's performance has grown rapidly. In 2020, the company's personal protection business achieved revenue of 13.45 billion yuan (+660.23%), and sales of disposable gloves reached 24.764 billion units (+50.27%). Benefiting from a clear increase in product prices, the company's gross margin and net interest rate increased dramatically, by 44 percentage points and 42 percentage points respectively over the same period last year.
Demand may continue for a long time. The company is actively expanding production capacity, and performance is expected to remain at a high level. According to Frost&Sullivan's forecast data, global disposable glove sales will only increase from 0.53 trillion in 2019 to 1.29 trillion in 2025, with a compound growth rate of 15.9%. We believe that with the strengthening of public health prevention and control, increased awareness of health protection, and strategic reserves, the demand for disposable gloves is expected to continue for a long time. The company's disposable gloves production capacity increased from 19 billion in 2019 to 36 billion at the end of 2020. At the same time, it also expanded new production capacity in Jiujiang in Jiangxi, Huaining in Anhui, Yueyang in Hunan, and Zibo in Shandong, with a total production capacity of about 170 billion pieces. The total production capacity is expected to exceed 130 billion in 2022.
According to Frost&Sullivan data, the company is currently the largest supplier of disposable gloves in China and the third largest in the world. We believe that in a situation where the gap between supply and demand persists for a long time, the company has advantages such as equipment integration, technology research and development, and location costs, and its performance is expected to remain at a high level.
Rehabilitation and nursing products are growing steadily. The concept of old-age care has brought long-term benefits to the rehabilitation and nursing business to achieve revenue of 210 million yuan (+5.08%) in 2020. The company is actively technologically transforming the existing wheelchair production line and seeking high-end and customized development. As the aging process of the population accelerates, the concept of old-age care has continued to rise in popularity in recent years, and the rehabilitation and nursing business is expected to grow steadily.
As a domestic disposable glove leader, the investment advice company has various aspects such as equipment integration, technology research and development, and location costs. Its advantages are expected to continue to benefit in the context of a long-standing gap between supply and demand. We expect the company's net profit from 2021 to 2023 to be 140.9/117.2/9.70 billion yuan respectively, and the corresponding EPS is 40/33/26 yuan respectively. The current stock price corresponding to PE is 4.5/5.4/7.0X. We are optimistic about the company's development prospects and maintain the recommended rating.
Risks indicate the risk that market demand falls short of expectations, that capacity expansion falls short of expectations, and that the decline in product unit prices exceeds expectations.
