1. Malaysia's epidemic is raging, and the two leading domestic medical glove companies are the first to benefit;
2. Lanfan Medical is at an important turning point.
The global epidemic is still repeating. Recently, confirmed cases of mutant new crown virus have appeared in the United Kingdom and South Africa, and domestic stocks benefiting from the epidemic have risen again.
In November of this year, the world's largest rubber glove supplier in Malaysia ceased production due to the epidemic, and the supply of medical gloves was in short supply. Domestic Blue Sail Medical and Intech Medical took this opportunity to expand their production capacity to seize market share. Nitrile gloves are expected to replicate the industrial transfer path of PVC gloves in the future, and their production capacity will be transferred domestically.
Some experts revealed that the protective glove industry is still in a period of rapid growth, and the shortage of medical gloves in the global market will be normal in the short to medium term. The price of medical gloves has increased since the beginning of the year. The ex-factory price of PVC gloves has increased from RMB 0.08 to the current RMB 0.5, and the ex-factory price of nitrile gloves has increased from RMB 0.15 to RMB 0.9.
At present, in the protective glove industry, latex gloves have the highest market share (50% market share), followed by PVC gloves (30% market share), and nitrile again (market share 15%). In 2019, the global sales volume of medical gloves was 327.6 billion, and the market size was about 131 billion yuan. According to the statistical analysis of the China Plastics Association and the Malaysian Glove Industry Association, before the epidemic, the average annual compound growth rate of PVC gloves was about 3%, and the average annual compound growth rate of nitrile gloves was about 8-10%.
Nitrile gloves have good performance, high safety, and a broad market. They are widely used in medical, health, food, electronics, inspection and other fields, and are the mainstream direction of future development. The Malaysian Glove Industry Association stated that the demand for rubber gloves will grow by 20% in 2020, and the expected growth rates will be 25% and 15% in 2021 and 2022, respectively.
Previously, Malaysia and Thailand were the world's most important medical protective gloves production areas. In 2019, Malaysia's production of protective gloves accounted for about 2/3, Thailand accounted for about 18%, and China accounted for about 10%. Among them, Malaysia's TopGlove is the world's largest manufacturer of nitrile, latex and surgical gloves.
However, on November 24, TopGlove accumulatively more than 2,000 workers were diagnosed with the new crown virus. The company announced that some factories were closed. According to analysis, this move will reduce Top Glove's production capacity by 50%. On December 14, Malaysia's second-largest glove manufacturer Hartalega in Kuala Lumpur revealed that 35 employees were diagnosed with the new crown virus, further reducing the supply of Malay gloves.
Blue Sail Medical and its four business divisions
The domestic nitrile glove industry started late. The technology and production lines are mainly from Malaysia, but the industrial facilities, production costs, environment, and talent reserves have significant competitive advantages over Southeast Asian countries. Domestic large-scale nitrile glove companies include Intech Medical, Blue Sail Medical, Shijiazhuang Hongrui, Zhonghong Purin and other companies. On November 10, 2020, Zhonghong Purin's IPO was approved and proposed to be listed on the GEM, or it will become my country's third listed company in the disposable health protection product industry.
Today we are going to focus on the analysis of "the world's largest manufacturer of PVC gloves" Lanfan Medical. All benefited from the surge in demand for anti-epidemic supplies, but Intech’s stock price has risen by 14 times year-to-date, and Lanfan has only risen by less than two times. What is the problem with Lanfan?
Since the beginning of this year, Blue Sail Medical Gloves has been expanding production, collecting stents, and deploying first-aid kits. The original heart stent business is about to be spin-off and listed, and the business is on the eve of important transformation.
In the protection division of Blue Sail Medical, nitrile gloves and PVC gloves are the two main products. New items include latex surgical gloves and TPE gloves, which are mainly used in medical inspection and protection, food processing, and electronics industries.
Some experts analyzed that due to the cost advantage, domestic nitrile gloves will have a competitive advantage and will maintain a gross profit margin of more than 20%. Coupled with the direct sales channels developed during the epidemic, Blue Sail's glove production capacity will provide a source of sources in the post-epidemic era Constant cash flow.
In terms of production capacity, Lanfan currently has a production capacity of 20 billion PVC gloves, more than 6.5 billion nitrile gloves, 2 billion TPE (plastic rubber) gloves, and a total glove production capacity of more than 30 billion.
On the evening of December 4, Lanfan issued an announcement stating that its subsidiary Shandong Lanfan Health Technology Co., Ltd. planned to invest 2.45 billion yuan to build a high-end health protection nitrile glove project with a production capacity of 20 billion pieces per year in Linqu, Shandong.
The minutes of Lanfan’s November performance exchange meeting mentioned that from September and October to the present, the price of nitrile gloves has stabilized at 130-140 dollars per box (1,000 pieces), and the gap in the supply of gloves in the United States this year has reached 100-150 billion. . Even if the above-mentioned projects are completed and put into production, it is still far from satisfying the continued strong demand for protective gloves in the global market.
Speaking of medical glove companies, we have to mention Incorporated, the glove leader with amazing stock price performance this year.
Both Intech and Lanfan come from Zibo City, Shandong Province, which is close to Qilu Petrochemical, a supplier of raw materials and energy. The two companies are on the same street, and the straight-line distance is only 500 meters.
Before 2020, whether from the perspective of revenue, profit or market value, Blue Sail Medical has always stabilized Intech Medical. In 2019, Blue Sail Medical had a revenue of 3.485 billion yuan and a net profit of 493 million yuan; Ingram Medical had a revenue of 2.083 billion yuan and a net profit of 178 million yuan.
However, this year, Lanfan was quickly overtaken by Intech. What is the reason for this?
In the glove business, Inco has advantages in the production capacity and technology of nitrile gloves. Inco gloves are lighter and the cost is about 10% lower than that of Lanfan. Taking the key indicator of weight as an example, Founder Securities Research report shows that the weight of nitrile gloves from Incorporated Medical’s new factory is 2.6 grams, second only to Hetejia’s 2.5 grams globally, and far better than Lanfan Medical’s 4.4 grams. .
The proportion of Inco nitrile gloves continues to increase, but Lanfan still uses PVC gloves. Comparing the total production capacity and structure of Lanfan and Intech in the first three quarters, Lanfan has a total production capacity of 27 billion pieces, of which more than 20 billion PVC gloves and only about 7 billion nitrile gloves; during the same period, the total production capacity of Intech is 28 billion, of which 17 billion PVC gloves and 11 billion nitrile gloves.
This year, "benefiting" from the epidemic, demand and prices have increased significantly. The United States, the largest exporter of Intech, has exempted 15% of tariffs, further accelerating the outbreak of Intech's performance.
In addition, Ingram Medical’s channel advantages make its pricing more flexible. Intech mainly focuses on small and medium customers, and has a strong bargaining power, and prices have risen significantly; while Lanfan focuses on large customers with limited price increases.
In addition, Malay manufacturers have accelerated their production recovery and orders may return.
Malaysia's Top Glove and other major companies have an annual production capacity of more than 40-50 billion pieces of nitrile, and the national annual production capacity of nitrile gloves is nearly 200 billion pieces. They have the pricing power and major customer resources, and due to the advantages of integration, the overall cost is also It is lower than that in China, and production capacity may be quickly restored after the domestic epidemic has passed, affecting the sustainability of domestic manufacturers' performance.
Raw materials for nitrile gloves account for about 50% of the total cost. The main raw material nitrile latex comes from petrochemicals. Therefore, upstream raw material suppliers are very important to glove manufacturers.
On November 30, Qixiang Tengda (002408.SZ) announced that the company and Lanfan Medical have signed a strategic cooperation framework agreement. From December 1 to December 31, Qixiang Tengda will sell carboxyl nitrile latex to Lanfan Medical. Not less than 30,000 tons.
Public information shows that Qixiang Tengda’s 200,000-ton/year nitrile latex project is expected to have a total investment of 680 million yuan. It will be constructed in two phases. The first-phase production line of the project will start construction on August 9th, and it will be commissioned on November 17th. The total production time is only 100 days.
This is directly related to the rising demand for nitrile latex. According to market sources in the chemical industry, the market price of nitrile latex has soared to more than 25,000 yuan per ton, and there are no goods available, and the factory is in full production. The commissioning of the Qixiang Tengda nitrile latex project will help fill the market gap. Quickly lock in market profits and seize market share.
The demand for gloves will not decrease significantly in the short term
Companies such as Blue Sail Medical and Intech have expanded their production rapidly. We can't help but wonder whether medical gloves will soon be overcapacity. Can high prices and high demand continue?
With reference to the mask industry after the outbreak, demand surged at that time. At the beginning of the year, a number of companies such as Sinopec, BYD, and Wuling all entered the production of masks. The production capacity of masks increased rapidly from 20 million per day last year to 200 million, and prices fell quickly.
Due to the small footprint requirements and relatively simple process of mask production, the supply of raw materials (PP polypropylene melt blown cloth) and the establishment of production lines can quickly increase the volume. Unlike masks, gloves cannot temporarily increase production. There are investment thresholds, production technology and process barriers, and new capacity is limited and quantitative. It is understood that it takes 8 million yuan to invest in a PVC two-hand mold production line, and a nitrile two-hand mold production line requires 20 million yuan; the general use and color of gloves requires 10 initial investment, and the production cycle generally takes 12-18 months.
In addition, gloves are just-needed consumables. Except for the medical field, the demand in other fields is also strong. Even if the epidemic is over, the demand will not decline by a cliff. Thanks to the growth of the 3C product market, in the electronics factory, for example, each worker consumes at least 4 pairs of PVC gloves a day, and Foxconn alone consumes more than 700 million pairs of gloves a year.
Therefore, the demand for gloves will not decrease significantly in the short term. Coupled with the recent expansion of the epidemic, the Malay epidemic has expanded the gap between supply and demand, further prolonging the high price of medical gloves. The Malaysian Glove Industry Association stated that the demand for rubber gloves will increase by 20% in 2020, and the global demand for medical protective gloves will reach 331 billion pieces. In 2021 and 2022, the demand for protective gloves will continue to grow rapidly, and the growth rates are expected to be respectively 25% and 15%.
All in all, gloves are a good business. Blue Sail Medical, which has many problems but is obviously benefiting from the epidemic, is at an important turning point. The market has mixed praise and criticism for this, and it seems that it is underestimated in terms of its stock price. We will continue to pay attention to the success of Blue Sail's cross-track expansion strategy and the future performance of the glove business.