INTCO MEDICAL(SZ:300677) SINOLINK SECURITIES·2024-07-15 00:30Investment Rating - The report gives a "Buy" rating with a target price of RMB 34.73 per share, based on a 22x PE valuation for 2024 and a 12-month target market cap of RMB 22.5 billion [19][106] Core Views - The company is a leader in the disposable glove industry, with significant advantages in production scale, cost control, and market share [13][38] - The company's revenue and profitability are expected to recover and grow steadily from 2024 to 2026, driven by capacity expansion, cost reduction, and rising export prices [19][81] - The company has a strong competitive position in the nitrile glove segment, with a leading market share and higher profitability compared to peers [38][157] Capacity and Expansion - The company has a total glove production capacity of 79 billion pieces, including 48 billion nitrile gloves and 31 billion PVC gloves, ranking first among domestic manufacturers [1][176] - The company plans to further expand its capacity in Anhui, Shandong, and Vietnam, with a target of reaching 64 billion nitrile gloves by 2026 [82][119] - The company has sufficient capital reserves to support its expansion plans, with a cash balance of RMB 7.22 billion as of 2023 [1][92] Cost Advantages - The company has vertically integrated into upstream raw materials, controlling two nitrile latex producers and investing in two others, which helps reduce procurement costs and improve product quality [70][162] - The company uses clean coal as its primary energy source, which is significantly cheaper than natural gas used by competitors, providing a cost advantage in energy consumption [5][165] - The company has invested in a cogeneration project in Anhui, which is expected to further reduce energy costs and improve efficiency [96] Market and Demand - Global demand for disposable gloves is expected to grow steadily, driven by increasing health awareness and stricter regulations in medical, industrial, and food sectors [58][174] - The company's export prices for nitrile gloves have shown signs of recovery, with the average export price reaching USD 16.57 per thousand pieces in May 2024, up 4.0% month-on-month [136][175] - Emerging markets, particularly China, have significant growth potential in disposable glove usage, with per capita consumption in China at only 9 pieces in 2020, compared to 317 in the Netherlands and 300 in the US [8][174] Financial Performance - The company's revenue is expected to grow from RMB 9.295 billion in 2024 to RMB 11.970 billion in 2026, with net profit increasing from RMB 1.022 billion to RMB 1.472 billion over the same period [3][81] - The company's gross margin improved to 20.65% in Q1 2024, higher than peers, and is expected to further increase to 21.4% by 2026 due to rising prices and cost reductions [1][81] - The company's ROE is projected to rise from 6.03% in 2024 to 7.61% in 2026, driven by improved profitability and efficient capital utilization [3][92] International Expansion - The company has established a production base in Vietnam to mitigate tariff risks and take advantage of lower labor costs, with a planned capacity of 8.82 billion gloves [49][172] - The company is accelerating overseas capacity expansion to reduce the impact of potential US tariff increases on nitrile gloves, which could rise from 7.5% to 25% by 2026 [76][172]