Exceeds 2.84x Net Profit Growth! Yingke Medical's Global Market Share Expected to Rise

"Glove Mao" Yingke Medical (300677.SZ) has disclosed its latest operating performance.

For the first three quarters of 2024, the company achieved a revenue of 7.098 billion yuan, a year-on-year increase of 40.79%; net profit attributable to the parent company was 687 million yuan, a year-on-year increase of 107.79%; net profit after deducting non-recurring gains and losses was 601 million yuan, a year-on-year increase of 284.21%.

Thanks to the increase in orders and sales volume, the company's profitability has continued to improve since 2024.

Looking at the single quarter, in 24Q3, the company's revenue was 2.586 billion yuan, a year-on-year increase of 48.04%; net profit attributable to the parent company was 100.4 million yuan, a year-on-year increase of 166.45%; net profit after deducting non-recurring gains and losses was 114 million yuan, a year-on-year increase of 890.84%.

This was achieved despite an increase in exchange losses.

In the third quarter of this year, the Federal Reserve began a rate-cutting cycle, causing the US dollar to depreciate. As Yingke is an export-oriented enterprise, its foreign sales are mainly settled in US dollars, and the company suffered certain exchange losses during the reporting period.

Advertisement

Due to exchange losses and increased interest expenses, the company's financial expenses for the first three quarters of this year were -35.1378 million yuan, an increase of 91.42% compared to the same period last year's -409 million yuan.

It can be said that exchange losses due to the depreciation of the US dollar have had a certain impact on the company's performance.

However, according to the central bank's data on October 28, 2024, the midpoint rate of the Chinese yuan against the US dollar was reported at 7.1307, which has already recovered compared to the midpoint rate of 7.0074 on September 30, 2024.Similarly, as the US dollar appreciates, it will offset previous foreign exchange losses, thereby having a positive impact on the company's performance.

The gross margin on sales has rebounded for six consecutive quarters.

Disposable gloves are the core business of Yingke Medical, mainly including disposable nitrile gloves, disposable PVC gloves, and disposable PE gloves. The products are sold to more than 120 countries and regions in America, Europe, Asia, Africa, and Oceania, serving more than 10,000 customers worldwide.

In fact, over the past three years, more than 80% of Yingke's revenue has come from overseas. From 2021 to 2023, the contribution of overseas revenue was 84.76%, 82.84%, and 86.87%, respectively.

In terms of the proportion of overseas revenue by region, since 2024, the non-North American market has grown rapidly, especially in the European market, the Middle East, and South America. Among them, the proportion of the European market is basically equivalent to that of the United States, at about 35%-40%.

According to Yingke's disclosure, the European market is growing very rapidly. The production capacity of the two workshops that the company plans to put into production in October and November has also been completely absorbed by the market, and the price and gross margin in that market are basically the same as in the United States.

A fact is that after nearly two years of destocking, the industry's downstream backlog of inventory has entered the final stage of digestion since 23H2.

By 24Q1, the inventory has been digested, demand has picked up, prices have been repaired, and the capacity utilization rate of leading companies in the industry has increased.

Customs data show that since February 2024, the export price of medical nitrile gloves has increased month by month, reaching $17.7 per thousand in August, a 13.97% increase from $15.53 per thousand at the beginning of 2024 (the increase in June was 8.2%).

It is worth mentioning that 64% of Yingke's existing production capacity is for disposable nitrile gloves.This has also led to Yingke's sales gross margin increasing for six consecutive quarters, with the figures for 23Q2-24Q3 being 13.42%, 16.42%, 16.46%, 20.65%, 23.09%, and 23.37% respectively.

Yingke Medical stated in its investor relations event on August 29th that, based on the current order backlog and the order prices for the fourth quarter, there is an upward trend in pricing.

Nitrile gloves contribute to the increment

Nitrile gloves offer better elasticity and fit compared to PVC gloves, and higher safety compared to natural rubber gloves, making them the mainstream product in the incremental market for disposable gloves.

According to Frost & Sullivan, it is expected that the proportion of nitrile glove sales in the global disposable glove market will increase from 35.2% to 37.1% by 2025; moreover, according to Sullivan, the CAGR for nitrile glove sales from 2022 to 2025 is expected to be 12% (industry average 10%).

Another "favorable timing" is also emerging here, with the production center for disposable nitrile gloves gradually shifting from Southeast Asia to China in recent years.

According to a research report by Zheshang Securities, the combined production capacity of the top three manufacturers of nitrile gloves in China increased from 23 billion pieces in 2019 to 88 billion pieces in 2023 (a 3.8-fold increase), and the total production capacity for disposable gloves increased from 46.7 billion pieces to 154.5 billion pieces (a 3.3-fold increase). During the same period, the total production capacity of the top four manufacturers of disposable gloves in Malaysia increased from 159.7 billion pieces to 207 billion pieces (only a 1.3-fold increase).

As early as 2012, Yingke Medical had entered the field of nitrile gloves.

By 2023, Yingke's annual production capacity for disposable gloves increased from 75 billion pieces to 79 billion pieces. Among them, the annual production capacity for disposable nitrile gloves is 48 billion pieces, and for disposable PVC gloves is 31 billion pieces. At the same time, the company is steadily advancing the construction projects in Anqing, Anhui, and Vietnam.

In fact, Yingke's market share in China and globally is already among the top ranks.According to calculations by Zheshang Securities, in 2023, Yingke's nitrile gloves and disposable gloves (PVC) have global market shares of 19% and 11%, respectively.

This market share level will continue to rise with the company's capacity expansion.

As revealed by Yingke Medical in its investor relations event on August 29, the Anqing base in Anhui will start production of one nitrile workshop at the end of October and another at the end of November this year, adding a total of 8 billion annual nitrile capacity.

This will further propel Yingke towards becoming the global leader in nitrile gloves.

With industry prosperity, there is a strong potential to continue to achieve alpha.

This is not an empty claim!

Compared to Malaysia, China has advantages in supply chain, energy, and significant manufacturing cost; at the same time, in recent years, the newly expanded capacities of Chinese manufacturers have been more advantageous than many high-cost and outdated capacities in Malaysia.

This will further accelerate the trend of the disposable glove industry shifting towards China and concentrating among the top players.

A key fact is that Yingke's disposable nitrile glove production lines were mostly built and put into operation after 2020, featuring more advanced technology, higher line speeds, lower weight, and stable operation, with significant competitive advantages.

Especially with the start of production at the Jiangxi base, Yingke has built the third-generation nitrile double-mold fully automatic production line, which has higher production efficiency and lower energy consumption, giving the company's products a greater cost advantage.According to a research report by Zheshang Securities, the company's annualized production capacity for the year 2021 is over 80% composed of the third-generation line, achieving a global leading level in terms of technological equipment, automation, and cost control capabilities, with the quality rate of glove products maintained at over 99%.

Furthermore, by controlling two nitrile latex production companies, Haode Plastics and Anhui Kaizer, the self-sufficiency rate of raw materials for Yingke has reached over 80%. Amid the continuous rise in raw material prices this year, self-sufficiency has effectively reduced the premium of raw material price increases.

Yingke is also the only company in the industry that primarily relies on self-supplied raw materials, further solidifying its cost advantage.

With this, Yingke has been the first to restore a higher level of profitability. In the first half of 2024, the company's gross margin and net profit margin were 21.9% and 13.12%, respectively, significantly outpacing Lanfan and Zhonghong.

In the first three quarters of this year, Yingke's gross margin further rose to 22.43%, 9.57 percentage points higher than Zhonghong, whose non-IFRS net profit has not yet turned around.

The global demand for disposable gloves is recovering and entering a new cycle of prosperity. With the support of industry beta, Yingke Medical's global market share is expected to further increase, continuously outperforming the alpha.