【Depth】Innovation is the development of new materials for shuttle weaving

Kang Longda is the leading domestic protective gloves. It was established in December 2006. At present, it is mainly labor-protective gloves, supplemented by ordinary protective gloves. The category covers wear-resistant gloves, cut-resistant gloves, tear-resistant gloves and impact-resistant gloves. , Anti-chemical gloves, anti-static gloves, heat-resistant cold gloves and other functional protective gloves.

R&D drives development, and the successful development of new materials opens up new space for development. The company focuses on the independent research on the production technology and process of polymer fiber new materials and supplies. From the perspective of input, the research and development expenses of the company were between 20 million and 27 million yuan in 2014-2017, and 26,523.60 million in 2017. The rate is 3.46%, which is higher than the average domestic peers and international leading Ansler. In terms of material research and development, the company owns a wholly-owned subsidiary Zhejiang Jinyu Special Fiber Co., Ltd., responsible for the research, development and production of ultra high strength and high modulus polyethylene fibers for cutting. With sales, currently launching new products of ultra-high-molecular polyethylene fibers, breaking the monopoly of the Royal Dutch DSM Group, the Dutch international new material giant, will have a huge potential for new material applications. In addition, in 2015, the company also established the Zhejiang Kanglongda Gloves Research Institute, which is responsible for a variety of special hand protection products, hand protection product new materials, new production process and method research and development, etc., and continuously enhance the intelligent and automated level of the production line.

Rising raw material prices suppressed short-term growth, a new generation of products was introduced, and a turning point in performance emerged. Due to bottlenecks in production capacity, CAGR of operating revenue from 2014 to 2016 was 6.71%, and operating revenue of 2017 was 767 million yuan, an increase of 7.15% year-on-year. However, product structure optimization, profitability improvement speeded up, and net profit attributable to females for 2014-2016. CAGR was 44.58%, and 2016 net profit increased by 49.74% to 93.76 million yuan. As a result of exchange rate fluctuations, net profit attributable to mothers in 2017 decreased by 22.94% year-on-year to 72.251 million yuan.

We believe that as the price of raw materials stabilizes, the company's new high-margin products will be replaced with new ones. The price of products will be upgraded and the turning point of performance will be established.

Domestic sales space and OBM business development open up new space for the main business. (1) Large domestic sales space and rapid growth. The company's overseas sales revenue grew steadily. In addition, the current domestic market for protective gloves has great potential. The company actively explored the domestic market. The average annual compound growth rate for domestic sales in 2014-2016 reached 30.37%, and the domestic sales revenue in 2017 reached 143 million yuan, an increase of 9.49% year-on-year, accounting for 18.59%. %. (2) OBM business progressed smoothly. At present, the company continues to provide innovative products and high-quality services. It strives to become a strategic business partner for OEMs and ODMs with more international brands, and sells its own branded products mainly through the United States GGS and Shanghai Kangsiman.

In 2014-2016, the company's OBM business income CAGR was 6.31%, and its sales revenue in 2016 reached 184 million yuan, a year-on-year increase of 6.68%, accounting for 26.01%.

In developed countries, the protective glove industry has grown steadily and the potential domestic demand is huge. The EU, the United States, and Japan are the major importers of functional protective gloves. The growth is stable. The total CAGR of the three countries from 2008 to 2015 was 6.36%. China is the main exporter of protective gloves. From 2008 to 2015, the CAGR of exports was 21.82%. In 2015, it reached 1.66 billion U.S. dollars, accounting for 50.72% of the world's total exports. It has become the world’s largest exporter. The penetration rate of functional protective gloves in China is relatively low. However, due to the large base of the employed population, there is a wide potential demand. According to our estimation, the demand for special gloves in the United States, the European Union, and Japan is approximately 790 million, 980 million, and 270 million pairs. According to the statistics of China's employment in 2015, it is estimated that China’s current annual demand is about 5.25 billion pairs. As the domestic industry regulations are not yet perfect, the potential for huge market development is still pending. In addition, given the advancement of industrialization in other developing countries, the overall demand for global functional gloves is still very large.

Based on the research and development of new materials, leading international leading companies Ansell and DSM are exploring new opportunities in the new model, multi-brand, and multi-category areas.

(1) Ansler Group: Established in 1905, the products cover industrial protective gloves, medical latex protective gloves, condoms and other civilian health protection products. In 2016, it had sales of 1.573 billion U.S. dollars and EBIT of 236 million U.S. dollars, which was the leading international health and safety protection industry. The Group's strength lies in its well-established OBM model, long-term focus on establishing global brands, and its multi-businesses have many global famous brands. The strategic focus is to ensure continuous growth through innovation, brand building, focus on the development of emerging markets, and improvement of process flow. With the help of outreach and acquisition, we will quickly open up and seize the international market, accelerate global production deployment, expand product categories, and provide customers with customized integrated solutions for security protection.

(2) Royal Dutch DSM: The 115-year-old global leader in life sciences and materials science, is active in the three major areas of health, nutrition, and materials. The company's high-performance materials are represented by Dyneema Dyneema, a high-end brand of UHMWPE. Dyneema fiber has superior properties such as tensile properties, nodule strength, abrasion resistance, and chemical resistance. It can be used as a substitute for traditional steel materials and aramid fibers in practical applications and has been recognized by the market. At present, as a global Dyneema provider, the company has developed a variety of product forms and six technology platforms. The downstream applications include marine engineering, heavy lifting, national defense law enforcement, labor protection, aviation, commercial fishing, sports and leisure, and other industries. 13 segments. Dyneema's sales revenue CAGR for 2011-2016 was 4.9%. Personal protection, labor insurance gloves and sports fields will be the bright spots for future growth.

The industrial chain has tremendous space for vertical and horizontal expansion. In the longitudinal direction, the company’s business structure is now “olive”—that is, the middle manufacturing process is strong, but the upstream materials, R&D, downstream brand building and sales channels are still to be developed. We believe that the company has huge scales both upstream and downstream of the industry chain. The extension space. The company's multi-functional, high-performance, high-performance, high-strength, high-strength and high-modulus gloves and other new materials for glove materials have been continuously developed. The downstream OBM business and sales channels have potential and are expected to introduce customized services. In addition to hand protection products, Sihl also includes other protective products (protective clothing, sleeves, aprons, etc.), condoms, and other product categories, taking into account the existence of Kanglongda in terms of customer groups, technical mastery, etc. compared with Ansell. With high comparability, there will be a wide range of future product categories.

Investment advice: The company is the leading domestic protective gloves for labor, and it is expected to be transformed from OEM/ODM to OBM based on the American company GGS and Shanghai Kangsiman in the future. The domestic market has huge development space. With reference to the industry leading Ansler experience, we believe that Kang Longda has a huge space for vertical extension of the industry chain and horizontal category expansion. With the advantages of the listed platform, Kanglongda is expected to achieve both endogenous and epitaxial dual-drive rapid development. Considering that the upstream raw material price increase will bring short-term cost pressure to the company in 2017, the company's consolidated gross profit margin in 2017 has decreased. We expect this impact to be reduced or eliminated in 2018. It is expected that the company will achieve a net profit in 2018-2019. 0.91 and 1.02 billion yuan, EPS was 0.73 and 0.81 yuan per share, corresponding to PE of 49 and 44 times, taking into account the inflection point of the company's performance was established upwards, and the potential for new products and new materials to be successfully developed corresponds to a huge potential, given "overweight." Rating.

Risk factors: The global economic fluctuations bring risks to the company's export business; exchange rate fluctuation risks; OBM business and domestic business development face operational management risks.