Article source: Zhonghong Medical

On January 31, Zhonghong Medical issued an announcement stating that the company plans to use part of the over-raised funds of 541 million RMB to acquire 70% of the equity of Guilin HBM Protections  Protections Co., Ltd. The acquisition of Zhonghong Medical is not accidental, but has been considered for a long time.

On April 27, 2022, Zhonghong Medical disclosed its first annual report after the first anniversary of its listing. In 2021, the company achieved revenue of 4.909 billion RMB, a year-on-year increase of 2.7%; the net profit attributable to the parent was 2.342 billion RMB, a gratifying result . The topic of “how to maintain competitiveness in a fierce market” was mentioned. Zhonghong Medical proposed a strategic plan of “high-end and differentiation” based on the global supply and demand market and changes in domestic production conditions.

It can be seen that this acquisition is actually a matter of course.

Then, as the target company, Guilin HBM Protections  Protections Co., Ltd. (hereinafter referred to as HBM Protections), what kind of strength does it have to win the favor of Zhonghong Medical?

Premium Joint

The core advantages of HBM Protections are strong.

As a leading latex company in China, HBM Protections has a strong core competitiveness.

HBM Protections mainly produces medical gloves, condoms, household gloves and industrial and military protective gloves. Among them, medical surgical gloves are the core business, accounting for 80% of the overall business. HBM Protections strives to develop into the world’s latex (including natural latex) within 3-5 years Latex and artificial latex) intelligent manufacturing center, and make medical gloves the first in the world, becoming a small giant in the industry.

The production capacity of latex surgical gloves ranks the first in China and the top three in the world.

Up to now, HBM Protections has built 20 advanced surgical glove production lines, with an annual output of 500 million pairs of latex surgical gloves. Its production capacity ranks first in China and top three in the world.

Obtained multi-national quality system certification

HBM Protections has obtained ISO13485 medical quality management system certification, ISO14001 environmental management system certification, and ISO9001 quality management system certification. The first latex glove manufacturer in the industry to obtain this certification, the Japanese Ministry of Health, Labor and Welfare certification, the China Council for the Promotion of International Trade export certification, the United Nations direct supply brand and many other certifications.

The product quality is excellent, and high-end products have entered overseas core markets

HBM Protections has more than ten years of technology accumulation, has advanced glove production and control system, high-precision inspection and control system, the product pass rate is over 98%, and the AQL value of impermeability is below 0.1, which is lower than the European and American standards ( 0.65), which is far lower than the domestic standard (1.5), the product quality is high and has gained a good reputation, and international companies have cooperated one after another.

At present, the high-end products of HBM Protections have entered the overseas core market. In addition to general surgical gloves, latex gloves have also independently developed polyisoprene (PI), protein reduced, wet hand wear, double-layer and double-color gloves, specialist gloves, Anti-virus gloves and other special products with higher added value and solving market pain points.

It is worth noting that HBM Protections is one of the only five companies in the world that can produce PI gloves. It is the only company in China that has mass production capacity and has obtained overseas certifications such as FDA and CE, and has realized the export to Europe and the United States.

Strong brand, certified by many countries

HBM’s protective products have passed the FDA certification of the United States. It is the first batch of medical device companies in China to obtain the CE new regulation (MDR) certification of the European Union. , China Council for the Promotion of International Trade export certification, the United Nations direct supply brand and many other certifications;

It has three major brands including Medispo, 麦迪斯, and 倍力乐. All of them are sold under their own brands in China, and more than 60% of them are sold under their own brands overseas. It is the first medical glove brand in China to enter the Chinese Winter Olympics epidemic prevention guarantee , The first Chinese medical glove brand to enter thirteen United Nations agencies, the first Chinese medical glove brand to enter the mid-to-high-end market in the United States, and the first Chinese medical glove brand to enter the Japanese Ministry of Health and Welfare. The first Chinese brand to enter the British NHS Department of Health.

Dedicated to the domestic market for 20 years, with considerable profitability

HBM Protections has been established for more than 20 years, with a well-established marketing system. Domestic customers include 400 domestic agents from various provinces and cities, Sinopharm systems, and large-scale hospital direct sales systems.

The gross profit margin of medical surgical gloves products is as high as 30%. The loss of the 15 production lines in the second phase during the trial production period in the first half of the year will affect the company’s net profit in the first half of the year in the short term. However, with the stable production in the second half of the year, the profitability has been greatly improved. According to the unaudited statement provided, the unaudited net profit for the whole year of 2022 is expected to reach 60-80 million RMB.

According to the HBM Protections evaluation report issued by the evaluation firm disclosed by Zhonghong Medical on the same day, part of the evaluation process and conclusions are predicted: 2023-2027, the estimated net profit is 7,971, 10,011, 10,213, 10,591, and 107.12 million It can be seen that HBM Protections  will have strong profitability in the future.

The powerful HBM Protections is bound to become the high-end jigsaw puzzle of Zhonghong Medical’s medical surgical gloves, providing a strong boost for Zhonghong Medical’s “differentiation and high-end”, which is also the main reason for Zhonghong Medical to join hands with HBM Protections one of the reasons.

HBM Protections as a high-end puzzle that help Zhonghong Medical to open up the market

Zhonghong Medical is one of the leading companies in the world for disposable protective gloves. According to the 2021 annual report of Zhonghong Medical, the revenue of protective gloves is about 4.9 billion RMB, accounting for 99.8% of the annual revenue, of which overseas sales are about 4.788 billion RMB , accounting for 97.71% of revenue.

The overseas market is the main battlefield of Zhonghong Medical. From 2017 to 2019, the overseas sales of Zhonghong Medical accounted for 97.91%, 96.06% and 93.67% respectively. Relying on excellent product quality and strong product production and supply capabilities, Zhonghong Medical has established relatively long-term and close relationships with customers in major regions such as the United States, Europe, Japan, South Korea, South America, the Middle East, Central Asia, East Asia, Southeast Asia, and Africa. We have cooperated with Cardinal Health, Mckesson, Itochu and other well-known clients for many years.

Medical gloves can be classified into latex gloves, nitrile gloves and PVC gloves according to different materials. Due to the cost advantage, latex gloves are currently the type with the highest market share in the domestic market (50% market share), followed by PVC gloves (30% market share), and the lowest nitrile (15% market share). Other gloves have relatively higher technical barriers.

In addition to the surgical glove production line, HBM Protections also has 4 condom production lines, with an annual production of 350 million high-quality condoms. At present, the third-generation flexible polyurethane (artificial latex) new production line is being planned, and it will become the global artificial latex condom production and R&D center.

Zhonghong Medical’s original glove products are mainly PVC and nitrile materials, but now Zhonghong Medical has merged with HBM Protections , making Zhonghong not only achieve a breakthrough in the field of medical surgical gloves, but also have a layout in the field of condoms , the production line is more complete.

The production capacity advantage of HBM protective medical surgical gloves will provide strong support for Zhonghong Medical’s breakthrough in the domestic market. The two parties will work together to explore the potential of the domestic market. and service providers, the strategic positioning of the first echelon of global medical gloves.

Powerful combination, potential energy superposition,

Consolidate Zhonghong Medical’s global leading position

After the merger, HBM Protections and Zhonghong Medical will be deeply integrated. The most important thing is to develop the blank market of Zhonghong Medical and further consolidate Zhonghong Medical’s overall leading position in the field of protective gloves.

As a listed company with a state-owned background, Zhonghong Medical has very strong financial strength. According to the 2021 annual report disclosed by Zhonghong Medical, Xiamen International Trade Holdings Group Co., Ltd. holds a 50.50% stake in Zhonghong Pulin Group Co., Ltd., the controlling shareholder of Zhonghong Medical. The ultimate actual controller of Hong Medical is Xiamen State-owned Assets Management Supervision Commission.

As one of the leading companies in the world for disposable protective gloves, Zhonghong Medical seized the market dividends under the epidemic and listed on the Shenzhen Stock Exchange on April 27, 2021. In 2021, the company’s protective gloves revenue will be about 4.9 billion RMB. Since then, Zhonghong Medical has been actively laying out new tracks. This joint venture with HBM Protectionsis an important part of the layout of Zhonghong Medical’s new track this year.

It is foreseeable that after the merger, the benefits of both parties will be further expanded, and the superposition of potential energy of 1+1>2 will be realized, which will bring more growth opportunities to both parties. The great cause of the development of the world latex intelligent manufacturing center.

The core strengths of this strategic combination lie in:

Firstly, the customer base of Zhonghong Medical has been expanded, important customers in the medical field have been added, and highly complementary sources of income have been added;

Secondly, it has enhanced the product portfolio of Zhonghong Medical, providing diversified choices, and a wide range of consumer-oriented products;

Finally, the scale and market scope were expanded to more than 70 countries.

“The merger with HBM Protections accelerates Zhonghong Medical’s growth strategy and underscores our commitment to provide world-class medical supplies to people around the world,” said Sang Shujun, Chairman of Zhonghong Medical. “Zhonghong Medical gained new high-profile clients, enhanced client coverage and scale, and an outstanding workforce that drives exceptional client experience through our core values of simplicity, speed, and agility. Post-integration, we It is expected that the development of the company will achieve new major breakthroughs”

“This transaction further advances the breadth, depth and ease of sourcing medical gloves for our customers,” commented Gordon Hu, co-founder of HBM Protections. “We are combining two highly complementary organizations with closely aligned core values and operating strategies to create one of the most innovative global disposable glove companies in the industry.”

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Guilin HBM Health Protections,Inc.

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