China's leading tire manufacturer. The company ranks third among the domestic tire manufacturers in the domestic replacement market for all-steel radial tires in 2017. Benefiting from the growth of the logistics market, the implementation of Belt and Road Initiative's strategy and its strategic relationship with Sinotruk, we expect revenue to increase during our forecast period. We expect the international replacement market and the domestic supporting market to continue to be the strongest revenue channel for the company.

International trade sanctions are the main risk, but the impact is limited through overseas expansion. The United States has imposed anti-dumping and countervailing duties on companies, and the Sino-US trade war will also expose companies to additional tariffs. However, we believe that growth in other markets can mitigate this risk. The establishment of Thai factories in 2020 will avoid additional tariffs.

We expect shareholder net profit from 2019 to 2021 to increase by 5.6% / 39.8% / 48.8% respectively compared with the same period last year. The continued improvement in shareholder net profit is mainly due to 1) supporting tire sales through overseas expansion and capacity expansion. We expect stronger growth after the Thai plant starts production in 2020; and 2) gross margin will continue to improve during our forecast period due to an increase in average selling prices and benefiting from economies of scale. Earnings per share will fall 11.7% year-on-year in 2019, mainly due to an increase in the number of shares after listing.

We have a "buy" rating for the first time, with a target price of HK $8.11, equivalent to 9.0 times 2019 price-to-earnings ratio and 6.4 times 2020 price-to-earnings ratio. Downside risks to the company include: 1) a sharp rise in international oil prices; 2) the possible failure of new business at Thai factories; and 3) more international sanctions on Chinese tire companies.