Pulin Chengshan's shareholder profits rose 6.1 per cent year-on-year to 261 million yuan in the first half of 2019, roughly in line with expectations. In the first half of 2019, tire sales rose 10.4 per cent year-on-year due to 13.6 per cent year-on-year growth in all-steel radial tires and 4.8 per cent year-on-year growth in semi-steel radial tires. As a result, revenue grew by 8.8% year-on-year. With the continued expansion of international business, sales of international dealers increased by 23.2% compared with the same period last year. Sales in the United States have declined due to a decline in sales to branded customers and the negative impact of tariffs. Gross profit margin remained stable at 19.2%.

We have adjusted our profit forecasts for shareholders from 2019 to 2021 by 3.1% / 0.1% /-3.6% respectively. After seeing the capacity expansion of all-steel and semi-steel radial tires, we raised our sales forecast for 2019. However, as the upward pressure on oil prices continues, we expect rubber prices to fall, so we slightly lower the average selling price assumption.

We maintain our "buy" rating and lower our target price to HK $7.90, equivalent to 8.5 times 2019 earnings and 6.2 times 2020 earnings. 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.