Key points of investment

Incident: Triangle Tire released its 2019 annual report. During the reporting period, the company achieved operating income of 7.941 billion yuan, an increase of 5.72% over the previous year; achieved operating profit of 994 million yuan, an increase of 79.23% over the previous year; achieved net profit attributable to shareholders of listed companies of 847 million yuan, an increase of 75.38% over the previous year; and achieved basic earnings per share of 1.06 yuan, +76.67% over the same period last year. Based on the latest total share capital of 800 million yuan, we achieved diluted earnings of 1.06 yuan per share and achieved net operating cash flow of 1.72 yuan per share.

At the same time, the company released its 2020 quarterly report. During the reporting period, the company achieved operating income of 1,811 million yuan, a year-on-year decrease of 3.82%, a decrease of 11.14% over the previous year; realized operating profit of 193 million yuan, an increase of 5.46% over the previous year, a decrease of 24.90%; realized net profit attributable to shareholders of listed companies of 160 million yuan, an increase of 5.35% over the previous year, a decrease of 30.13% over the previous year; and achieved basic earnings of 0.20 yuan per share, +5.26% year-on-year. Based on the latest total share capital of 800 million yuan, we achieved diluted earnings of 0.20 yuan per share and achieved net operating cash flow of 0.35 yuan per share.

Covered for the first time, giving it a “prudent increase in holdings” rating. The increase in sales volume of the Triangle Tire industry in 2019 led to a year-on-year increase in operating income, and the reduction in raw material prices and lower procurement costs led to an increase in gross margin. The average sales price of tires in Q1 in 2020 fell year on year, dragging down the company's revenue year on year, and gross margin remained high due to lower raw material prices.

Triangle Tire is a leading commercial vehicle tire company in China. The company has entered well-known commercial vehicle supply chain systems such as Caterpillar Corporation and Volvo Construction Machinery Corporation of the United States. In order to be closer to users and markets and circumvent trade barriers, preparations for the company's US base are being carried out in an orderly manner. With the construction of new production capacity and the gradual development of downstream customers, the company's tire production and sales volume are expected to continue to grow, and its market share is expected to continue to expand. We expect the company's EPS forecasts for 2020 to 2022 to be 1.08, 1.17, and 1.25 yuan, respectively. First coverage, giving an investment rating of “prudently increasing holdings”.

Risk warning: Risk of large fluctuations in raw material and product prices; risk of a sharp decline in the prosperity of the tire industry.