Event: The company released the 2023 annual performance forecast report. It is expected to achieve net profit of 98 to 1.18 billion yuan in 2023, an increase of 150% to 200% over the previous year. Among them, 2023H2 is expected to achieve net profit of 653-853 million yuan, a year-on-year increase of 178%-263%, and an increase of 100% to 161% over 2023H1.
Demand in the tire industry recovered in 2023, the company optimized its business structure, and product sales increased dramatically. According to data from the National Bureau of Statistics and the General Administration of Customs, in 2023, domestic rubber tire production totaled 990 million, up 15.5% year on year; exports totaled 620 million pieces, up 11.6% year on year, and tire consumer demand rebounded significantly. The significant increase in the company's profits mainly benefited from domestic economic recovery and increased demand from overseas markets, and demand in the tire industry recovered significantly. By seizing market opportunities and continuously adjusting the product structure and business structure, the company achieved a significant increase in product sales. Throughout 2023, the company achieved 25 million tire sales, an increase of 35.1% over the previous year.
Raw materials declined in 2023, and the company's profitability increased. According to our statistics, the average price index for tire raw materials in 2023 was 110.9, down 6% from the 2022 average of 118.0. Benefiting from lower prices for some raw materials, the company's gross margin improved significantly in 2023. As of February 1, 2024, the tire raw material price index was 111.2, a slight increase of 0.3% from the 2023 average. Raw material prices were relatively stable in January 2024.
Thailand's tax rate has declined, and there is room for future performance to improve. In January 2024, the tax rate for passenger car and light truck tires exported from the company's Thai base to the US was reduced from 17.06% to 4.52%. 2023H1, judging from the company's revenue share of each region, mainland China, America, Asia (excluding mainland China), Africa, the Middle East, and other countries accounted for 40%, 24%, 9%, 10%, 10%, and 7% respectively. For 2022H1 and 2023H1, about 56.2% and 44.5% of the company's overseas revenue came from Thai tire production sites, respectively. The reduction in the Thai base tax rate is expected to drive the company's order volume to the US to pick up and improve performance.
Profit forecast and rating: The company's net profit CAGR for 23-25 is expected to be 53.4%. Considering that the company continues to strengthen its global layout and optimize the distribution channel layout, the variety of new products and the reduction in the tax rate at the base in Thailand, future performance is resilient. The company was given a six-fold valuation in 2024, corresponding to a target price of HK$12.75, maintaining a “buy” rating.
Risk warning: exchange rate risk, international trade friction risk, raw material price fluctuation risk.