The leading tire frame material company, ushered in performance restoration and profit reversal. The company was founded in 2003 and initially focused on tire ring steel wire products. In 2012, the company's tire ring steel wire production, sales volume and market share ranked first among peers in the country. In 2021, the company acquired Shengtong Steel Cords to make up for the shortcomings in the steel cord business and form two main products: bezel steel wire+steel cord. In terms of performance, the company's revenue continued to grow. The revenue CAGR from 2020 to 2022 was 30%, mainly due to the expansion of production capacity and the integration of Shengtong Steel Cords, which led to continued sales growth. In 2022, the company's net profit lost for the first time since listing, due to factors such as weak market demand, rising raw material and energy prices, and low utilization of steel cord production capacity; 2023Q1-Q3 net profit turned into a profit, 162.73% year-on-year, due to a recovery in demand, a decline in the price of main raw materials, and a recovery in Shengtong steel cord production capacity.

The recovery in demand is driving the industry boom, and technological innovation drives concentration to increase the overall recovery of China's tire industry in 2023H1. According to statistics and surveys by the Tire Branch of the China Rubber Industry Association, 38 key tire member companies produced 249 million tires from January to May 2023, +13.22% over the same period last year. The 2023H1 rubber frame material industry is picking up steadily. According to statistics from the China Rubber Industry Association Skeleton Materials Professional Committee of the China Rubber Industry Association from January to May 2023, China's bezel steel wire and steel cord production were +11.35% and +12.15%, respectively. Looking at the competitive pattern, in terms of tire ring steel wire, as the industry enters a mature period, the market pattern has basically taken shape as companies with good product quality, continuous technology development capabilities, and strong financial strength are concentrated. In terms of steel cords, industry concentration increased after the company completed the acquisition and restructuring of Shengtong Steel Cords.

Develop overseas markets to increase revenue and reduce the cost of energy construction projects

The company actively innovates, promotes product optimization and upgrading, and leads industry standards. In December 2022, the self-developed new cable bezel steel wire was released. In 2023, it presided over the formal establishment of the revised ISO16650 bezel steel wire international standard, and successfully advanced to the WD stage (working group draft). The company's customers cover the world's leading tire companies and develop overseas markets with high-quality customer resources. 2023H1 overseas orders increased 58% year-on-year, exceeding 14% of domestic orders; from 2020 to 2022, the company's tire wire sales CAGR to the top five global tire companies was 33.65%, with a clear upward trend. The company lays out various energy self-sufficiency projects to promote cost reduction and efficiency. The company's photovoltaic project accounts for about 9.97% of the total electricity consumption in 2022, and the planned annual power generation capacity of the wind power project to be invested accounts for 60.86% of the total electricity consumption in 2022; the biomass steam project built by the company in 2023H1 can fully cover the company's current steam usage needs.

Investment advice

We expect the company's revenue for 2023-2025 to be $59.24, 65.46, and 7.167 billion yuan, respectively, +13.64%, +10.50%, and +9.48%; net profit to mother will be 1.10, 2.04, and 329 million yuan, respectively, +143.27%, +84.42%, and +61.79%. The PE corresponding to the current stock price is 29.83, 16.18, and 10.00, respectively. Consider that the company will actively launch innovative products, expand overseas markets to increase revenue, and at the same time promote cost reduction in energy self-sufficiency projects. We believe that after turning a loss into a profit in 2023, the company's performance will maintain a high growth rate and be covered for the first time with a “buy” rating.

Risk warning

Risk of downstream demand falling short of expectations, risk of fluctuations in raw material prices, risk of market competition, risk of policy adjustments