Incident: On March 11, the company announced investment in the construction of an “Indonesian project with an annual output of 3.6 million radial tires and 37,000 tons of off-road tires”.
Accelerate the deployment of overseas production capacity, and the globalization process is becoming more and more perfect. On March 11, 2024, the company announced the layout of the Indonesian base. The layout has a production capacity of 3 million semi-steel tires; 600,000 tires per year for all-steel tires, 37,000 tons/year for off-road tires, and a construction period of 21 months (expected to be put into operation by the end of 2025), fully achieving an estimated net profit of 470 million yuan after delivery. Earlier, in December 2023, the company announced the layout of the Mexican base and planned production capacity of 6 million semi-steel tires per year, achieving an estimated annual net profit of 40.59 million US dollars after delivery. The Mexican base is close to the North American market and is not easily affected by tariff barriers. In January 2024, it was announced that an additional investment in the Cambodian base will be added to the production capacity of 12 million tires per year. After all production is completed, the Cambodian base will have an annual production capacity of 21 million semi-steel radial tires and 1.65 million all-steel radial tires. The increase in production is expected to bring a net profit of 700 million yuan/year. As the company's overseas layout continues to expand, the company can better meet the needs of overseas markets and further improve its ability to cope with international trade barriers. As the company's market share in overseas regions gradually increases, its profitability will continue to increase.
Off-road tires will become a new growth point for the company. The company has been deeply involved in the field of off-road tires for many years. In 2016, it produced the world's largest 63-inch giant radial tire, becoming one of the few domestic enterprises with the largest production capacity for giant tires. The company currently has off-highway production bases in Qingdao, Weifang, and Vietnam, with a total production capacity of 132,900 tons by the end of '22. The company is building a base to expand production in Weifang, Qingdao, Dongjiakou, Vietnam, and Indonesia. Production is expected to reach 185,200 tons by the end of 2023. In the next few years, the company plans to continue to expand off-highway production capacity, with a total production capacity of 427,000 tons. As the company's production capacity is gradually implemented, off-road tire products with high gross profit and high technical barriers will further enhance the company's competitiveness.
Profit forecasting and investment advice. EPS is expected to be 0.94 yuan, 1.21 yuan, and 1.37 yuan respectively in 2023-2025, corresponding to dynamic PE 15 times, 12 times, and 10 times, respectively. I am optimistic that the company's off-highway tire business will take the lead and the overseas base will continue to expand. The company will be given 15 times PE in 24 years, with a target price of 18.15 yuan, maintaining a “buy” rating.
Risk warning: Downstream demand falls short of expectations, risk of a sharp rise in raw material prices, risk of production capacity investment falling short of expectations, risk of overseas operations.