Incident 1: The company released its 2023 annual report. In 2013, the company achieved operating income of 20.2 billion yuan, net profit to mother of 1.4 billion yuan, +377% year-on-year; of these, Q4 achieved operating income of 5.6 billion yuan in a single quarter, +33% year-on-year, +6% month-on-month, and net profit to mother of 430 million yuan, +471% year-on-year and +8% month-on-month.
Incident 2: The company released its report for the first quarter of 2024. In 2024Q1, the company achieved operating income of 5 billion yuan in a single quarter, +15% year over month, -10% month on month; realized net profit of 410 million yuan, +106% year on year, +2% month on month; realized net profit of 430 million yuan after deducted from mother, +138% year on month, and +6% month on month.
Comment:
Demand recovery combined with falling raw materials and shipping costs, and the company's high performance growth in 2023: benefiting from the continuous recovery of the domestic economy and rising demand in overseas markets, compounding the decline in raw material prices and shipping costs, the company seized market opportunities, actively developed markets, and achieved significant growth in product sales. In '23, the company achieved cumulative sales of 77.98 million tires, +26% over the same period; among them, NEV tire support exceeded 9 million, with a market share close to 24%, ranking first among Chinese tires. At the same time, the company continues to reduce costs and increase efficiency, and continues to carry out structural adjustments in supporting markets, and profitability has improved markedly. The gross margin of the company's tire products increased 7.6 pct year on year to 20.7% in 2023. As the tire industry continues to recover, the company's efforts to reduce costs and increase efficiency are progressing steadily, and the company's profit level is expected to continue to increase, helping to grow rapidly in performance.
The volume and price of tire products rose sharply, and the 24Q1 performance continued to grow: in 2024, the company sold 18.98 million tires, +13% year over year, -16% month on month; the average unit price of tires was 262 yuan/strip, +2% year on month, and +7% month on month. In 24Q1, China's macroeconomic economy continued to recover, and domestic automobile demand gradually recovered. National automobile sales in 24Q1 were 6.72 million units, +11% year over year; of these, 2.09 million new energy vehicles were sold, +32% year over year. Downstream demand continued to recover, and the company's tire sales volume and price rose sharply, driving a sharp year-on-year increase in 24Q1 performance.
The “7+5” strategic layout is progressing steadily, and the Serbian project is expected to contribute additional volume: the company firmly implements the global “7+5” (7 domestic factories, 5 overseas factories) strategic layout, adheres to the international strategy, and actively promotes the development of both domestic and overseas markets. As of 24Q1, the company has 5 production bases in Zhaoyuan, Dezhou, Liuzhou, Jingmen and Changchun. The Shaanxi and Anhui plants are undergoing preliminary planning. The seven major domestic production bases will form comprehensive coverage of North China, South China, Central China, Southwest China, Northwest China and East China. Two production sites have been built overseas in Thailand and Serbia. The company's Serbian project is progressing in an orderly manner. The Serbian project mainly includes 12 million semi-steel radial tires and 1.6 million all-steel radial tires. The Serbian factory obtained trial permits for phase I truck tires and passenger car tires in May and December 2023, respectively. It is estimated that by the end of '24, the Serbian semi-steel project will have a production capacity of 6 million sets, and the all-steel project will reach full production; by '25, the full production capacity of 12 million sets of semi-steel tires will be achieved. The Serbian base will become a new engine for the company's production and sales revenue growth and profit growth, increasing the company's overall market share and profitability. The domestic and foreign production capacity layout strongly supports the increase in the company's market share and profitability, and the company's future development can be expected.
Profit forecast, valuation and rating: The recovery in downstream demand compounded by the decline in raw material prices, the company's profitability increased significantly. Therefore, we raised the company's 24-25 profit forecast and added a profit forecast for 2026. The company's net profit for 24-26 is 21.70 (10% increase) /26.18 (9% increase) /3.172 billion yuan, respectively. The corresponding EPS is 1.47/1.78/2.15 yuan, respectively, maintaining the company's “increase in holdings” rating.
Risk warning: Production progress falls short of expectations; international trade risks affect export sales; raw material prices fluctuate.