Core views

Improved demand combined with reduced costs. The 23-year performance was significantly restored. Net profit due to mother was 220 million yuan, a sharp increase of 1175% over the previous year, and net profit after deducting non-return mother was 200 million yuan, reversing the year-on-year loss.

24Q1 maintained a trend of short supply and further increased profitability: 24Q1 production and sales volume was 416/3.75 million pieces, +84%/+51% year over year, and +24%/23% month over month. Gross margin was +2.3 pct to 18.1% month-on-month, while financial expenses decreased by 38 million yuan year-on-year (mainly due to exchange gains due to the devaluation of RMB), and net profit margin was +6.3 pct to 10.6% month-on-month.

The first phase has already been produced in Thailand, and the first phase in Cambodia is expected to be produced in June '24. At the same time, the company is actively promoting Thailand Phase II (500,000 bars of full steel+6 million bars of semi-steel) and Cambodia Phase II (750,000 bars of all steel+3.5 million bars of semi-steel), striving to achieve production within 25 years to help the company grow further.

Optimize the domestic production capacity structure and enhance overall competitiveness. Considering that global demand for all-steel is weaker than half-steel, the company is actively promoting the adjustment of Wuxi's 2.8 million all-steel production capacity to 6 million semi-steel tire technical improvement projects and 100,000 off-road tire technical improvement projects.

occurrences

The company released the 2023 annual report and the 2024 quarterly report. The performance increased significantly. The company's 2023 operating income was 5.06 billion yuan, up 22.9% year on year, and realized net profit to mother of 216 million yuan, a sharp increase of 1175% over the previous year, and net profit after deducting 196 million yuan from mother, a sharp increase of 2,734% over the previous year, turning a loss into a profit.

The company achieved operating income of 1.44 billion yuan in 24Q1, +37.6% YoY, +4.23% month-on-month, achieved net profit of 153 million yuan, +1271% YoY, +165% month-on-month, and realized net profit of 149 million yuan after deduction, +14374% YoY and +163% month-on-month.

Brief review

23 years of improved demand combined with reduced costs, significant restoration of company performance, and further improvement in 24Q1 profitability

The company produced and sold 1198/11.86 million tires in 2008, +39%/+39% year on year. The tire business achieved revenue of 5.03 billion yuan, +23.8% year on year, gross profit margin of 15.6%, and +6.05 pct year on year. Sales/ management/ R&D/ finance cost rates for 23 years were 3.02%/3.34%/1.43%/2.07%, respectively, +0.24/-0.80/+0.16pct year-on-year, respectively. Domestic demand in 23 years was restored due to the restoration of normal domestic operation, and overseas inventory removal was completed in the early stages, driving the continuous improvement of domestic and Southeast Asian tire exports. Furthermore, due to the reduction in raw material prices and shipping costs, the company's profitability has also improved. 24Q1 demand remained in short supply, and profitability further increased: 24Q1 production and sales volume was 416/3.75 million pieces, +84%/+51% year over year, and +24%/23% month over month.

Gross margin +2.3 pct to 18.1% month-on-month, and net margin +6.3 pct to 10.6% month-on-month. At the same time, the implementation of a reduction in tariffs on exports of Thai semi-steel tires to the US at the end of January '24 will help the company raise prices and increase the profitability of its Thai factory in the future.

Overseas dual base layout to help the company grow

The company has been actively overseas in recent years and has formed two major overseas bases in Thailand and Cambodia. Among them, Thailand's first phase has an annual production capacity of 6 million semi-steel tires and 1.3 million all-steel tires; the Cambodian base's annual production capacity of 5 million semi-steel tires and 900,000 all-steel tires is gradually reaching production capacity, and production is expected to be completed in June 2024. At the same time, the company continues to invest in Thailand Phase II and Cambodia Phase II. Among them, the Thailand Phase II project includes an annual production capacity of 500,000 all-steel tires and 6 million semi-steel tires. The Cambodia Phase II project includes 3.5 million half-steel tires and 750,000 all-steel tires. These new production capacities are all expected to be completed and produced in 2025, helping the company to grow further.

Implement technical reforms in domestic production capacity to further optimize the production capacity structure

Since 2023, the global semi-steel tire market has performed well. Demand continues to be strong, terminal demand in the all-steel tire market is weak, and the capacity utilization rate is relatively low. In this context, in order to further increase the market share of semi-steel tires and optimize production capacity layout, the company adjusted the production capacity of 2.8 million all-steel tires at the Wuxi plant to 6 million semi-steel tire technical improvement projects and 100,000 off-road tire technical improvement projects. With the gradual implementation of the company's technical improvement projects, the company's product structure is expected to be optimized, which is conducive to improving the company's competitiveness.

Profit forecast and valuation: The company is expected to achieve net profit of 651 million yuan, 919 million yuan and 1,153 million yuan respectively in 2024-2026, corresponding to EPS of 0.41 yuan, 0.58 yuan, and 0.73 yuan respectively.

Risk warning: 1. Risk of fluctuations in raw material prices: The price of natural rubber is affected by multiple factors such as international economic conditions, natural conditions, trade, exchange rate, capital, etc., and other factors such as industry policies and electricity costs. Uncertainties are strong, supply conditions and price fluctuations will affect the company's profit situation; 2. The risk of increased international trade barriers: the United States, Europe, Brazil, Indonesia and other countries and regions have successively implemented relevant trade protection policies on China's tire exports. There is still a lot of uncertainty about future international trade, and there is still much uncertainty about corporate tire exports. It may have an adverse impact on profitability; 3. The commissioning of additional production capacity falls short of expectations: The company has several projects under construction, and there are certain uncertainties in factory construction. As a result, the progress of putting new production capacity into production in the future may fall short of expectations, which may adversely affect the company's profits.