Sailun Tire releases its 2023 annual report. In 2023, the company achieved operating income of 25.978 billion yuan, an increase of 18.61% over the previous year, and net profit to mother of 3,091 billion yuan, an increase of 132.07% over the previous year. The company plans to distribute a cash dividend of 0.17 yuan (tax included) per share to all shareholders.
The company's revenue and profit growth in 2023 was mainly due to a clear recovery in demand in the domestic tire market, the company's production capacity release and continuous increase in capacity utilization. 1) Looking at revenue by business, the company's revenue of tire products and tire trade in 2023 changed 22.13% and -30.65% year-on-year to 246.18 million yuan and 945 million yuan, respectively. 2) Looking at gross margin by business, the gross margin of the company's tire products and tire trade in 2023 changed by 9.43 and 4.10 percentage points year-on-year to 28.32% and 15.35%, respectively. 3) The company's tire production and sales volume in 2023 were 586.354 million pieces and 55.7863 million tires respectively, up 35.71% and 27.07% year-on-year respectively. 4) The company's three expenses increased 2.36 percentage points year-on-year to 13.04% in 2023. Among them, sales, management (including R&D), and financial expense ratios changed 1.13, 0.98, and 0.24 percentage points year-on-year to 4.95%, 6.59%, and 1.51%. In 2023, the company's R&D expenses accounted for 3.23% of revenue, an increase of 0.39 percentage points over the previous year.
The company continues to promote the construction of key projects. 1) In 2023, the all-steel project of the Cambodian factory was put into operation. All steel, semi-steel and off-road products of the Vietnam factory phase III project were put into operation, and production capacity is currently continuing to increase.
2) In October 2023 and January 2024, the Cambodian factory also invested in the construction of a project with a total annual output of 12 million semi-steel radial tires. 3) In December 2023, the company plans to invest in the construction of a project with an annual output of 6 million semi-steel radial tires through a joint venture established in Mexico. 4) In March 2024, the company plans to invest in a project with an annual output of 3.6 million radial tires and 37,000 tons of off-road tires in Indonesia.
The company's high-intensity R&D forges high-end product strength to cultivate new momentum for growth. 1) The company successfully developed “liquid gold tires”. On the raw material side, an average liquid gold truck tire and car tire can reduce carbon dioxide emissions by 36 kg and 8 kg respectively; in the tire manufacturing stage, the average production of 1 truck tire and car tire can reduce energy consumption by 37.2 and 36.1%, respectively; from the user side, an average of 1 liquid gold truck bus tire and car tire can reduce energy consumption by 4% and 3%, respectively, and new energy cars using liquid gold tires can increase battery life by 5% to 10%. 2) The company has been deeply involved in the field of off-road tires for many years, with a complete range of product specifications and excellent quality. It has established an R&D, manufacturing and sales system covering products such as giant engineering radial tires, small and medium-sized engineering radial tires, agricultural tires, and solid tires.
Profit forecasts and reference ratings. We expect the company's EPS in 2024-2026 to be 1.26, 1.47, and 1.60 yuan respectively (the original 2024-25 forecast was 0.99 and 1.08 yuan). Referring to the valuations of comparable companies in the same industry, we think a reasonable valuation is 18 times PE in 2024 (originally 18x in 2023), and the target price is 22.68 yuan, maintaining a superior market rating.
Risk warning. The pace of commissioning of production capacity under construction fell short of expectations; raw material prices fluctuated.