Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 5,064 billion yuan, +22.91% year over year; net profit to mother was 216 million yuan, +1175.49% year over year. In the first quarter of 2024, the company achieved revenue of 1,443 billion yuan, +37.58% year-on-year; realized net profit of 153 million yuan, +1270.57% year-on-year.

The performance increased significantly over the same period last year, and the global layout continues to be promoted. In 2023, thanks to the recovery of the domestic economy, the export market gradually picked up, and automobile production, sales and ownership continued to grow. As the company's ability to develop overseas markets increased, the company's tire revenue scale expanded, and profits rose sharply. In 2023, the company's Thai factory achieved strong production and sales due to its high-performance, high-quality, green and safe products and market-close service advantages, and orders continued to be in short supply. Since the opening of the Cambodian plant, production capacity has been accelerated. The goal is to achieve full production by 2024, becoming a new profit growth point for the company. In 2023, the company sold 11.685 million tires, up 38.9% year on year; 2024Q1 sold 2.4894 million tires, a significant increase of 50.6% year on year.

The company's profitability increased dramatically. In 2023, the company's gross sales margin was 15.74%, up 5.19 pcts year on year; net sales margin was 4.27%, up 3.91 pct year on year. 2024Q1, the company's gross sales margin was 18.05%, up 7.55 pcts year on year; net sales margin was 10.59%, up 9.52 pct year on year.

The company innovates product technology and fully implements intelligent manufacturing and digital transformation. In the field of truck and bus tires, the company further strengthened its leading position in mining tires and carrier tires. The company launched ET21 series tires, which effectively solved the problems of high fuel consumption and wear resistance during transportation.

In terms of passenger car tires, the company introduced a new Maxilima GA8 tire specially designed for mid-range and high-end cars, which guarantee excellent quiet comfort, as well as excellent wetland handling and grip.

At the same time, the market share of the company's 17 inch and above large-size high-margin products is rapidly increasing, which not only enhances the company's sales premium capacity, but also enhances the brand's market influence.

The company responds positively to the national “Industry 4.0” plan and dual-carbon strategy, and thoroughly implements intelligent manufacturing and digital transformation. The company drew on the advanced experience of the “black light workshop” of domestic semi-steel tire factories and the “5G carbon cloud smart factory” of all-steel tires to build an intelligent tire model factory in Cambodia, further strengthened management and control capabilities, and shaped new development advantages for the company. In 2023, the company won the titles of “Jiangsu Intelligent Manufacturing Demonstration Factory” and “Jiangsu Five-Star Cloud Enterprise”.

Profit forecast and investment suggestions: The company continues to promote a global layout and build two overseas bases in Thailand and Cambodia. It is expected that additional production capacity will gradually be released in the next few years, and market competitiveness will continue to increase. With the climbing volume of production capacity and continuous optimization of the product structure, the company's performance is expected to grow further. We forecast net profit attributable to mother for 2024-2026 to be 679 million, 1,006 million, and 1,266 million, respectively. Corresponding to the current PE, it is 15 times, 10 times, and 8 times, respectively, giving it a “buy” rating.

Risk warning: downstream demand falls short of expectations; project commissioning progress falls short of expectations; market competition intensifies; raw material prices have risen sharply; risk of trade barriers in overseas markets, etc.