Deeply cultivate the tire industry, expand tire categories horizontally, and lay out global bases vertically. The company's main business covers four types of all-steel tires, semi-steel tires, engineering tires and oblique tires. The company's domestic bases include Hongdou Industrial Park in Wuxi City and Donggang Industrial Zone in Wuxi City. Since 2018, the company has started an international layout and has established production bases in Thailand and Cambodia. According to the company's “5X Strategic Plan”, in the future, the company will continue to seize domestic and foreign dual cycle opportunities and strive to achieve the goal of 5 major domestic and foreign production bases, 5 major R&D centers, 500 strategic channel providers, 5,000 core stores, and a production capacity of 50 million or more within the next ten years.
The tire industry has a scale of trillion yuan, demand is growing steadily, and domestic tire companies are developing with high quality.
In 2022, the total sales volume of global automobile tires was 1.75 billion, an increase of 1% over the previous year. According to Michelin's forecast, future tire sales in mature markets will maintain an annual growth rate of about 0-2%, and emerging markets will maintain a growth rate of 2-4% every year. At a compound growth rate of 2%, the total sales volume of the global tire market is expected to reach 2.05 billion units in 2030. Under the guidance of the country's supply-side reforms combined with many green environmental protection policies, backward domestic tire production capacity is gradually being withdrawn, industry concentration is increasing, and enterprises with advantages such as cost performance, R&D strength, and channels are expected to stand out.
Lay out overseas bases, pointing the finger at the US market. Looking at the three first-tier tire companies (Goodyear, Michelin, and Bridgestone), the overall sales volume and share of sales in the US passenger car replacement tire market has continued to decline. The total sales volume of the three companies dropped from 61.6 million units in 2010 to 58.05 million units in 2023, accounting for a decline of 31% in 2010 to 27% in 2023. At the same time, the total share of tire brands that account for less than 1% of sales continues to rise. In 2023, brands that account for less than 1% of sales accounted for 10.5% of total sales volume (22.58 million units), while in 2010 it was only 6% (11.92 million units). In the future, the US passenger car replacement market space is expected to be gradually opened up by small brands, and the layout of the company's overseas bases will help the company open up the US market. Furthermore, the company continues to innovate, and its brands have won many awards. At the same time, the company actively embraces “intelligent transformation and digital transformation” to build an intelligent manufacturing base to achieve production automation, informatization and intelligent connectivity.
First coverage, giving a “buy” rating. We expect the company to achieve revenue of 75.93/109.97/12.285 billion yuan in 2024-2026 and net profit of 655/10.73/1,352 million yuan, corresponding PE of 15X/19X/7X, respectively. Due to the company's global layout, production capacity at the Thai and Cambodian bases will continue to expand, profitability will increase dramatically, and growth will be strong. Therefore, we recommend giving the company a “buy” rating.
Risk warning: Capacity construction progress falls short of expectations, profit forecasts and valuation models fall short of expectations