Net profit increased 162% year over year in 2023. In 2023, the company achieved revenue of RMB 9.95 billion, an increase of 22% over the previous year. The company achieved net profit of RMB 1.03 billion, an increase of 162% over the previous year. In 2023, the company will unswervingly implement a global strategy and continue to enhance its core competitive advantage through intelligent manufacturing, technological innovation and lean management. Thanks to the early layout in the passenger car tire sector, semi-steel radial tires achieved a 42.7% year-on-year increase in sales. Under fierce market competition, sales of all-steel radial tires increased 20.5% year on year, and the market share was further increased. With high-performance products, differentiated brand strategies, and in-depth two-way marketing channel construction, the company's business in all international and domestic marketing channels has achieved double-digit growth.

Implement comprehensive and strict quality control and production management systems. In 2023, the company continued to increase the degree of automation, reduce manual labor and improve production efficiency. The working hours efficiency of all-steel radial tires/semi-steel radial tires at the Shandong tire production base increased by 5.8% and 21.3%, respectively; the working hours efficiency of all-steel radial tires/semi-steel radial tires increased by 12.5% and 47.7%, respectively, at the Thai tire production base, building a long-term sustainable competitive advantage for the Group.

Passenger car tire replacement channel expanded. In 2023, the Group expanded the passenger car tire replacement channel and used the sales management software Koura's “Visit Pass” function to manage the channel in detail. In 2023, the Group's sales volume in the passenger car tire replacement market increased 41% year over year, with sales of large sizes 17 inches and above increasing significantly.

Expand international marketing channels in all aspects. The Group expands international marketing channels in all aspects to further strengthen the global coverage of the company's products. In 2023, the Group developed 121 new overseas distributors, and the sales volume, revenue and profit of the international marketing business all achieved significant year-on-year growth. Among them, sales volume reached 17.36 million units, up 32.8% year on year, and revenue reached 6.326 billion yuan, up 11.9% year on year. Of this, about 49.1% of revenue came from the Thai tire production base, and about 50.9% of the revenue came from the Shandong tire production base.

Key projects lay the foundation for the company's growth. On August 31, 2023, the Group's board of directors approved and passed the Shandong Company's production capacity optimization bill. Through technical transformation, equipment upgrades and process optimization, the production capacity of finished semi-steel radial tires will increase to 11.53 million units/year, and the total investment of the project is expected to be about RMB 120 million. The board of directors also reviewed and approved the Thai tire production base phase III project (“2 million semi-steel radial tires per year”). The total investment of the project is estimated at about RMB 210 million. The above projects started in 2023Q3, and it is expected that production capacity will be utilized one after another by 2024H1, and design production capacity will be achieved by 2024H2.

Profit forecasting and investment ratings: As the tire boom exceeded expectations, we raised our performance.

We expect Pulin Chengshan's net profit to be 15.01 billion yuan (+95%), 1,729 billion yuan (+104%), and 1,984 billion yuan (increase) for 24-26, respectively. Based on the valuations of comparable companies in the same industry, and considering the lower valuation of Hong Kong stocks compared to A shares, we gave Pulin Chengshan a 3.6 times PE valuation in 2024. Based on the HKD to RMB 0.9 exchange rate, the corresponding target price was HK$9.43 (the target price for the previous period was 8.44, based on 6.6 times PE in 2023, +12%), giving it an investment rating of “superior to the market”.

Risk warning: macro-environmental risk; foreign exchange risk; tariff risk.