Incident: The company announced a pre-increase in 2024H1 performance. It is expected to achieve net profit of 0.27 billion yuan to 0.3 billion yuan in the first half of the year, an increase of 364.86% to 416.51% over the previous year; deducted non-net profit of 0.26 billion yuan to 0.29 billion yuan, an increase of 479.60% to 546.47% year-on-year. Among them, net profit attributable to mother was 0.117-0.147 billion yuan in the second quarter, up 148.94%-212.77% year on year, and -23.53% to -3.92% month on month; realized deducted non-net profit of 0.111-0.141 billion yuan, up 152.27%-220.45% year on year, and -25.50% to -5.37% month on month.

There was a month-on-month decline in performance or a phased increase in costs and expenses due to new projects being put into operation in the second quarter.

On June 28, the company's domestic Phase II project and Thailand Phase II project were successfully put into operation. Considering that early operation of the project may involve material loss, and the need to recruit workers and pay employee remuneration in advance in order to drive the project, the company's costs, expenses, etc. increased in the second quarter or in stages, causing the second quarter's performance to decline month-on-month.

Production capacity under construction has entered the implementation period, and the company's performance is expected to maintain rapid growth. Relying on the “5X” strategy, the company has successively laid out factories in Thailand and Cambodia in recent years. Among them, the first phase of the Thailand project has been successfully put into operation to contribute to the performance, and the second phase of the Thailand base is also under construction. Considering the continuous improvement in the competitiveness of the company's semi-steel tire products, the company adjusted the production capacity scale of Thailand Phase II accordingly. The “annual output of 0.5 million all-steel radial tires and 6 million semi-steel radial tires project” was changed to a “project with an annual output of 10 million semi-steel radial tires”, which continued to provide the company with an increase in production capacity; the first phase of the Cambodia project was completed in May of this year face Dasan, the second phase of the Cambodia project is under construction and is expected to contribute to the increase in 2025. Relying on the continuous expansion of the Southeast Asian base, the company's performance is expected to enter the implementation period. According to the “5X” strategy, the company will also plan two production bases one after another, establishing the company's mid-term growth.

Investment advice: We expect the company's 2024-2026 net profit to be 0.674, 1.073, and 1.458 billion yuan, respectively, EPS 0.42, 0.68 and 0.92 yuan, respectively, and the PE corresponding to the closing price on July 09 will be 13, 8, and 6 times. Considering that the production capacity of the company's layout has entered the implementation period and that domestic tires are leading in cost performance, the company's performance will maintain an upward trend and maintain the “recommended” rating.

Risk warning: sharp fluctuations in raw material prices, sharp rise in shipping costs, falling short of expectations in production capacity construction and commissioning, large exchange rate fluctuations, etc.