Key points of investment:
The company issued a performance forecast for the first half of 2024: According to the company's announcement, net profit due to mother was about 0.27-0.3 billion yuan in the first half of 2024, up 364.86%-416.51% year on year, and realized net profit deducted from mother about 0.26-0.29 billion yuan, up 479.60% to 546.47% year on year; of these, 24Q2 achieved net profit due to mother about 0.117-0.147 billion yuan (median value of about 0.132 billion yuan), a year-on-year increase 149%-213%, down 3.8%-23.4% month-on-month, achieving net profit without return to mother of about 0.111-0.141 billion yuan (median value of about 0.126 billion yuan), an increase of 153%-222% year-on-year, and a year-on-month decline of 5.5%-25.6%. The results were generally in line with expectations.
Demand for semi-steel improved in the first half of 2024, driving a continuous increase in production and sales in the first half of the year. The first half of 2024 benefited from the growth in production and sales in the domestic automobile industry and strong demand in the overseas tire market. The company actively grasped the “domestic and international double cycle” development opportunities, relied on the “overseas double base” layout advantages of Thailand and Cambodia, accelerated the development of the global marketing network and new business, and accelerated the release of high-quality production capacity. The competitive advantage of the company's cost-effective products continued to improve. Tire production and sales increased significantly in the first half of the year. The main increase came from overseas base sales. According to questions and answers from the company's investors, the first phase of Cambodia's 5 million semi-steel+0.9 million bars of all-steel Production was fully achieved in May of this year, and sales increased compared to Q1. Furthermore, demand for semi-steel in Thailand continued to rise, and overall, the share of overseas semi-steel continued to increase in the second quarter, thereby increasing profitability.
The impact of shipping was relatively limited. Raw material costs increased month-on-month in Q2, and profits declined month-on-month due to recruitment for new projects. According to Baichuan data, natural rubber, styrene-butadiene rubber, butadiene rubber, and carbon black increased by 6.8%, 9.9%, 8.3%, and 1.5% respectively in the second quarter. Overall raw material costs increased month-on-month, but the previous April also partially reflected a slight increase in prices in the domestic market. In terms of shipping, shipping prices have risen rapidly since the second quarter. According to the Baltic Sea Freight Index, freight rates to the US West and US East increased from 3294 US dollars and 4309 US dollars at the beginning of April to 7052 US dollars and 8253 US dollars at the end of June, respectively. The company's OEM ratio is high, so the impact on freight costs is relatively limited, but since dealers have safe inventory and are expected to drop in subsequent freight rates, it slightly affected the enthusiasm to place orders. In terms of costs, in the second quarter, in order to promote the construction of two new projects (the domestic semi-steel technology improvement project and the second phase in Thailand), the company recruited workers in advance. Related personnel expenses caused profits to decline sequentially in the second quarter.
Thailand Phase II and Cambodia Phase II are being carried out as scheduled, contributing to the next 2 years of growth. Thailand's Phase 1 semi-steel orders continue to improve. The second phase of semi-steel is slightly affected by Thailand's anti-dumping duties, and the operating rate has declined slightly. According to the company announcement, Thailand's Phase II was changed to 10 million bars of semi-steel and is currently in the climbing stage. We expect to achieve production capacity of 5 million bars by the end of the year, and full production in the first half of 2025; according to investor questions and answers, the first phase of Cambodia will be completed in May this year, and the second phase 3.5 million semi-steel +0.75 million bars of all steel is expected to be gradually completed and put into operation.
Profit forecast and valuation: Maintain profit forecasts. Net profit to the mother is expected to be around 0.66, 0.96, and 1.36 billion yuan in 2024-2026, corresponding to PE about 13, 9, or 6 times, maintaining an “increase in holdings” rating.
Risk warning: large fluctuations in raw materials affect profitability; production capacity investment falls short of expectations