Incident: On July 19, the company released its 2024 semi-annual performance forecast. It is estimated that 2024H1 will achieve net profit of 0.752-0.85 billion yuan, an increase of about 130%-160% year-on-year, and an increase of about 7%-20% over 2023H2.

Demand for 24H1 semi-steel tires and exports continues to be strong, and sales of the company's products have increased dramatically. According to data from the National Bureau of Statistics and the General Administration of Customs, for 2024H1, domestic rubber tire outer tire production accumulated 0.53 billion pieces, +10.6% year over year; exports accumulated 0.33 billion bars, +10.2% year over year, and tire consumption demand is still strong. In terms of operating rate, as of July 18, 2024, the operating rate of steel tires was 79.1% this week, maintaining a high level. The operating rate for all-steel tires was 52.9%, which is relatively weak, indicating weak demand for all-steel tires. Benefiting from continued strong global demand for semi-steel tires, the company achieved 13.8 million tire sales, an increase of 19% over the previous year, and an increase of about 2% over 2023H2. 2024H1 Among them, overseas market sales increased by about 21% year on year, and passenger car tire sales increased by about 25% year on year.

Profitability in the first half of the year was less affected by the cost side. Focus on trends in raw material prices and shipping costs in the later stages. In terms of the price of tire raw materials, according to our statistics, the average values of the 2024Q1/Q2 tire raw material price index were 115.8/123.3, respectively, up 0.4%/6.5% from month to month. Many companies raised product prices at the end of the first quarter and the beginning of the second quarter, which transmitted cost pressure. Profitability in the first half of the year was less affected by the cost side. As of July 19, 2024, the raw material price index was 127.2, up 3.1% from the 2024Q2 average. It is recommended to continue to monitor future raw material price trends. Currently, demand for tires is strong, and profitability may be limited by rising raw material prices. It is recommended to pay attention to raw material price trends in the later stages.

Semi-steel tire production capacity will be increased by 2.33 million/year in 2024. Currently, the company's Thailand/Shandong tire production base has a production capacity of 2/7.4 million bars/year for all-steel tires and 800/11.2 million/year for semi-steel tires. In 2023, the capacity utilization rate of all-steel tires at the Thailand/Shandong tire production base was 81.0%/90.0%, and the capacity utilization rate of semi-steel tires was 90.1%/96.8%. On August 31, 2023, the Shandong Company's production capacity optimization bill was passed. After the production capacity optimization is completed, the production capacity of half steel tires will be raised to 11.53 million/year (+0.33 million/year). The third phase of the Thai tire production base project was passed, and the production capacity of the second half of the project increased by 2 million bars/year. Production is expected to reach production in the second half of 2024. Once the project is completed, it will contribute incrementally to the company's 2024 results.

Thailand's tax rate has declined, and there is room for future performance to improve. In January 2024, the tax rate for passenger car and light truck tires exported from the company's Thai base to the US was reduced from 17.06% to 4.52%. In 2023, the company's international distributor channel achieved sales volume of 17.36 million pieces, up 32.8% year on year, revenue of 6.326 billion yuan, up 11.9% year on year. Among them, revenue from Thailand/Shandong tire production sites accounted for 49.1%/50.9% respectively, and -4.9%/+4.9% year on year. The reduction in the base tax rate in Thailand is expected to drive a recovery in the company's order volume exported to the US and improve performance. According to the company's 2023 annual report, it is expected that the US Customs and Border Protection will return approximately $20.8 million in overpaid anti-dumping duties. According to the company's performance forecast for the first half of 2024, the tax has been refunded.

Profit forecast and rating: The company's net profit CAGR for 24-26 is estimated to be 16.3%. Considering that the company continues to strengthen its global layout and optimize the distribution channel layout, the variety of new products and the reduction in the tax rate at the base in Thailand, future performance is resilient. The company was given 6 times PE in 2024, corresponding to a target price of HK$13.54, maintaining a “buy” rating.

Risk warning: exchange rate risk, international trade friction risk, raw material price fluctuation risk.