The Moroccan tire project is about to be put into operation. According to the company's 24-year semi-annual performance forecast, the Moroccan project aims to be put into operation in the fourth quarter of 2024. After the project is completed, the company will become the only tire manufacturer in Morocco, and at the same time complete the company's strategic layout in the Atlantic economic circle. Relying on Morocco's high-quality labor resources, mature automobile manufacturing industry chain, convenient shipping conditions, abundant green power resources, a safe trade environment under free trade agreements with Europe and the US, and the appeal of more than 70% of the world's phosphate ore resource reserves to the new energy industry, we believe that the company's outstanding strategic choices may help the Moroccan base achieve profitability surpassing the Thai factory. The company's net profit for 24-26 is estimated to be 2.28/3.01/3.63 billion yuan, corresponding EPS of 2.22/2.93/3.53 yuan. Referring to the comparable company's 24-year Wind consensus average of 10xPE, considering the significant increase in the company's overseas projects, the company was given 13xPE in 24, with a target price of 28.86 yuan, maintaining a “buy” rating.

Morocco: With the help of government and communication, and industrial acceleration plans, Morocco is China's comprehensive strategic partner country. It has a stable political situation, good security, and cost-effective labor resources. At the same time, it has established free trade agreements with the US and Europe, which is less disrupted by trade protectionism. Since 2001, its GDP has remained around 4%, with a per capita GDP of 3,672 US dollars in 2023. The electricity supply is sufficient, and green power resources are abundant. Morocco is the second-largest automobile producer in Africa. There are more than 300 companies involved in the automobile industry chain in the country. Currently, automakers include Renault and Peugeot Citroen, with a total production capacity of 0.7 million vehicles. To support the automobile industry, Morocco has vigorously introduced investment in auto parts, led by US and European companies. Many Chinese parts manufacturers, such as CITIC Deca, have invested in setting up factories in Morocco. Furthermore, based on Morocco's reserves of more than 70% of the world's phosphate ore resources, it will be very attractive to the new energy industry in the future.

Tangier Science and Technology City: “Belt and Road” flagship project. The Chinese holding and preferential policy company's Morocco project is located in Tangier Science and Technology City. The Science and Technology City is a “Belt and Road” flagship project between China and Morocco. The professional Chinese team helps the company provide comprehensive services and risk mitigation guidelines. The Science and Technology City has an excellent location, about 15 km from Tangier International Airport, the high-speed rail station, and the city center; 35 km from Tangier Mediterranean Port, it can reach major Western European ports within 3 days and the US within 7 days. Enterprises entering the Science and Technology City can enjoy various policy benefits such as no foreign exchange controls, tax incentives, investment subsidies, and free trade agreements.

Mori Kirin project progresses steadily, with multiple advantages boosting competitiveness

Morikirin is the only tire manufacturer in Morocco. After completion, it will have a production capacity of 12 million semi-steel tires. Currently, the project is progressing rapidly. We believe that the motorcycle factory has the following advantages over the Thai factory: 1) motorcycle tire exports to Europe and the US enjoy zero tariffs; 2) the freight rate for motorcycle exports to Europe and the US is lower, and there is room for price increase under the FOB model; 3) Morocco is close to Côte d'Ivoire, and the supply of natural rubber is guaranteed; 4) the Moroccan factory corporate tax is “5 free and permanent halving”; 5) the Moroccan project has further increased the degree of intelligence of the Moroccan project and reduced overall labor costs; 6) the Moroccan project meets the subsidy standards for Morocco's “New Investment Law” special support measures.

Risk warning: the risk that the new project will not meet expectations, the risk of exchange rate fluctuations, and the risk of changes in Morocco's policy.