2024H1 net profit increased 148% year over year. In 24H1, the company achieved operating income of approximately RMB 5.363 billion, an increase of 23.7% over the previous year; realized profit attributable to the owners of the company was approximately RMB 0.811 billion, an increase of 148.0% over the previous year. 24H1, the group sold about 13.8 million tires, an increase of 19.3% over the previous year. Among them, all-steel radial tires sold about 4.1 million, up 10.8% year on year; semi-steel radial tires sold about 9.4 million, up 24.1% year on year.

Increase investment in R&D and strive for innovation. 24H1. Through the use of a digital R&D platform, the company developed and completed the new four-season tires, winter tires, snow tires, ice tires, and the “Hua” series of Huaren PLUS high-performance products for passenger cars, which have received high praise from customers. In terms of commercial truck and bus tires, the focus is on completing the research and development of European winter tires and technical reserves for next-generation high-end tires. As of 24H1, the Group has obtained a total of 429 intellectual property rights, including 21 invention patents, 242 utility models, and 166 design patents.

Optimize channel layout to achieve both sales and revenue growth. 2024H1, the Group's customer classification in the domestic commercial vehicle tire replacement channel is more detailed and accurate, increasing the stickiness of dealers and loyalty to the company, and has played an auxiliary role in market regulations. The cumulative contribution of stores accounts for about 65% of the total sales volume of the Group's domestic commercial vehicle tire replacement channel, an increase of 8 percentage points over the previous year. At 24H1, the Group's revenue from direct sales to automobile manufacturers was approximately RMB 0.607 billion, an increase of 26.3% over the previous year.

Overseas sales channel layout and expansion have achieved remarkable results. 24H1, the Group developed 37 new overseas distributors and launched a Secondary Supply project in the US market to increase the sales coverage of second-level dealers, including retailers, across the US through first-level dealer warehouse resources. At the same time, key new products such as urban bus 901 series, H series all-steel high-performance products and special tires were launched, which were widely recognized in overseas markets, particularly breakthrough progress in the Asia-Pacific and African markets. At 24H1, international marketing achieved revenue of approximately RMB 3.512 billion, an increase of about 28.8% over the previous year.

Key projects lay the foundation for the company's growth. As of 24H1, the Group's Shandong tire production base has now formed a production capacity of 7.4 million bars/year for all-steel radial tires and 11.53 million/year for semi-steel radial tires. The Thai tire production base has now formed a production capacity of 2 million bars/year for all-steel radial tires and 8 million bars/year for semi-steel radial tires. 2024H1, the production capacity optimization and upgrading project for the semi-steel radial production line of the Shandong tire production base launched by the Group in 2023Q3, was completed in 2024Q2. The production capacity of the Thai tire production base phase III project (2 million semi-steel radial tires per year), which was launched at the same time, is expected to reach production by 2024Q4.

Profit forecast and investment rating: We estimate that Pulin Chengshan's net profit for 24-26 will be 1.501, 1.729 billion yuan, and 1,984 billion yuan, 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 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, giving it an investment rating of “superior to the market”.

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