2Q24 results are in line with our expectations

The company announced 1H24 results: revenue of 4.11 billion yuan, +16.2% YoY; net profit to mother of 1.077 billion yuan, +77.7% YoY. That is, 2Q24 revenue was 1.995 billion yuan, +6.2% YoY, -5.7% month-on-month; net profit to mother was 0.574 billion yuan, +61.1% YoY, +13.9%. The results were in line with our expectations.

The company plans to distribute cash dividends in the second quarter. According to a cash dividend of 2.1 yuan (tax included) for every 10 shares, the total cash dividend to be distributed accounts for about 20% of net profit to mother in 2Q24.

2Q24 produces 8.01 million tires (-0.8% QoQ) and sells 7.49 million tires (-1.5% QoQ).

Among them, semi-steel tires produced 7.86 million bars (+1.5% QoQ), sold 7.33 million bars (+0.7% QoQ); all-steel tires produced 0.16 million bars (-53.8% QoQ), and sold 0.16 million bars (-51.6% QoQ).

Development trends

Production capacity continued to be utilized, and the profit level reached a new high in a single quarter. 2Q24 The company's gross margin reached 35.3%, up 4ppt from month to month; net profit margin reached 28.8%, up 5ppt from month to month; profit level reached a record high. We believe it is mainly due to: 1) the company's continuous production capacity, the domestic Qingdao plant continues to explore, the Thai factory maintains a high operating rate of semi-steel tires, and production and sales have increased month-on-month; 2) the anti-dumping duty rate for semi-steel tires in Thailand has decreased, profit levels have increased, and the company has received tax rebates one after another, which contributed to profits in the second quarter. However, 2Q24's all-steel tire production and sales declined sequentially. We think it was mainly due to relatively sufficient inventory and weak demand in the overseas all-steel tire market; moreover, before the US anti-dumping preliminary ruling against Thailand was implemented in the second quarter, orders from downstream customers slowed down, which had a certain impact on the company's all-steel tire production and sales.

The Morocco project is about to be put into operation and is expected to drive performance growth in 2025-26. According to the company's announcement, construction of the Morocco plant is progressing steadily, and the company plans to start production and operation in 4Q24. The Morocco project is mainly sold to local Renault and Strandy suppliers and the US replacement market, and we expect to achieve a high level of profit margins. Along with the increase and gradual release of the company's production capacity, we expect the company's performance to achieve high growth in 2025-26.

Profit forecasting and valuation

We maintain net profit of $2222 billion and $2,571 billion in 2024 and 2025. The current stock price corresponds to 10.7 times the 2024 price-earnings ratio and 9.2 times the 2025 price-earnings ratio. Maintaining an outperforming industry rating and maintaining a target price of 29.5 yuan, corresponding to 13.7 times the price-earnings ratio of 2024 and 11.8 times the price-earnings ratio of 2025, there is 28.0% upside compared to the current stock price.

risks

Prices of raw materials have risen sharply; demand has fallen short of expectations; trade barriers have increased; and production capacity investment has fallen short of expectations.