Net profit for the second quarter reached a record high of 0.57 billion yuan, and the results were in line with expectations. In the first half of 2024, the company's revenue was 4.11 billion yuan (YoY +16.2%), net profit to mother 1.08 billion yuan (YoY +77.7%), gross profit margin 33.2% (YoY +10.8pcts), and net profit margin 26.2% (YoY +9.1pcts). Among them, the company's revenue for the second quarter was 2 billion yuan (+6.2% YoY, -5.7% YoY), net profit of 0.57 billion yuan (YoY +61.1%, +13.9% month-on-month), gross profit margin 35.3% (+12.8pcts YoY, +4.0pcts month-on-month), and a net profit margin of 28.8% (+9.8pcts YoY, +4.9pcts month-on-month). The decline in revenue was mainly due to strong demand for the company's all-steel tires.

Overseas semi-steel tires were in short supply, and demand for all-steel tires was weak, and production and sales declined month-on-month. In the first half of 2024, the company's overseas sales revenue was 3.66 billion yuan, accounting for 89.1%. Domestic brand semi-steel tires had a competitive advantage in cost performance, and demand in overseas markets continued to rise; demand for all-steel tires was weak due to relatively sufficient overseas market inventories and factors such as shipping cost pressure from customers. In the second quarter of 2024, the company produced 8.011 million tires (+10.5% YoY, -0.8% YoY), including 7.856 million semi-steel tires (+10.9% YoY, +1.5% month-on-month), all-steel tire production 0.155 million bars (-6.6% YoY, -53.8% month-on-month); tire sales of 7.49 million bars (+5.4% YoY, -1.5% YoY), of which 7.332 million steel tires (YoY +5.6) %, +0.7% month-on-month), all-steel tire sales 0.158 million bars (-3.8% YoY, -51.6% month-on-month).

The company's international brand competitiveness is increasing, and the layout of overseas bases is being promoted at an accelerated pace. In 2023, the company's tire products had a share of more than 5% in the US replacement market and more than 4% in the European replacement market. The company's Morocco plant is progressing steadily according to the plan, making every effort to start production and operation in the fourth quarter of 2024; it is steadily advancing the “Spanish project to produce 12 million high performance car and light truck radial tires per year”. The project has obtained EIA approval and is expected to be gradually completed and put into operation in 2025-2026.

The company has formulated an “833plus” strategic plan to reward shareholders with mid-term dividends. The company plans to set up 8 digital intelligent manufacturing bases around the world in about 10 years (3 in China, 2 in Thailand, 1 each in Europe, Africa, and North America), and also operate 3 R&D centers (China, Europe, North America) and 3 user experience centers. Plus means taking the opportunity to merge and acquire an internationally renowned tire company. The company plans to distribute a cash dividend of 2.1 yuan (tax included) to all shareholders for every 10 shares, for a total of 0.22 billion yuan (tax included), with a dividend rate of about 20%.

Risk warning: progress of projects under construction falls short of expectations; recovery in industry demand falls short of expectations; risk of falling prices of major products; uncertainty about anti-dumping duties, etc.

Investment advice: Maintaining the profit forecast, the company's net profit for 2024-2026 is estimated to be 1.96/2.28/2.67 billion yuan, with year-on-year growth rates of 43.2%/16.3%/17.2% respectively, diluted EPS being 1.91/2.22/2.60 yuan respectively. The PE corresponding to the current stock price is 12.1/10.4/8.9x, respectively, maintaining the “superior to the market” rating.