Incidents:

On August 29, 2024, Triangle Tire released its 2024 semi-annual report: achieved operating income of 5.003 billion yuan, -3.68% year over year; realized net profit of 0.612 billion yuan, +0.67% year on year; realized net profit without return to mother 0.484 billion yuan, -3.23% year on year; gross sales margin 19.78%, -0.19 pct year on year, net sales rate of 12.24%, year-on-year +0.54 pct; cash flow from operating activities Net amount was $0.478 billion, or -49.90% YoY.

In the 2024Q2 quarter, the company achieved operating income of 2.618 billion yuan, -4.36% YoY, +9.74% month-on-month; realized net profit of 0.318 billion yuan, -15.49% YoY, +8.13% month-on-month; net profit after deduction of 0.242 billion yuan, -24.39% YoY, +0.15% month-on-month; net cash flow from operating activities was 0.476 billion yuan, -45.79% YoY and +0.474 billion yuan month-on-month. The gross sales margin was 18.87%, 2.96 pcts year over month, 1.91 pcts month on month; net sales margin was 12.15%, -1.60 pcts year over year, and -0.18 pcts month on month.

Investment highlights:

Tire production and sales increased month-on-month, and 2024Q2 performance improved month-on-month to achieve operating income of 5.003 billion yuan in the first half of 2024, or -3.68% year over year; net profit to mother of 0.612 billion yuan, +0.67% year over year. Among them, in the first half of 2024, the company achieved gross profit of 0.99 billion yuan, -0.048 billion yuan; period expenses of 0.363 billion yuan, +0.003 billion yuan; asset impairment losses of 0.017 billion yuan, a year-on-year decrease of 0.024 billion yuan, mainly due to reduced inventory; and credit impairment losses of 0.011 billion yuan, a year-on-year decrease of 0.008 billion yuan, mainly due to bad debts accruing from accounts receivable Prepare to reduce the impact. In terms of period expenses, in the first half of 2024, the company's sales expenses rate was 3.90%, +0.19 pcts; the management expense ratio was 2.52%, +0.19 pcts year over year; the R&D expenses rate was 1.43%, +0.19 pcts year over year; the financial expenses ratio was -0.60%, -0.24 pcts year over year, mainly due to an increase in exchange income, interest income, and a decrease in interest expenses. In terms of tire production and sales, in the first half of 2024, the company achieved tire production volume of 12.032 million bars, +3.1% year-on-year; achieved tire sales volume of 12.228 million bars, or -6.10% year-on-year.

2024Q2 achieved net profit of 0.318 billion yuan, -15.43% YoY and +8.16% YoY. In terms of tire production and sales, 2024Q2 achieved tire production of 6.3078 million bars, +10.20% month-on-month; achieved tire sales volume of 6.3606 million strips, +8.40% month-on-month.

Continuously optimize product structure and enhance competitive advantage in the market

In the first half of 2024, the company paid 0.193 billion yuan for R&D, accounting for 3.85% of revenue in the first half of 2024. As of the first half of 2024, the company has obtained 994 patents, including 96 invention patents and 52 international patents. The company continues to optimize the product structure and continuously improve product performance. In the first half of 2024, a total of 29 new products were launched. In terms of commercial vehicle tires, the company has developed ultra-low rolling resistance products, enriched the original TF01 product line, further developed TF21 drive wheel special products; developed EV-specific pattern products suitable for urban muck trucks and medium- and long-distance tractors; and completed the upgrading of the pattern of some broad-based products. Further enrich the depth of passenger car products and complete the development of a new generation of China-Europe high-speed snow tire series products and special products for electric vehicles. Engineering tires have focused on developing high-load series engineering radial tires and 49-inch giant tire products suitable for mines. In terms of supporting markets, the company has completed the development and commissioning of various supporting projects such as BYD, SAIC-GM-Wuling, Hyundai, Geely, Zhengzhou Nissan and Jiangling; giant tire products have been recognized by European customers.

Pay attention to investor returns and implement a high level of cash dividends

The company's 2023 dividend plan was reviewed and approved by the shareholders' meeting on June 26, 2024. The cash dividend was 0.536 billion yuan, accounting for 38.39% of the company's net profit attributable to shareholders of listed companies in 2023, an increase of 8.02 percentage points over the previous year. In 2016-2023, the company achieved cumulative net profit of 7.045 billion yuan, accumulated cash dividends of about 2.24 billion yuan, and an average dividend rate of 31.80%.

Profit forecasts and investment ratings estimate that the company's 2024-2026 revenue will be 10.44, 11.162, and 11.898 billion yuan, and net profit to mother will be 1.423, 1.539, and 1.652 billion yuan respectively, corresponding to PE 7.71, 7.13, and 6.64 times, respectively. Considering the steady operation of the company and continuous optimization of the product structure, this is compounded by the boom in the tire market. Maintain a “buy” rating.

Risks indicate international trade risks; new product promotion falls short of expectations; global market competition risks; raw material price fluctuations; exchange rate fluctuation risks, etc.