Incident Overview: The company disclosed the 2024 semi-annual report: 2024H1 achieved revenue of 4.11 billion yuan, +16.21%; net profit to mother of 1.077 billion yuan, +77.71% year over year; net profit after deducting non-return to mother of 1.059 billion yuan, +81.56% year over year; of these, 2024Q2 achieved revenue of 1.995 billion yuan, +6.15%, and -5.70% month on month; net profit to mother of 0.574 billion yuan, +61.12% year on year , +13.88% month-on-month; net profit without return to mother was 0.562 billion yuan, +63.91% year-on-year, and +13.23% month-on-month.

2024Q2 net interest rates have reached a record high, and overseas orders are in short supply. The company's 2024H1 revenue +16.21% YoY and net profit +77.71% YoY; of these, 2024Q2 revenue +6.15% YoY, -5.70% month-on-month, net profit to mother +61.12% YoY, +13.88% month-on-month, 2024Q2 net margin reached 28.76%, a record high. We analyze the reasons as follows:

1) On the revenue side, US import demand is resilient, and Chinese tire products have a cost-effective competitive advantage in the European and American semi-steel tire markets. According to US customs, 2024H1 US semi-steel tire imports were 82.4788 million bars, of which 2024Q2 semi-steel tire imports were 40.5207 million bars, -0.47% /month-on-month -3.43%; 2024H1 all-steel tire imports 29.2568 million bars, +26.77% YoY, of which 2024Q2 all-steel tire imports were 14.0108 million bars, +20.30% YoY; 2) On the sales side, 2024H1 sold 15.0971 million tires, +10.35%; semi-steel tires sold 14.6121 million tires, +9.06% year-on-year; all-steel tires sold 0.4849 million bars, +71.28% year-on-year. Among them, 2024Q2 achieved 7.49 million tire sales, +5.40% /month-on-month -1.54%; half-steel tire sales volume of 7.3318 million bars, +5.62% YoY /month-on-month +0.71%; all-steel tire sales of 0.1581 million bars, -3.83% YoY/-51.62% month-on-month;

3) On the profit side, 2024H1 continues to reinvent internal processes to maximize the organic integration of personnel, equipment and software, continuously improve the management level adapted to the company's intelligent manufacturing model, maximize the effects of intelligent manufacturing, and continuously achieve cost reduction and efficiency, per capita efficiency, production efficiency, and product quality improvement. The refined management model that matches the company's intelligent manufacturing has further enhanced the company's profitability; at the same time, benefiting from the impact of the US anti-dumping tariffs on Thailand to 1.24%. The Thai subsidiary achieved a net interest rate of 27.13%, year-on-year + 8.74pct;

4) On the cost side, the average global sea freight 2024H1 reached 3,156 US dollars, +89.85% year over year, of which the average 2024Q2 average was 3,251 US dollars, +127.42% YoY/+6.23% month-on-month. As sea freight prices fall from high levels, we expect the 2024Q3 company's cost pressure to decrease.

In terms of profit, the company's 2024H1 gross margin reached 33.24%, +10.84pct year on year, of which 2024Q2 gross margin was 35.27%, +12.81pct year on year, and +3.94pct month-on-month.

In terms of cost, the R&D cost of the 2024H1 reached 0.098 billion yuan, +59.42% over the same period last year. The increase in R&D expenses was mainly due to the company continuing to develop products such as aviation tires and racing tires to enhance its technical strength. 2024H1 sales expense ratio, management expense rate, R&D expense ratio, and financial expense ratio were +0.04pct, -0.06pct, +0.65pct, and -0.36pct to 1.49%, 2.18%, 2.39%, and -1.74%, respectively. Among them, 2024Q2 sales expense ratio, management cost rate, R&D expense rate, and financial expense ratio were -0.35pct, +0.43pct, +0.63pct, +0.25pct to 1.25%, 2.40%, 2.38%, and - 3.58%

Intelligent manufacturing enables global development, and the 833plus strategy is progressing steadily. The company introduced intelligent manufacturing into the tire production process, realized the automation, informatization, digitalization, visualization and traceability of tire production, and built an industrial Internet of Things system and manufacturing to reduce production costs and improve poor production efficiency. The per capita income and performance all exceeded the industry average, and is the only Chinese tire company in China that has received national intelligent manufacturing awards 4 times. Thanks to the power of intelligent manufacturing, the company's “833plus” strategy is progressing steadily. On the basis of the existing Qingdao plant and Thailand factory, it was announced on December 20, 2021, the construction of an intelligent manufacturing plant in Morocco was announced on December 31, 2022 and construction began on October 21, 2023. The total overseas production capacity of existing and planned semi-steel tires reached 40 million bars, and the production capacity of all-steel tires reached 2 million bars. The million strip accounts for 74% and 100% of the company's total production capacity, respectively, and the 833plus strategy is progressing steadily.

Thailand's anti-dumping duties have been implemented, helping the company's profitability to rise. On June 29, 2020, the US Department of Commerce initiated an anti-dumping investigation against Thai passenger car and light truck tires. Among them, Mori Kirin applied the original tax rate of 17.06%, and the companies affected by trade frictions made moderate concessions in terms of pricing; the anti-dumping tariff review investigation was initiated again on September 6, 2022, and the preliminary findings of the July 2023 review came to fruition. Among them, Mori Kirin applied a 1.24% review rate, which was the lowest tax rate level among the results of the review of many tire companies; the final ruling of the January 2024 anti-dumping tariff review came to fruition, which came to fruition. Kirin maintained for the first time The tax rate level of 1.24% was reduced significantly from the original tax review rate. Currently, the company's Phase I & Phase II plants in Thailand have a total production capacity of 16 million semi-steel tires. The sharp reduction in the tax rate is expected to further strengthen the competitiveness of the company's products, increase demand, and increase profitability through price increases, etc.

Investment advice: The company's intelligent manufacturing capacity is leading the industry, and continues to empower global development. As production capacity in Morocco and Spain is implemented one after another, it has contributed to increased growth, compounded by reduced tariffs, leading to a continuous improvement in the company's revenue and profitability. We expect the company's revenue for 2024-2026 to be 9.745/11.661/13.497 billion yuan, net profit to mother of 2.212/2.483/2.837 billion yuan, corresponding EPS of 2.15/2.41/2.76 yuan, corresponding to the closing price of 23.20 yuan/share on August 30, 2024, PE is 11/10/8 times, respectively, maintaining the “recommended” rating.

Risk warning: Fluctuations in raw material prices, global tire demand falling short of expectations, exchange rate fluctuations, falling short of expectations in new production capacity, intensifying international trade frictions, freight price fluctuations, etc.