The company released its 2024 mid-year report, achieving revenue of 5.174 billion yuan (YoY +16.5%) in the first half of the year, achieving net profit attributable to mother of 0.427 billion yuan (YoY +25.7%), and realized net profit of 0.421 billion yuan (YoY +24.8%); of these, 24Q2 achieved revenue of 2.735 billion yuan (YoY +11.9%, QoQ +12.1%), and achieved net profit to mother of 0.219 billion yuan (YoY- 11.2%, QoQ +5.7%), achieved net profit without return to mother of 0.218 billion yuan (YoY -11.5%, QoQ +6.9%), and the performance was in line with expectations.

The company's tire production and sales continued to grow in the first half of the year, but costs were affected by raw material and shipping pressure, and gross margin declined slightly. According to the announcement, the domestic all-steel tire market was affected by the infrastructure and logistics industry. Demand for replacement markets slowed down, and overseas demand still increased year-on-year. As the company's domestic and foreign dual base process accelerated in the first half of the year, the increase in Vietnamese company production capacity provided support for a 41.32% increase in the company's overseas sales revenue over the same period last year. In the first half of the year, the company completed tire production and sales volume of about 4.7942 million bars (YoY +18.8%) and 4.7175 million bars (YoY +19.8%), respectively. Release.

According to the announcement, the Vietnamese factory completed tire production of 1.026 million pieces (YoY +121%) and sales volume of 1.0423 million bars (YoY +122%) in the first half of the year, achieving revenue of 0.882 billion yuan (YoY +97%) and net profit of 0.164 billion yuan (YoY +174%). On the cost side, the main raw materials rose in the first half of the year. According to the company's interim report, polybutadiene rubber, and accelerators all increased the most, at around 23%. Styrene-butadiene rubber increased by nearly 17% year on year. Combined with a rapid rise in shipping costs from May to June, the overall decline in the company's gross margin was 1.16 pct to 19.65% year on year. On the cost side, overall expenses were properly controlled. The overall sales expense ratio, management expense ratio, and R&D expense ratio decreased by 0.61 pct year on year, financial expenses declined due to the decline in debt conversion costs, and bad debt losses in accounts receivable fell by about 13 million yuan. Overall, the net profit margin increased 0.57 pct to 8.29% year over year.

The second quarter benefited from continued expansion of the Vietnamese base. Revenue increased month-on-month, and profitability declined due to costs. The company's Vietnam Phase II production capacity was gradually upgraded, contributing to incremental revenue and production and sales. As of the end of June 2024, the company's fixed assets increased by 0.224 billion yuan compared to the end of March, and the number of projects under construction decreased by 0.171 billion yuan compared to the end of March. The main variables were the gradual transformation of Vietnam's 0.95 million all-steel radial tire project (Vietnam Phase II). Vietnam Phase II was gradually put into operation last year. Currently, the second phase of Vietnam is 0.8 million steel and 0.15 million non-highway. Million bar steel still has a high operating rate. The pattern for some off-highway products is slightly more intense than last year. On the cost side, raw materials and shipping were still under pressure in the second quarter, compounded by a slight pressure on domestic all-steel demand. According to Wind data, the operating rate of the domestic all-steel industry fell 3.26 pcts year-on-year in Q2, so the company's gross margin fell 4.2 pct and 0.97 pct, respectively, in the second quarter.

The net profit margin declined by 2.11 pct and 0.51 pct to 8.05%, respectively, compared with the same period last month.

Domestic off-highway projects and Vietnam's Phase III semi-steel project contributed in later stages. According to the company's announcement, the first phase of the all-steel radial tire intelligent manufacturing project with an annual output of 0.38 million bars has an annual production capacity of 0.2 million bars, reached design production capacity at the end of 2023, and achieved an efficiency of 73.09 million yuan in the first half of the year; the second phase is still under construction with an annual output of 0.18 million bars. In addition, the company previously announced the addition of Vietnam's Phase III 6 million semi-steel radial tire intelligent manufacturing project, with a total investment of nearly 0.23 billion US dollars. According to the company announcement, the project is expected to achieve annual revenue of 0.19 billion US dollars and a total annual profit of 28.62 million US dollars.

Profit forecast and valuation: Considering the rise in shipping costs this year and the company's off-highway product pattern, the profit forecast was lowered. The net profit forecast for 2024-2026 is estimated to be about 0.91, 1.08, 1.27 billion yuan (the original forecast was 1.01, 1.16, 1.31 billion yuan), corresponding to PE about 7, 6, or 5 times, to maintain the “gain” rating.

Risk warning: Large fluctuations in raw material prices affect profitability; production capacity cannot be absorbed as expected