Key points of investment

Incident: Sailun Tire released its 2024 semi-annual report. 24H1 achieved revenue of 15.154 billion yuan, up 30.29% year on year; net profit of 2.151 billion yuan, up 105.77% year on year; net profit after deducting non-return to mother of 2.052 billion yuan, up 80.94% year on year; gross profit margin of 28.77%, up 4.79 pct year on year. Looking at a single quarter, 24Q2 achieved revenue of 7.858 billion yuan, up 25.53% year on year, up 7.71% month on month; net profit of 1.118 billion yuan, up 61.85% year on year, up 8.13% month on month; net profit without return to mother of 1.037 billion yuan, up 35.21% year on year, up 2.20% month on month; gross profit margin 29.77%, up 2.65 pct year on year, up 2.09 pct month on month.

The tire boom continues, and the company's performance is impressive. The global automobile industry continued its overall growth trend in the first half of 2024. Coupled with rigid replacement consumption brought about by travel, demand in the tire industry was strongly supported, and the market size continued to expand. According to Michelin data quoted in Sailun Tire's 2024 semi-annual report, global tire sales in the first half of 2024 were 0.9 billion pieces, an increase of 2.69% over the previous year. Among them, sales of semi-steel tires were 0.794 billion, up 2.70% year on year; sales of all-steel tires were 0.106 billion, up 2.61% year on year. Against the backdrop of high overseas inflation and high interest rates, the cost performance advantages of Chinese tire companies' products are prominent. Chinese tire companies are gradually seizing the global tire market share, and the global market share is expected to increase further. In the first half of 2024, the results of the company's global strategy, technological innovation and brand building continued to show, and the products were recognized by more and more domestic and foreign customers. The production and sales volume of the company's all-steel, semi-steel and off-highway tire products all reached the highest level in the same period in history. Domestic and foreign sales both increased by more than 30% year-on-year, with products with higher gross margins increasing even more. 24H1 produced 35.4106 million tires, up 37.89% year on year; sold 34.5437 million tires, up 37.56% year on year. 24Q2 produced 18.1579 million tires and sold 17.962 million tires. Affected by factors such as changes in product structure, the company's average tire price fell 3.44% year on year in the second quarter, up 0.46% month on month. The overall price of 2024Q2's four main raw materials, natural rubber, synthetic rubber, carbon black, and steel wire cords, increased 12.75% year on year and 5.47% month on month. The company minimizes procurement costs by signing strategic cooperation and long-term agreements with some raw material suppliers. At the same time, it also adjusts procurement strategies in due course to improve the accuracy of market forecasting. At the same time, the company will also minimize the adverse effects of rising raw material prices on the company by adjusting product prices and increasing the sales ratio of high-value-added tires.

The global layout continues to deepen. Sailun Tire is the first tire company in China to go overseas and continues to promote a global high-quality layout. It currently has tire production bases in Qingdao, Dongying, Shenyang, Weifang, Vietnam, and Cambodia in China, and plans to build tire production bases in Dongjiakou, Qingdao, Mexico, and Indonesia. According to market demand and its own reality, the company carried out technical modifications to the off-highway tire project at the Qingdao factory and continuously increased the off-road tire production capacity of the Weifang plant. Overseas, in October 2023, the Cambodian factory invested in a new project with an annual output of 6 million semi-steel radial tires; in January 2024, an additional investment was made to increase the annual production capacity of 6 million semi-steel radial tires. After the construction of the project is completed, the Cambodian plant will have an annual production capacity of 21 million semi-steel radial tires and 1.65 million all-steel radial tires; in December 2023, the company plans to establish a joint venture in Mexico to invest in the construction of 6 million and a half wheels per year Steel radial tire project; In March 2024, the company plans to invest in a project with an annual output of 3.6 million radial tires and 0.037 million tons of off-road tires in Indonesia. Up to now, the company has planned to build an annual production capacity of 26 million all-steel radial tires, 0.103 billion semi-steel radial tires, and 0.447 million tons of off-road tires. 2024H1, Sailun Vietnam achieved revenue of 4.051 billion yuan and net profit of 0.876 billion yuan; CARTIRE (Cambodia factory) earned 1.841 billion yuan and net profit of 0.474 billion yuan to mother.

Investment advice: Sailun Tire benefits from the continued boom in tires, the overseas layout continues to advance, and the performance is expected to continue to grow. Considering dividends and other effects, we adjusted the profit forecast. The company's revenue for 2024-2026 is 31.356/34.865/40.184 billion yuan, respectively, up 20.7%/11.2%/15.3% year on year, and net profit to mother is 43.13 (original 43.20) /49.89 (original 50.05) /58.62 (58.83) billion yuan, respectively, up 39.5%/15.7%/17.5% year on year, corresponding PE is 9.8x/ 8.5x/7.2x; maintaining the “Accumulation - B” rating.

Risk warning: demand falls short of expectations; risk of trade friction; large fluctuations in raw materials; project progress falls short of expectations.