According to the Securities Times app, recently, with the support of many bullish policies, the A-share market has initiated a 'retaliatory' rebound, and many listed companies have entered a phase of valuation recovery and reassessment. According to statistics, in the past 10 trading days, calculated by the closing price, the SSE Composite Index has risen by 20.68%.

Boosted by the overall warming of the market, one of China's leading companies in the functional silane industry, Jiangxi Hungpai New Material (605366.SH), finally welcomed a rebound trend. As of the closing on October 10, the stock price of Jiangxi Hungpai New Material closed at 5.77 yuan per share. In the recent 10 trading days, the stock price of Jiangxi Hungpai New Material has already rebounded by 14.94%.

It is worth noting that on the evening of October 10, Jiangxi Hungpai New Material simultaneously disclosed an announcement about establishing a joint venture company in Thailand and a repurchase report for repurchasing shares through centralized bidding transactions, which has sparked wide market attention.

Jiangxi Hungpai New Material has formed a series of functional silane products matrices including sulfur-based, amino-based, epoxy-based, acyloxy-based, and phenyl-based products. It is one of the enterprises in China's sulfur-containing silane manufacturing sub-industry with a circular economy system and a world-leading industrial scale. Despite its performance being affected by macro environment and intensified competition in recent years, its stock price has fully reflected the risks and is currently significantly oversold.

Embracing the recovery cycle

It is understood that amid industry consolidation, in the first half of this year, Jiangxi Hungpai New Material achieved a significant increase in sales volume compared to the same period last year, although the selling price was still lower than the previous year. It achieved revenue of 0.732 billion yuan, a year-on-year increase of 10.81%; and achieved a net income attributable to the parent company of 10.8418 million yuan, a year-on-year decrease of 62.98%. Looking at a longer period, the most challenging times for the industry are already past.

As one of the world's largest producers of sulfur-containing silane, Jiangxi Hungpai New Material's customers include the top ten tire manufacturers worldwide. In 2023, the total sales volume of China's automotive market was 30.094 million vehicles, with sales of new energy vehicles reaching 9.495 million vehicles, a significant increase compared to 2022. Additionally, on October 10, the China Automobile Dealers Association Passenger Vehicle Market Information Joint Conference (Passenger Association) released preliminary statistics indicating that in September 2024, China's passenger vehicle retail sales reached 2.063 million vehicles, a year-on-year increase of 2%, and a month-on-month increase of 8%. Among them, the retail sales of new energy vehicles in September were 1.12 million vehicles, up 51% year-on-year and 9% month-on-month. From January to September this year, cumulative retail sales of passenger vehicles reached 15.529 million vehicles, a 2% year-on-year increase.

The recovery in downstream automotive industry sales has driven the rapid growth in tire demand, undoubtedly positively impacting the upstream and downstream industries, including silane.

Of course, the improvement in fundamentals ultimately boils down to performance considerations, making products the ultimate competitive edge. With current strict environmental regulations, domestic low-end tire production lines are being phased out. As an important raw material for radial tire production, sulfur-containing silane will have a broader development space in the future as China gradually implements green tire regulations, the electric vehicle market matures, and new industries develop. Jiangxi Hungpai New Material's sulfur-containing silane coupling agent products have ranked first in both global and domestic markets for six consecutive years, making it the world's largest sulfur-containing silane producer.

In addition to sulfur-containing silane, Jiangxi Hungpai New Material also has a complete industrial chain layout from basic raw materials like industrial silicon to intermediates like trichlorosilane, γ1, γ2, to various functional silanes, accumulating thick expertise and enhancing competitive advantages. It has also become the industry's first company to complete the closure of the silane production chain through technical transformations, reducing emissions of 'three wastes' during the production process and achieving better economic and environmental benefits.

Although the performance of Jiangxi Hungpai New Material has declined to a certain extent in recent years due to industry constraints, fortunately, after thorough competition, the industry has likely passed the most difficult period, and performance is expected to soon reverse. In the new economic recovery cycle, quality cyclical growth stocks will experience a second, more intense round of recovery, with market trends stemming from fundamental and valuation resonance. Such trends often last longer and are more favorable for exceptional investors to generate excess returns.

Expanding into the international market.

Looking back at the development history of international tire companies, most have grown alongside their respective countries' automotive industries. Japanese brand Bridgestone grew with Japanese car manufacturers, leveraging significant first-mover advantages; Hankook Tire's rise in the local market during the 1960s and 70s also reflects this trend.

Since the beginning of this year, with the continuous warming of the global new energy market, where the penetration rate of new energy has surpassed 50% and Chinese brand market share exceeds 50%, it has become a distinct characteristic of the Chinese automotive market. This signifies that domestically produced new energy vehicles have become the mainstream of the market.

China's domestic new energy commercial vehicles have frequently gone abroad, accelerating the layout of international markets. Data from the China Association of Automobile Manufacturers shows that the export volume of new energy vehicles in China in January-August 2022, 2023, and 2024 was 0.679 million, 1.203 million, and 0.818 million respectively.

Looking at the export destinations, Chinese new energy vehicles are not only well received in high-end markets such as Belgium and the United Kingdom but also gaining popularity in emerging markets in Central and South America, and Southeast Asia. In 2023, the countries with the highest export volume of Chinese new energy vehicles were Belgium and Thailand, which also had the highest penetration rates of Chinese new energy vehicle exports.

Alone we can do so little; together we can do so much. In the process of international expansion of the automotive industry, it is more important to build a global supply chain system, create a resilient supply chain on a global scale, achieve dual circulation domestically and internationally, and ensure that Chinese enterprises have sustainable competitiveness globally.

Currently, many Chinese car companies are choosing to build factories in Southeast Asia, which has also led many upstream manufacturing companies in the industry chain to follow suit in going overseas. For example, Sailun Tire established its first overseas tire manufacturing base in Vietnam in 2013, bringing about significant performance growth and setting an example for international development in the industry. Following this, Linglong Tire and Sentury Tire expanded production in Thailand in 2014, and Jiangsu General Science and Technology also installed new production lines in Cambodia at the end of last year.

In addition, several of the world's largest and well-known tire brands such as Michelin, Bridgestone Corporation unsponsored ADR, Goodyear, and Continental AG, have production bases in Thailand. Establishing bases in Thailand can promote close cooperation with major tire manufacturers worldwide and in China, facilitate market expansion and trade, and help create synergies in the upstream and downstream of the industry chain.

Combining this with the previous August, Jiangxi Hungpai New Material signed a 'Letter of Intent for Cooperation' with Momentive Performance Materials Inc. to improve the production technology level, quality performance, market service capabilities, and brand awareness of its silane products, enhance product competitiveness, further improve core competitiveness, and achieve sustainable high-quality development.

In this context, Jiangxi Hungpai New Material's strategic move to establish a joint venture company in Thailand is very clear. The announcement shows that Jiangxi Hungpai New Material, as the main investor, intends to establish a joint venture company in Thailand with an investment of 294,000.00 US dollars, holding a 49% stake. The aim is to further expand the Southeast Asian market, improve the overseas functional silane industry supply system, deepen the international market layout, and enhance the market competitiveness and sustainable development capabilities of the company.

For Jiangxi Hungpai New Material, its diversified product matrix is beginning to show its strength, accelerating the layout of international business. While enhancing its core competitiveness, it has demonstrated strong operational capabilities and stable performance. As the strategic planning gradually unfolds, the progressive improvement of its global production and sales layout, the overall valuation system will also be restructured, adding more room for imagination for its long-term high-quality development.

Currently, with the recovery of the capital markets, the competitive landscape of the silane industry is expected to further improve. With the start of the interest rate reduction cycle, the market's consideration of silane enterprises will become more reasonable, and financing channels will also become more accessible. Zhitong Finance believes that after a significant decline, the most difficult time for listed companies has passed, and industry leaders such as Jiangxi Hungpai New Material have also weathered the storm.