Key points of investment

Incident: Mori Kirin released its 2024 three-quarter report. In the first three quarters of 2024, revenue was 6.34 billion yuan, up 10.42% year on year; net profit to mother was 1.726 billion yuan, up 73.72% year on year; net profit after deducting non-return to mother was 1.718 billion yuan, up 79.43% year on year. Looking at a single quarter, 24Q3 achieved revenue of 2.23 billion yuan, up 1.13% year on year and 11.82% month on month; net profit to mother of 0.648 billion yuan, up 67.48% year on year, up 13.04% month on month; net profit without return to mother of 0.659 billion yuan, up 76.12% year on year and 17.22% month on month.

Production and sales continued to grow, and profitability improved. Order demand for the company's high-quality, high-performance semi-steel tire products in the European and American tire markets continues to be in short supply, while the company continues to steadily develop the domestic market with high potential for growth. 24Q3 achieved net profit of 0.648 billion yuan to mother, a year-on-year increase of 67.48%, and a record high profit in a single quarter.

At the same time, the company's profitability improved markedly. The gross profit margin for the first three quarters of 2024 was 35.45%, up 11.08pct year on year; the gross profit margin for the 24Q3 single quarter was 39.52%, up 11.99pct year on year, and 4.25pct month-on-month. From January to September 2024, the company completed tire production of 24.2431 million bars, an increase of 14.05%; among them, the production of semi-steel tires was 23.5585 million bars, an increase of 13.73% over the previous year; the production of all-steel tires was 0.685 million bars, up 26.10% year on year. The company completed tire sales of 23.3581 million bars, up 7.88% year on year; among them, sales of semi-steel tires were 22.6815 million bars, up 7.33% year on year; sales of all-steel tires were 0.6765 million bars, up 30.10% year on year.

The Morocco plant is put into operation, which is expected to contribute a new profit growth point. According to Morikirin's official account, on September 30, 2024, the company officially launched the first batch of tire products at its factory in Morocco. From the official start of construction on October 21, 2023 to the official commissioning on September 30, 2024, it only took 11 months to successfully build an intelligent manufacturing plant with an annual output of 12 million high-performance passenger car tires. Mori Kirin's order demand continues to be in short supply. The commissioning of the Moroccan plant will help the company produce tires and execute orders. Large-scale production will be achieved in 2025. It is expected that 6-8 million strips will be released throughout the year, and full production of 12 million bars will be achieved in 2026. Currently, the intended orders have far exceeded the planned production volume for next year.

Investment advice: Morikirin is benefiting from the tire boom and lower trade tax rates. The Moroccan factory is in production volume, and the performance is expected to continue to grow. We maintain our profit forecast. We expect the company's revenue for 2024-2026 to be 9.515/11.326/12.814 billion yuan, up 21.3%/19.0%/13.1% year on year, and net profit to mother of 2.219/2.709/3.115 billion yuan respectively, up 62.1%/22.1%/15.0% year on year, corresponding PE is 11.9x/9.7x/8.5x, respectively; maintaining the “buy-B” rating.

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