Incidents:

The company published its 2024 three-quarter report. The first three quarters of 2024 achieved revenue of 4.88 billion yuan +33% YoY, and net profit to mother of 0.34 billion yuan +64% YoY.

Comment:

2024Q3 performance remained high year over year. 2024Q3 achieved revenue of 1.65 billion yuan +34% year over year, net profit to mother of 0.15 billion yuan +32% year over year, gross sales margin of 27.1%, and net sales margin of 10.9%.

The gross profit margin for the first three quarters was 24.3% yoy -1.6 pct, and the net sales margin was 8.4% yoy +1.3 pct.

Benefit from Chinese companies going overseas. Since 2023Q4, domestic tire companies have successively “gone global” and invested overseas, setting off a new round of investment boom. In the new round of industrial upgrading and market competition, Chinese tire brands are expected to further enhance their international position, seize the global market, and become important leaders in the global tire industry. Affected positively by this, the company maintained a good growth rate of new orders throughout 2024. As of 2024Q3, the company's inventory was 6.54 billion yuan +10% YoY, and contract liabilities were 4.75 billion yuan +20% YoY.

The growth rate of China's tire exports has slowed in 2024. In 2023, China's tire exports were 8.86 million tons +16%, and the export value was 22.2 billion US dollars +13% year on year; or due to factors such as rising shipping costs, China's tire exports were 6.94 million tons +4% year over year from January to September 2024, and the export value was 17.2 billion yuan +3% year over year, and the growth rate slowed.

Amortization fees for restricted stocks and stock option incentives are expected to decline in 2025. In August 2022, the company implemented restricted stock and stock option incentives. The plan includes performance requirements. Based on 2021, net profit growth in 2024 was not less than 125%, or 0.284 billion yuan. In August 2023, the company once again implemented restricted stock incentives. The performance assessment targets include a net profit growth rate of not less than 60% in 2024, or 0.325 billion yuan, based on 2022. The two incentive plans are expected to amortize a total of 0.052/0.06/0.017 billion yuan from 2023 to 2025.

Maintain a “buy” rating. From 2024 to 2026, the company is expected to achieve operating income of 7.1/8.7/9.9 billion yuan, a year-on-year increase of 26%/21%/15%, and net profit to mother of 0.5/0.65/0.78 billion yuan, an increase of 50%/30%/20% year-on-year, corresponding PE 16/13/10 times.

Risk warning: Downstream capital expenditure falls short of expectations, risk of overseas business and exchange rate changes, company performance falls short of expectations