After experiencing the first differentiation achieved through overseas base layout, domestic tire companies are likely to usher in a second differentiation marked by high-endization.
According to the research reports released by sealand, with the gradual saturation of the low-end market, the transformation of domestic tire brands to the high-end market has become an irreversible trend. This transformation not only tests the comprehensive strength of enterprises in terms of product strength, channel coverage, and brand awareness, but also implies higher industry barriers and richer potential returns. After experiencing the first differentiation achieved through overseas base layout, domestic tire companies are likely to usher in a second differentiation marked by high-endization. The two key indicators of high-endization are: the counter-trend increase in comparable gross margin and breakthroughs in the high-end automotive aftermarket.
The main views of Zhonghai Securities are as follows:
Overseas bases: vast international space, high-endization is unfolding. Sealand predicts that by the end of 2025, China's tire companies' overseas base capacity for semi-steel tires will reach 0.177 billion units, targeting markets in the USA, Europe, and Southeast Asia. Assuming a 90% operating rate, with 70% exported to the USA, the export volume will be about 0.112 billion units. Relative to the USA's 2023 market of 0.305 billion units, there is still significant growth space. By the end of 2025, China's tire companies' overseas base capacity for an all-steel tire will reach 35.52 million units, targeting markets in the USA, Europe, and Southeast Asia. Assuming a 90% operating rate, with 70% exported to the USA, the export volume will be about 22.38 million units. Relative to the USA's 2023 market of 27 million units, there is still some market space.
China base: Global automotive industry recovery, China's base exports are expected to increase. China's tire base exports to Europe, Southeast Asia, Africa and other regions. It is expected that by the end of 2025, the domestic tire base will have an additional capacity of 38.33 million units for semi-steel tires and 7.15 million units for all-steel tires, offering significant growth space compared to the sum of local production in Europe and the import volume from developed areas in Europe.
According to the official website of the European Automobile Manufacturers' Association, in the period of January to August 2024, the EU's new passenger vehicle registrations were 7.1785 million units, up by +1.44% year-on-year; in the first half of 2024, the EU's commercial vehicle registrations were 1.0441 million units, up by +12.84% year-on-year. From January to August 2024, China's cumulative exports of semi-steel tires were approximately 0.236 billion units, up by +15.31% year-on-year; cumulative exports of all-steel tires were approximately 0.084 billion units, up by +2.63% year-on-year.
Domestic all-steel: The terminal demand in the commercial vehicle market is expected to rebound, leading to an increase in all-steel tire demand. It is anticipated that the domestic commercial vehicle market terminal demand will recover in 2024. According to Wind, in the period of January to September 2024, China's commercial vehicle production and sales were 2.8273 million units and 2.8925 million units respectively, with a year-on-year production decrease of -2.75% and a sales decrease of -1.56%. The expected consumption of all-steel tires in China from 2024 to 2026 will be 78.97, 81.4, 83.75 million units respectively, with year-on-year growth rates of 4.62%, 3.07%, and 2.88%.
Domestic semi-steel: Passenger vehicle production and sales remain high, driving the demand for semi-steel tires to increase in 2024. According to Wind, from January to September 2024, China's passenger vehicle production and sales were 18.155 million units and 1812.81 million units respectively, with a year-on-year production increase of 2.65% and a sales increase of 3.02%. Sealand Securities predicts that from 2024 to 2026, China's semi-steel tire consumption will be 0.336/0.36/0.383 billion units respectively, with year-on-year increases of 7.57%/7.05%/6.51%.
Industry Ratings: Considering the tire industry's advancement towards high-end and extensive internationalization, maintain a 'recommended' rating for the tire industry.
Key Focus: Sailun Tire (601058.SH), Qingdao Sentury Tire (002984.SZ), Shandong Linglong Tyre (601966.SH), Jiangsu General Science Technology (601500.SH), Guizhou Tyre (000589.SZ), Triangle Tyre (601163.SH), Prinx Chengshan (01809), Aeolus Tyre Co., Ltd. (600469.SH), Qingdao Doublestar (000599.SZ), etc.
Risk Factors: Global economic downturn, significant increase in raw material prices, significant increase in marine transportation fees, escalation of international trade frictions, and focus on companies whose performance falls below expectations.
