Company announcement: In the first three quarters, it achieved revenue of 4.988 billion yuan (YoY +35.6%), realized net profit of 0.38 billion yuan (YoY +139%), and realized net profit of 0.364 billion yuan (YoY +163%); of these, 24Q3 achieved revenue of 1.92 billion yuan (YoY +33.5%, QoQ +18.2%), and realized net profit to mother of 93.33 million yuan (YoY -7.2%, QoQ -30.2%) ), achieving net profit of 88.64 million yuan after deducting non-return to mother (YoY -5.7%, QoQ -30%).

In 2024, the first phase of production in Cambodia reached full capacity, and overseas bases contributed increased one after another, resulting in continued growth in overall production and sales, which led to an increase in profitability. Since this year, the company has continued to develop a dual overseas base. Relying on the competitive advantage of high-performance, high-quality, green and safe products and close to the market service, semi-steel orders continued to be in short supply; the Cambodian factory only took a year, and the first phase of the project achieved full production of 0.9 million all-steel tires and 5 million half-steel tires in May this year, becoming a new profit growth point for the company. According to the company's announcement, tire production and sales in the first three quarters were 14.55 million (YoY +69%) and 13.6 million (YoY +52.4%), respectively. On the cost side, according to Baichuan data, the average prices of natural rubber, styrene-butadiene rubber, butadiene rubber, and carbon black changed by +18%, +21%, +26%, and -7%, respectively. Raw material costs increased, but due to the increase in the company's share of overseas bases and the decline in Thailand's semi-steel tax rate, the overall gross margin for the first three quarters increased 2.75pct to 16.67% year on year. On the cost side, overall expenses were well controlled. The overall sales, management, and R&D expenses fell 1.3 pct year on year, and financial expenses increased by about 40 million yuan year on year due to exchange losses. Overall, the net profit margin for the first three quarters increased by 3.32 pct to 7.63% year on year.

Revenue and sales reached record highs in 24Q3. Global market share continued to rise, and profits declined due to losses in raw materials and exchange. With the completion of the first phase of production in Cambodia and the gradual commissioning of the second phase of production capacity in Thailand and new domestic semi-steel, the company's tire production and sales reached a record high in the third quarter. According to the company's announcement, about 5.7025 million bars (YoY +68.6%, QoQ +21.7%) and 5.518 million bars (YoY +55%, QoQ +27.4%), respectively, the increase in representative share continues. According to the company's announcement, on the cost side, the procurement price of natural rubber, the main raw material, increased 7.33% month-on-month, the purchase price of synthetic rubber increased 7.1% month-on-month, the purchase price of carbon black decreased by 8.92% month-on-month, and the procurement price of steel cords decreased by about 3.26% month-on-month. Affected by the increase in the price cost of the main raw material rubber and shipping subsidies, the gross margin fell 2.32 pct to 15.05% month-on-month in the third quarter. On the cost side, the net profit margin fell 3.39 pct to 4.87% month-on-month due to increased management and financial expenses.

Projects under construction are gradually being upgraded, and the dual bases contribute to future growth. According to the announcement, as of the end of September 2024, the company's projects under construction were about 1.22 billion yuan, down 0.314 billion yuan from the end of June, and fixed assets were about 6.53 billion yuan, an increase of 1.29 billion yuan over the end of June. The main thing is that the Cambodian project has begun to enter the transformation phase. We expect Thailand Phase II to be fully produced in the first half of 2025, and Cambodia Phase II is expected to be fully produced in Q3 2025. Overall overseas production capacity is expected to double within 3 years.

Profit forecast and valuation: Considering the impact of exchange and shipping in 24 years, and that Thailand's Quangang may be affected by anti-dumping in the next year, and that profits from domestic bases have not been corrected in the short term, the profit forecast was lowered. Net profit to the mother for 2024-2026 is estimated to be about 0.55, 0.85, and 1.18 billion yuan (the original forecast was 0.66, 0.96, 1.36 billion yuan), corresponding to PE, about 15, 10, and 7 times, respectively, to maintain an “increase in holdings” rating.

Risk warning: large fluctuations in raw materials affect profitability; production capacity investment falls short of expectations