Key points of investment

The company released its 2024 three-quarter report, achieving revenue of 4.988 billion yuan, up 35.56% year on year; net profit to mother 0.38 billion yuan, up 139.49% year on year; net profit after deducting non-return to mother 0.364 billion yuan, up 162.53% year on year. Among them, 24Q3 revenue for a single quarter was 1.92 billion yuan, up 33.45% year on year and 18.17% month on month; net profit to mother was 0.093 billion yuan, down 7.16% year on year and 30.21% month on month; net profit without return to mother was 0.089 billion yuan, down 5.66% year on year and 29.99% month on month, which is lower than our previous expectations.

New production capacity continues to expand, and the company's sales volume increased year-on-month

The company's new production capacity continues to expand. 24Q3's tire sales volume was 5.518 million bars, up 55.0% year on year and 27.4% month on month; the average price of Q3 tires was 348.1 yuan/bar, down 12.3% year on year and 5.0% month on month, which is expected to be affected by changes in product structure and pricing strategy. In terms of raw materials, 24Q3's procurement prices for natural rubber, synthetic rubber, carbon black, and steel cords changed by +7.33%, +7.10%, -8.92%, and -3.26%, respectively, month-on-month. Prices of major raw materials rose, and the company's profitability declined month-on-month in Q3. The gross profit margin was 15.05%, down 2.32pct from month to month; the net profit margin was 4.87%, down 3.39 pcts month-on-month. The larger decline in net interest was mainly due to the increase in financial expenses of about 67 million yuan month-on-month. The company's net operating cash flow for the first three quarters of 24 was 0.52 billion yuan, down 25% from the same period. In 24Q3, the company's inventory turnover ratio was 2.20 and the accounts receivable turnover ratio was 3.95, both of which increased year-on-year.

Abundant production capacity under construction to accelerate the company's growth

The 24Q3 company's ongoing construction project was 1.224 billion yuan, an increase of 5% over the previous year. The company is currently under construction with abundant production capacity. On June 28, '24, the company's Thailand Phase II 10 million semi-steel production project and the domestic 6 million semi-steel phase II technical improvement project were put into operation on the same day. Additionally, on August 28, '24, the Cambodia Phase II project with an annual output of 3.5 million semi-steel tires and 750,000 all-steel tires was put into operation. The above two overseas projects are expected to increase the company's production capacity by 13.5 million bars of semi-steel and 750,000 bars of all-steel production capacity. The company's overseas bases will be rich in additional production capacity in the future, and domestic technical reforms are expected to optimize the product structure and improve profitability. With joint efforts at home and abroad, we believe that the company is expected to usher in a period of rapid growth in performance.

Profit forecasting and valuation

The rise in raw materials such as natural rubber compounded the impact of short-term financial expenses, and reduced the company's net profit to mother in 24 to 0.537 billion yuan. The estimated net profit to mother for 25-26 is 0.908 billion yuan and 1.063 billion yuan, and the current price of PE is 15.14, 8.96, and 7.66 times. The company has abundant production capacity under construction, and the release of new overseas production capacity is expected to help the company grow rapidly in performance and maintain its buying rating.

Risk warning

The release of new production capacity fell short of expectations; sea freight and raw material prices fluctuated greatly; international trade frictions; exchange rate fluctuations