Investment logic:

Competitive advantage: Deep cultivation in semi-steel, pioneering overseas, intelligent manufacturing, leading the industry in profitability.

Since its establishment, the company has been focusing on the semi-steel tire business for a long time. In 2023, it had a production capacity of 30 million tires, of which 28 million were half-steel tires, and the global sales market share of half-steel tires in that year was 1.8%; in the first three quarters of this year, sales of half-steel tires increased 7.3% year-on-year to 22.68 million tires. From an industry perspective, the semi-steel tire market has more space and stronger potential for future growth. At the same time, the product has certain consumer properties, so profitability is relatively better. As the 12 million semi-steel tire project at the Moroccan base begins to be put into operation, the share of semi-steel tires in production and sales will continue to increase.

As the first batch of domestic tire companies to set up factories overseas, the company's overseas production capacity for semi-steel tires in 2023 was 57%. All steel tire production capacity was overseas, and the share of sales revenue in overseas markets remained around 90%. With the commissioning of the Moroccan base and the completion of overseas factories planned to be built in the future, the company's share of overseas production and sales will further increase.

Through intelligent production, the number of workers employed is reduced, and labor costs are reduced. Compared with the number of single workers employed in semi-steel projects at domestic tire companies' overseas bases, the company employs a lower number of single children compared to peers; the cost side continues to reduce costs and increase efficiency, and the proportion of major customers is relatively high, so sales expenses are low and the management cost ratio is relatively low. The company's per capita income and profit generation are among the highest in the industry.

Future growth: Overseas base expansion drives performance growth+high-end support shapes brand value.

The company launched its first tire at its Morocco base, and large-scale sales will begin next year. Morocco's 12 million semi-steel tire project rolled off the line for the first time on September 30 this year. It is expected to release 6-8 million strip production in 2025, and achieve full production of 12 million bars in 2026. According to the research report, the total investment amount of the project is 3.45 billion yuan, and the estimated revenue after delivery is 2.96 billion yuan, profit after tax is 0.66 billion yuan, and the net interest rate will reach 22.3%.

High-end support is progressing steadily, and customer coverage is expanding while shaping brand value. In September 2023, the company hired Philippe OBERTI, who has many years of experience in supporting business with leading overseas tire companies, as the deputy general manager and R&D center director, which greatly helped the company overcome high-end support. At the same time, the company's Morocco base, as the first local tire factory, has a significant first-mover advantage in the supporting field, and will continue to benefit from the booming development of the local automobile industry.

Profit forecasting, valuation, and ratings

We predict that in 2024/2025/2026, the company will achieve operating income of 8.78, 11.41, 12.97 billion yuan, +12%/+14% year over year, net profit of 2.27, 2.65, 2.99 billion yuan, and +66%/+17%/+13% year over year, corresponding EPS of 2.2, 2.6, and 2.9 yuan. The corresponding valuations for the current stock price are 11.35, 9.72, and 8.61 times PE, respectively. Considering the company's own competitive advantage and strong future growth, the current valuation is relatively low, and it is still given a “buy” rating.

Risk Alerts

Raw material prices fluctuate greatly, the release of new production capacity falls short of expectations, international trade frictions, sea freight rates fluctuate greatly, and exchange rates fluctuate greatly