Incident: On December 17, 2024, the company announced the implementation announcement of equity distribution for the third quarter of 2024. This profit distribution was based on the company's total share capital of 1.464 billion shares before implementation of the plan, with a cash dividend of 0.162 yuan (tax included) per share, for a total cash dividend of 0.237 billion yuan.

Reviews:

Tire production and sales grew steadily in the third quarter, and cost pressure was hedged by price increases. In the first three quarters, the company achieved 65.7208 million tire production, +14.98% year over year, sales volume of 61.3351 million bars, +10.81% year over year, and achieved tire product revenue of 15.763 billion yuan, or +10.03% year over year. Looking at the third quarter of a year, the company achieved tire production of 22.3304 million pieces, +8.36% year over year, sales volume of 21.4288 million bars, +10.68% year over year, and achieved tire product revenue of 5.513 billion yuan, or +5.90% year over year. On the price side, the average price of the company's tire products in the third quarter was -4.32%, +2.24% month-on-month; on the cost side, the company's comprehensive procurement cost of the four main raw materials of natural rubber, synthetic rubber, carbon black, and steel wire cords in the third quarter was +15.40%, or +1.87% month-on-month. In response to the rise in raw material prices, the company issued two consecutive price increase notices: ① starting October 1, 2024, the price increase for some PCR product lines in the domestic retail market, with a price increase of 3%-5%; ② starting November 1, 2024, the price increase for all TBR product lines in the domestic retail market will be increased by 2%-3%, and the price increase for some PCR product lines in the domestic retail market will be increased by 2%-3%. At the same time, the company will grasp the pace of procurement and reduce the impact of fluctuations in raw material prices through measures such as early inventory preparation, which is expected to hedge against cost-side pressure and improve profit performance in the fourth quarter.

The receipt of anti-dumping tax rebates has led to a significant increase in profits. The company's gross profit margin for the first three quarters was 24.35%, +4.65pct year on year, 10.73% year-on-year, +4.13pct; the company's gross profit margin for the third quarter was 27.39%, +4.46pct year-on-year, +5.33pct month-on-month, and 14.12%, +6.59pct year-on-year, and +5.04pct month-on-month. Under the upward pressure of raw materials, the company still achieved a significant increase in profit margin levels: ① The company received a total of 56.06 million US dollars of anti-dumping tax rebates from the US against the Thai factory in the third quarter, directly increasing the company's profits; ② the second overseas base released production capacity one after another, and production and sales both increased. Among them, the sales volume of passenger car tires with high gross profit increased significantly; ③ This year, the company actively upgraded products and continued structural adjustments in domestic and foreign retail and supporting markets; ④ the company continued to reduce costs and increase efficiency, and achieved a significant increase in profitability.

The “7+5” strategic layout progressed steadily, and production capacity was added at the Serbian base. The company's “7+5” strategy is to build 7 production bases in China and 5 production bases overseas. As of mid-2024, the company already has 7 domestic production bases in Zhaoyuan, Dezhou, Liuzhou, Jingmen, Changchun, Tongchuan (early planning), and 2 overseas production bases in Thailand and Serbia. Among them, the Thai factory plans to produce 15 million passenger and light truck tires and 2.2 million truck tires per year, with production capacity of 13 million and 2.2 million truck tires by 2023; the Serbian factory plans to produce 12 million passenger and light truck tires and 1.6 million truck and bus tires per year. As of 2023, production capacity for passenger and light truck tires has not been implemented, and the production capacity of truck and bus tires will reach 0.8 million. Recently, the company's Serbian plant has entered a phase where production capacity continues to rise. Production, sales and order volume are on the rise, and profits were achieved in the third quarter. In the future, profits are expected to continue to improve as production capacity continues to be released. At the same time, the company plans to invest 0.645 billion US dollars to expand the Serbian project to build 1.1 million sets of high-performance radial tires, including 0.8 million sets of all-steel radial tires, 0.05 million sets of engineering radial tires, 0.15 million sets of agricultural radial tires, 0.1 million sets of reclaimed tires, and 0.006 million tons of liquid reclaimed rubber. The project is expected to be put into use by the end of 2030, which is expected to further enhance the company's comprehensive global competitiveness in the long term and Brand influence.

Profit forecast: We expect the company's net profit to be 2.231, 2.747, and 3.082 billion yuan respectively in 2024-2026, +60.4%, +23.1%, and +12.2% year-on-year, respectively, and corresponding EPS of 1.52, 1.88, and 2.11 yuan respectively. Maintain the company's “buy” rating.

Risk warning: Project construction progress falls short of expectations; raw material prices fluctuate greatly; downstream demand falls short of expectations; trade frictions intensify.