Core views
In 2023, the company achieved net profit of 1.39 billion yuan, +377% year-on-year, and achieved net profit of 441 million yuan in 24Q1, +106% year-on-year and +2.3% month-on-month. Domestic demand for tires has recovered in 23 years, external demand has continued to improve, raw materials and shipping costs have declined, and the profitability of the industry has been significantly restored.
The company actively explores the middle and high-end market, with a market share of nearly 24% in the field of new energy tires, ranking first among Chinese tires. The company adheres to the “7+3” global strategic layout and the “3+3” off-road tire industry layout. The planned production capacity of the Serbian plant is 13.6 million sets (annual output of 12 million bars of semi-steel+1.6 million bars of full steel), and 800,000 sets were put into operation at the end of 23, which is expected to become an important growth point for the company's performance in the future!
occurrences
The company released its 2023 annual report and 2024 quarterly report. The performance increased year-on-year. The company achieved operating income of 20.2 billion yuan in 2023, +18.6% year over year, net profit attributable to mother of 1.39 billion yuan, +377% year over year, net profit after deducting non-return to mother of 1.30 billion yuan, and +623% year over year.
The company achieved operating income of 5.04 billion yuan in 24Q1, +15.0% year-on-month, and realized net profit of 441 million yuan, +106% year-on-year, +2.31% month-on-month, net profit of 428 million yuan after deduction, +137% year-on-year and +5.83% month-on-month.
Brief review
The industry continued to prosper, and the company's performance improved significantly. Profitability increased significantly. In 2023, we benefited from the continuous recovery of domestic economic activity and rising demand from overseas markets, compounded by falling raw material prices and shipping costs, and the boom in the tire industry. The company seizes market opportunities and actively explores the market. In 2023, the tire production and sales volume was 7912/77.98 million pieces, +20.4%/+26.1% year on year, and the output was +19.2%/+30.8%/-6.2%. Due to the decline in main raw materials and shipping costs, the company's profitability increased. The gross margin of the main business in '23 was 21.0%, compared to +7.40pct. The average price was 255 yuan/bar, -5.83% year on year. Increased production and sales combined with increased profitability. The company's net profit to mother increased 377% year-on-year in '23, which is a significant improvement.
Tire demand has continued to prosper since 24 years. The company produced and sold 2155/18.98 million tires, +25.9%/+13.5% year-on-year, achieving revenue of 4.98 billion yuan. Due to changes in product structure and raw material prices, the average price of 24Q1 tires was 263 yuan/bar, +1.84% year-on-year, compounded by the implementation of the US import tariff reduction from Thailand, with a gross profit margin of 23.4%, +6.5 pct year on year.
High-end support has taken a new high ground, and the brand power is rapidly improving
The company's brand invests in the global middle and high-end markets, and the company actively explores the supporting middle and high-end markets. In 2023, the company cooperated closely with OEMs such as Audi, BMW, Stellantis, and BYD, and added supporting mass production projects, including BYD Dolphin/Seagull, Changan Yida, Nissan Sylphy/Tiida, Brazilian Volkswagen Polo, American and Mexican BMW 3 Series/5 Series/X3/X4, etc., and its brand strength continued to grow rapidly. The company has supplied nearly 280 million tires to car companies, with a market share of nearly 24% in the field of new energy tires, ranking first among Chinese tires. The increase in NEV ownership and penetration rate will also have a driving effect on the company's NEV tire replacement market. The company will continue to increase research and development of new energy tires, seize opportunities, follow the trend to build supporting brands, and enhance market competitiveness.
To promote the strategic layout of global production capacity, the Serbian factory provides performance growth points to promote the company's global production capacity layout, enhance productivity and consolidate the core competitiveness of the international market. Linglong Tire has firmly established the “7+5” global strategic layout and implemented the “3+3” off-road tire industry layout in the “7+5” strategic layout. Currently, the company has five production bases in Zhaoyuan, Dezhou, Liuzhou, Jingmen and Changchun in China. It plans to build two other domestic production bases in Shaanxi and Anhui, and two overseas production bases in Thailand and Serbia, making full use of global resources to develop the global tire market. In January 2024, the first giant radial tire independently developed by the company was successfully launched in Jilin, filling the company's gap in this field. The company's Serbian plant obtained a trial license for 1.2 million truck tires in May 23, and a trial license for passenger car tires in December '23, and construction work continues to advance. The Serbian plant has a design capacity of 13.6 million sets (12 million bars of semi-steel plus 1.6 million bars of full steel). It is expected to be completed in 25 years, and 800,000 sets will be put into operation by the end of 23. It is expected to become a new engine for the company's production, sales and performance growth in the future, increasing the company's market share and profitability.
Profit forecast and valuation: The company is expected to achieve net profit of 2.147 billion yuan, 2,636 billion yuan, and 2,885 billion yuan respectively in 2024-2026, corresponding EPS of 1.46 yuan, 1.79 yuan, and 1.96 yuan respectively, maintaining a “buy” rating.
Risk warning: 1. Risk of raw material supply and price fluctuations: The company's main raw materials such as natural rubber, synthetic rubber, carbon black, etc. are affected by multiple factors such as trade policies and exchange rates, and the price changes will have an impact on the company's profit situation; 2. Risk of rising international trade barriers: With anti-dumping and countervailing investigations initiated by the US against South Korea, Thailand, Vietnam, etc., there is still a lot of uncertainty about future international trade, which may bring certain risks to the company's overseas sales business; 3. RMB exchange rate fluctuation risk: the company's tire products are mainly exported in US dollars Trade settlement, fluctuations in the exchange rate of RMB against the US dollar pose a certain degree of risk of uncertainty to the company's operations; 4. Projects under construction fall short of expectations: there are uncertainties in factory construction at home and abroad to a certain extent, causing progress in the commissioning of new production capacity in the future to lag significantly behind.