Description of the event

The company released its three-quarter report for 2024. In the first three quarters, it achieved revenue of 4.99 billion yuan (YoY +35.6%), realized attributable net profit of 0.38 billion yuan (+139.5% YoY), and realized 0.36 billion yuan of attributed deducted non-net profit (+162.5% YoY). Among them, Q3 achieved revenue of 1.92 billion yuan in a single quarter (+33.4% year over month, +18.2% month on month), realized attributable net profit of 0.09 billion yuan (-7.2% year on year, -30.2% month on month), and realized attributable deducted non-net profit of 0.09 billion yuan (-5.7% yoy, -30.0% month-on-month). Q3 Revenue reached a record high.

Incident comments

In the first three quarters of 2024, the tire boom remained high, and the company's revenue and profit increased dramatically. In the first three quarters, the company's revenue and profit increased significantly. The overall gross margin was 16.7% (+2.8 pct year on year), and the overall net margin was 7.6% (+3.3 pct year on year). The main reasons for the increase in performance and profitability are: 1) Product side: In the first three quarters, the company produced 14.551 million tires and sold 13.598 million tires. Production and sales increased 69.0% and 55.9% year-on-year. The production and sales volume of the company's tire products reached the highest level in the same period in history; 2) Export side: in 2024, inflationary pressure in Europe and the US is still under low inventory; Chinese brand tires continue to maintain a high export growth rate due to high cost performance, and overseas market share continues to increase; 3) Develop overseas double bases: the company's Thai factory is booming in production and sales in 2023, and orders continue to be in short supply; since the opening of the Cambodian factory in May 2023, production capacity has continued to accelerate, and production is expected to be fully achieved in 2024.

Under the influence of these multiple benefits, the company's revenue and performance increased significantly in the first three quarters of 2024.

Q3 Sales increased significantly month-on-month, and gross margin declined month-on-month. Q3's tire production totaled 5.703 million bars, +21.7% month-on-month; sales totaled 5.518 million strips, +27.4% month-on-month. According to the company's operating data, Q3's revenue from a single child was 348.1 yuan, a decrease of 18.2 yuan over the previous month. The decline in single tire prices is mainly due to the company's continuous investment in semi-steel production capacity, and the average unit price drop. The Q3 quarterly gross margin was 15.0% (-0.9 pct yoy, -2.3 pct month-on-month), and quarterly net margin was 4.9% (-2.1 pct yoy, -3.4 pct month-on-month). The month-on-month decline was mainly due to rising production capacity at home and abroad, leading to upfront costs, sea freight subsidies, and rising raw material prices. With the full release of production capacity at the company's bases in Thailand and Cambodia, shipping prices falling to normal levels, etc., the company's profitability is expected to continue to increase.

The product structure is continuously optimized, and overseas double bases are laid out. In terms of intelligent manufacturing, the company accelerates intelligent manufacturing and digital transformation, and is a model enterprise that complies with the standards of the integrated management system of two modernizations in Jiangsu Province in 2022. In terms of product strength, the company's engineering tires, semi-steel tires, and all-steel tires are committed to product development and user orientation. They have certain advantages in market segments, and have won various awards at home and abroad.

In terms of product structure, the company continues to increase the sales share of semi-steel tires with stronger consumer properties, and profitability continues to increase. As of 2024H1, the company's share of semi-steel tire product revenue has risen to 42.1%. In terms of overseas layout, with the implementation of the company's production capacity in Thailand in 2020 and the gradual release of production capacity in Thailand and Cambodia projects in 2020-2024, the company's share of overseas revenue increased from 25.8% in 2020 to 79.7% in 2024H1, and the share of overseas gross profit increased from 35.9% in 2020 to 100.7% in 2024H1. The internationalization strategy greatly improved the company's profitability.

Maintain a “buy” rating. The company is a tire company that started with oblique interlacing, continuously expanded its categories horizontally, and gradually developed into a full range of products. The company has leading R&D capabilities, and its products have hard power. Overseas bases in Thailand and Cambodia are gradually gaining strength, and there is plenty of momentum for growth. The company's net profit for 2024-2026 is expected to be 0.57, 0.88, and 1.19 billion yuan, respectively.

Risk warning

1. The construction progress of the project falls short of expectations;

2. Trade frictions have intensified and raw material prices have fluctuated.