The domestic semi-steel tire and all-steel tire have shown significant differentiation in production, with the monthly production rate of semi-steel tires in China maintaining close to 80% since March, while the monthly production rate of all-steel tires has fluctuated below 60% from May to October.
Zhītōng Financial App learned that Sinolink Securities released research reports stating that the overall demand in the tire industry still has support, and enterprises with capacity expansion are expected to continue to see improvement in revenue. In terms of marine transportation, it is gradually returning to normal from a high position, and the negative impact on enterprise revenue and profit will be significantly alleviated; although there is cost pressure from the increase in prices of materials such as rubber, considering that enterprises have successively issued price increase letters in October and November, if the price increases are smoothly transmitted, then enterprise profits will be restored to a certain extent. In the long term, although the industry still faces risks such as intensified competition, anti-dumping tariffs, and rising raw material prices, the logic of domestic tire manufacturers seizing market share will continue, especially for those leading the way in going global with a relatively complete overseas layout.
Sinolink Securities' main points are as follows:
The overall demand in the tire industry is stable and improving, while the profit side is somewhat under pressure from marine transportation and raw materials.
In the first three quarters of this year, the global OEM market declined while the replacement market grew. The OEM market for all-steel tires and semi-steel tires decreased by 6% and 3% year-on-year, respectively, while the replacement market for both all-steel tires and semi-steel tires saw a 3% year-on-year growth. The domestic semi-steel tire and all-steel tire have shown significant differentiation in production, with the monthly production rate of semi-steel tires in China maintaining close to 80% since March, while the monthly production rate of all-steel tires has fluctuated below 60% from May to October.
Looking at the export situation, in the first three quarters, China's monthly export volume of new pneumatic tires was 0.508 billion units, a 10% year-on-year increase; among them, the export volume for the third quarter was 0.18 billion units, an 8% year-on-year increase. In terms of profits, marine freight rates continued to rise from May this year until August before beginning to fall. Therefore, in the third quarter, tire companies' export orders were also adversely affected by the high shipping costs. On the raw material side, rubber prices have shown an overall upward trend this year, exacerbated by the rapid rise in rubber prices in Southeast Asia in September due to flooding caused by typhoons, putting pressure on the tire sector's profitability in the third quarter under multiple challenges.
The revenue of the tire sector is steadily increasing, while profitability has slightly declined.
In the first three quarters of 2024, the tire sector achieved a total operating revenue of 78 billion yuan, an increase of 14% year-on-year; net income attributable to the mother was 8.8 billion yuan, an increase of 45% year-on-year; the overall sales gross margin was 23.6%, an increase of 2.4 percentage points year-on-year; the net income margin was 11.4%, an increase of 2.4 percentage points year-on-year. In the third quarter of 2024, the sector achieved a total operating revenue of 27.5 billion yuan, an increase of 8.1% year-on-year, and a 5.5% increase month-on-month; net income attributable to the mother was 3 billion yuan, an increase of 10.6% year-on-year, basically flat month-on-month; the sales gross margin was 23.6%, slightly lower year-on-year; the net income margin was 11.2%, an increase of 0.1 percentage points year-on-year, a decrease of 0.6 percentage points month-on-month.
The trend of ups and downs in the enterprise end is still evolving, and the market share of domestic leading tire companies is expected to continue to increase.
Against the backdrop of consumer downgrading, the overseas leading companies are experiencing weak revenue growth. In the first three quarters of this year, Michelin and Goodyear's sales volumes both decreased by 5.3% and 3.8% year-on-year, and their revenues decreased by 4.6% and 6.8% year-on-year. In the third quarter, Michelin and Goodyear's sales volumes decreased by 7.1% and 6.2% year-on-year, while their revenues dropped by 4.2%, 6.2%, and 0.3% year-on-year, respectively.
The performance of domestic tire companies has also diverged. Leading tire companies with overseas bases have stronger operational resilience, with Sailun Tire, Qingdao Sentury Tire, Linglong Tire, and Jiangsu General Science Technology achieving year-on-year growth in revenue and profits. The revenue growth rates were 24%, 10%, 10%, and 36% respectively, and the net income growth rates were 60%, 74%, 78%, and 139% respectively in the first three quarters. Considering that the second round of overseas expansion by domestic tire companies is still ongoing, once the global layout is improved, the resistance to risks is enhanced, and a new round of growth will follow.
Investment advice and valuation
However, from the perspective of industry trends, on the one hand, in the context of consumer downgrading, the tire market with high cost performance still has growth potential, and the market space that domestic tires can seize in the long term will be higher than before; on the other hand, some overseas tire companies are facing performance weakness and are beginning to plan to eliminate some production capacity. Meanwhile, leading domestic tire companies have initiated the second round of overseas expansion, consolidating their cost performance advantages while continuing to enhance their risk resistance. Therefore, the logic of domestic tire companies seizing market share will continue to evolve, with optimism for domestic tire companies that have taken the lead in overseas expansion and have relatively sound overseas layouts.
Recommend focusing on Sailun Tire (601058.SH), Qingdao Sentury Tire (002984.SZ), Linglong Tire (601966.SH), Jiangsu General Science Technology (601500.SH).
Risk Warning: Sharp fluctuations in raw material prices, international trade frictions, significant fluctuations in marine transportation fees, significant fluctuations in exchange rates, intensified competition due to domestic companies establishing factories overseas.
