The Zhitong Finance App learned that Huaxin Securities released a research report saying that while sales are picking up, the prices of natural rubber and synthetic rubber, the upstream raw materials have declined to a high level, and the profitability of the tire industry has increased dramatically. It is expected that the performance of listed companies related to the tire industry will be very impressive in 2023. In addition, with a trillion-dollar market space, domestic tire companies are continuously increasing their global market share with their high cost performance advantages, and there is plenty of room for future development. We recommend the excellent listed companies Sailun Tire (601058.SH), Mori Kirin (002984.SZ), Linglong Tire (601966.SH), and Triangle Tire (601163.SH), which have strong competitiveness in the domestic tire industry, are at the bottom of valuation and/or have a relatively high overseas business share.
The views of Huaxin Securities are as follows:
In 2023, the tire industry saw a sharp recovery in sales and profitability, driven by a recovery in demand and a correction in raw materials and shipping prices.
According to Zhuochuang statistics, domestic tire sales reached 393 million in 2023, up 20.7% year on year. Of these, sales of semi-steel tires were 311 million, up 22.68% year on year, and sales of all steel tires were 82 million, up 13.8% year on year. The fall in shipping prices in 2023 and the depreciation of the RMB exchange rate are beneficial to China's exports. Combined with high inflation in mainstream economies, Chinese tires are relatively cost-effective. According to data from the General Administration of Customs, domestic tire exports in 2023 were about 430 million pieces, an increase of 19.8% over the previous year. While sales are picking up, the prices of natural rubber and synthetic rubber, the upstream raw materials have dropped to a high level, and the profitability of the tire industry has increased dramatically. It is expected that the performance of listed companies related to the tire industry will be very impressive in 2023.
With a trillion-dollar market space, domestic tire companies are continuously increasing their global market share with their high cost performance advantages, and there is plenty of room for future development.
The global market size of the tire industry in 2022 is around 1.3 trillion yuan. According to the 2022 Global Tire Top 75 data disclosed by “Tire Business”, 34 Chinese companies accounted for 18.93% of total sales in 2022, while Michelin alone accounted for 16.1%; judging from tire production and sales, domestic tires produced and sold about 530 million pieces in 2023, accounting for about 29% of the global market. It can be seen that the share of domestic tires in the world is still relatively low, and there is plenty of room for development in the future. Furthermore, after years of technological innovation, equipment and process improvements, and production organization and management changes, domestic tires have achieved significant improvements in quality, performance, and production efficiency. Domestic tire companies are gradually approaching or reaching the world's advanced level, and the cost performance ratio of replacement market products has greatly improved. At the same time, the development of new energy vehicles has provided domestic tire companies with an opportunity to enter the supporting market, and domestic tires have continuously increased their global market share.
The tire industry follows the trend of going overseas and has a global layout. As the share of overseas business increases, the overall profit level of the industry increases.
In recent years, leading domestic tire companies have continued to increase exports while building overseas factories to avoid trade barriers frequently set up by the US. Overseas factories are generally close to the place where the raw material is produced or the terminal consumer market, have the advantage of lower raw material prices and enjoy lower tariffs, and can be more easily exported to the terminal market to reduce freight costs. Therefore, the return on investment is higher than that of domestic factories. As more and more overseas factories are put into operation, the proportion of overseas sales continues to increase, and the profitability of the industry will continue to increase.
The profit of the tire industry increased dramatically in 2023, and there is still room for continuous improvement in the profitability of the industry in the future, and industry valuations are in need of repair.
Although the tire industry benefited from the recovery in domestic demand in 2023, the increase in exports and the incremental contribution of overseas factories, compounded by a sharp increase in profitability due to market fluctuations, the relevant listed companies fluctuated greatly due to market fluctuations and did not really reflect the industry's profit level. As of January 31, 2024, the PE valuation level of the industry was about 18 times, 27.7 times the average PE value level for the past ten years. PE valuation is at the bottom of the past ten years, and there is a need for future valuation repair.
In view of the above views, the bank gave the tire industry a “recommended” rating.
We recommend Sailun Tire, Mori Kirin, Linglong Tire, and Triangle Tire from excellent listed companies with strong competitiveness in the domestic tire industry, low valuation and/or high overseas business. Looking at the share of overseas business in 2022, Mori Kirin (88% overseas) > Sailun Tire (overseas share 79%) > Triangle Tire (61% overseas share) > Linglong Tire (overseas share 49%). Judging from 2023E's PE valuation level, Triangle Tire (8.2 times)