The Zhitong Finance App learned that Cinda Securities released a research report saying that in 2023, the average operating rate of semi-steel tires in China was 69.04%, an increase of 9.41 pcts over the previous year, the highest value since 2017. In 2023, the average operating rate of all steel tires in China was 60.19%, an increase of 8.17 pcts over the previous year. The bank advises investors to pay attention to tire companies that actively set up factories overseas. At the same time, considering the current state of domestic production capacity, investors are advised to pay attention to companies that actively enhance their brand value and actively expand the local tire export market. Investors are advised to pay attention to Sailun Tire (601058.SH) and GM shares (601500.SH).

Cinda Securities's views are as follows:

In 2023, the operating rate of Chinese tires was generally good, especially semi-steel tires.

In 2023, the average operating rate of semi-steel tires in China was 69.04%, an increase of 9.41pct over the previous year, the highest value since 2017. In 2023, the average operating rate of all-steel tires in China was 60.19%, an increase of 8.17pct over the previous year. In 2023, China's tire operating rate is high and production is high. What is driving demand?

In terms of exports, in the long run, China's tire exports have gradually increased, with a significant year-on-year increase in 2023.

In 2023, China exported 616 million tires, up 11.56% year on year. Judging from the year-on-year increase in China's tire exports in 2023, Brazil, Mexico, and Russia are the main drivers driving China's tire export growth in 2023. The year-on-year increase was more than 5 million, while the US decreased by 8.27 million tires year on year, making it the region with the biggest year-on-year decline. We believe that (1) the growth rate of the tire market in developing countries cannot be ignored. Countries with strong overseas economic growth and rapid growth in car ownership (especially developing countries) have strong demand for tires, and most of the tires they need are low-end, cost-effective products. This matches the positioning of Chinese tire products and is an important force supporting China's tire exports in the future. (2) Demand growth due to the Russian-Ukrainian conflict is likely to slow down, and momentum weakens as major international brands restart their tire factories in Russia. For example, at the end of 2023, Bridgestone sold its Russian factory to S8 Capital Group, and the local government is urging S8 Capital Group to restart the factory as soon as possible. S8 Capital Group previously acquired all of mainland Germany's operations in Russia (from Tire World Network). We believe that if local tire factories in Russia are restructured, restarted, and production capacity is fully released, demand for imported Russian tires may decrease, which may have a certain impact on Chinese tire exports to Russia.

In terms of domestic tire consumption, the local tire market in China ended a period of rapid development in recent years and entered a new stage of high-quality development. The overall year-on-year recovery in 2023 was obvious, but some monthly performance was poor, and the future still depends on the domestic economic development environment. In 2018-2022, the sales volume of Chinese tires generally fluctuated within the range of 3-350 million pieces. In 2023, China's domestic tire sales volume was 371 million, up 22.38% year on year, reaching a new high since 2018. Judging from the monthly performance in 2023, the domestic tire consumption and logistics industry sentiment index generally showed a “V” trend. In March, it reached a high point during the year after the epidemic abated and logistics resumed. Since then, it has declined due to declining real estate and weak exports, and has since recovered along with economic stimulus policies and industry recovery.

Investment advice:

We still recommend that investors pay attention to tire companies that actively go overseas to build factories. At the same time, considering the current state of domestic production capacity, investors are advised to pay attention to companies that actively enhance their brand value and actively expand the local tire export market. Investors are advised to pay attention to Sailun Tire and GM shares.

Risk Factors:

The risk of a sharp drop in downstream demand; the risk of a sharp rise in raw material prices; the risk that Europe and the US will launch a new round of backlash against Southeast Asian tires