Leveraging competitive advantages on the cost side, in the first half of the year, domestic tire sales broke through 500 million units, driving the operating performance of industry-listed companies to reach historical highs; however, in the secondary market, tire industry-listed companies continued to weaken. Many securities firms analyze that in the short term, fluctuations in raw material and shipping costs have become key factors disturbing market evaluation; looking long-term, the growth logic of the tire industry has not changed.

In the first half of 2024, tire industry-listed companies ushered in the "best" financial reporting season in history.

Statistics from Dongcai Choice show that in the first half of the year, the combined operating income of the 9 tire-listed companies on the A-share market reached 50.5 billion yuan, a year-on-year increase of 16.84%; the combined net profit attributable to the parent company was 5.743 billion yuan, a year-on-year increase of 67.95%. Among them, 8 companies achieved double growth in operating income and net profit, including Sailun Tire, Linglong Tire, Senyuan Tire, Guizhou Tire, and Sanlun Tire, with the net profit attributable to the parent company of these 8 companies all setting a historical high since going public.

Upon sorting out, in the first half of the year, the increase in tire sales volume was the core driving force for the growth of the operating performance of listed tire companies. At the same time, with a competitive advantage in costs, the domestic tire export market continued to expand, and the share of tire replacement market continued to increase.

Ninety percent of the companies' performance reached a new high.

According to the semi-annual report, in the first half of the year, Sailun Tire achieved an operating income of 15.154 billion yuan, a year-on-year increase of 30.29%, and a net profit attributable to the parent company of 2.151 billion yuan, a year-on-year increase of 105.77%. In the same period, Linglong Tire achieved an operating income of 10.38 billion yuan, a year-on-year increase of 12.37%, and a net profit attributable to the parent company of 925 million yuan, a year-on-year increase of 64.95%. Senyuan Tire achieved an operating income of 4.11 billion yuan, a year-on-year increase of 16.21%, and a net profit attributable to the parent company of 1.077 billion yuan, a year-on-year increase of 77.71%.

Ranked by growth rate, in the first half of the year, Tongyong Shares' net profit attributable to the parent company increased by 393.32% year-on-year, becoming the fastest-growing listed company in the tire industry. In addition, Guizhou Tire, Fengshen Shares, and S Jiatong's net profit attributable to the parent company also increased by 25.67%, 35.69%, and 33.3% year-on-year, respectively.

Statistical data show that in the first half of the year, among the 9 tire-listed companies on the A-share market, 8 companies achieved double growth in operating income and net profit; in terms of net profit, including Sailun Tire, Linglong Tire, Senyuan Tire, Guizhou Tire, Sanlun Tire, Fengshen Shares, Tongyong Shares, and S Jiatong, all 8 companies have delivered the best semi-annual operating performance report since going public.

From the perspective of driving factors, in the first half of the year, the increase in tire sales volume became the core driving factor for the growth of the operating performance of listed tire companies. Many listed companies have stated that due to the increase in sales volume, the company's operating income and profit have achieved year-on-year growth.

According to the disclosure of Sailun Tire, in the first half of 2024, the company's tire production and sales volume both increased by more than 30% year-on-year, and both set a historical high for the same period. Among them, the company's tire production was 35.4106 million units, a year-on-year increase of 37.89%; sales volume was 34.5437 million units, a year-on-year increase of 37.56%. Driven by sales, the company's tire product sales revenue reached 14.942 billion yuan, a year-on-year increase of 30.37%, and the company's average gross profit margin in the first half of the year was 28.96%, an increase of 4.81 percentage points compared to the same period last year.From January to June 2024, Semcorp completed tire production of 16.086 million units, a year-on-year increase of 18.90%; tire sales reached 15.097 million units, a year-on-year increase of 10.35%; among them, semi-steel tire sales were 14.6121 million units, a year-on-year increase of 9.06%; full-steel tire sales were 0.4849 million units, a year-on-year increase of 71.28%.

In addition, according to statistics from Guohai Securities, in the first half of the year, Linglong Tire's tire production was approximately 43.3904 million units, with a year-on-year increase of %; tire sales were approximately 39.9063 million units, with a year-on-year increase of 10.88%. The company's tire business achieved sales revenue of 10.25 billion yuan, a year-on-year increase of 12.39%, and the average price of tire products reached 256.85 yuan/unit, a year-on-year increase of 1.37%.

With the rise of domestic automobiles

According to data disclosed by Michelin, in the first half of 2024, the global tire sales volume was approximately 900 million units, a year-on-year increase of 2.69%. Among them, semi-steel tire sales were 794 million units, a year-on-year increase of 2.70%; full-steel tire sales were 106 million units, a year-on-year increase of 2.61%.

Compared with the global market growth rate, in the first half of 2024, domestic tire sales exceeded 500 million units, with a sales growth rate of over 8%, higher than the average level of global tire sales.

Driven by the rapid development of the domestic new energy vehicle industry, support from the policy of exchanging old for new, and the increase in export demand, the domestic automotive industry continues to maintain high prosperity.

Data from the China Association of Automobile Manufacturers shows that in the first half of 2024, domestic automobile production and sales were completed at 13.891 million and 14.047 million units, respectively, with year-on-year increases of 4.9% and 6.1%, respectively. Among them, the cumulative sales volume of new energy vehicles in the first half of 2024 was 4.944 million units, a year-on-year increase of 32%, accounting for 35.2% of the total automobile sales volume during the same period.

According to data from the China Passenger Car Association, in the first half of 2024, global new energy vehicle sales were approximately 7.39 million units, accounting for 16.8% of the total automobile sales volume, among which China's new energy vehicle sales performance was outstanding, accounting for 65% of global new energy vehicle sales. Against the backdrop of the continuous increase in the market share of new energy vehicles, in July of this year, the sales volume of domestic brand automobiles accounted for the first time exceeded 50%, achieving a milestone moment.

With the continuous increase in the proportion of domestic automobiles, the domestic sales proportion of domestic brand passenger car tires has also begun to surpass that of joint venture brands. According to statistics from Minsheng Securities, in the first quarter of 2023, the domestic sales proportion of domestic brand passenger car tires exceeded that of joint venture brands for the first time, reaching 50.5%; in 2023, among the top 100 selling sedans and SUVs in China, there were 9 tire companies including Linglong Tire, Sailun Tire, Semcorp, and Chaoyang Tire. At the same time, among the top 100 selling sedans, 46 models were equipped with domestic brand tires, among which the Chinese tire company with the most equipped models was Linglong Tire, with 22 models; among the top 100 selling SUVs, 39 models were equipped with domestic brand tires, among which the Chinese tire company with the most equipped models was also Linglong Tire, with 18 models.

In the second quarter of 2024, the domestic sales proportion of domestic brand automobiles has further increased to 63.9%. Minsheng Securities stated that looking back at the global market pattern since 2000, the tire market scale has continued to expand. Among them, the market share of leading tire companies has continued to decline, while the share of Chinese tire companies has continued to increase.Data shows that in 2000, the global tire sales amounted to approximately $69.6 billion. Among them, the top three tire companies (CR3) accounted for about 57%. Among the top 75 tire companies, there were 18 Chinese tire companies on the list, with a market share of only 3.1%; In 2010, global tire sales increased to $154 billion, and the sales share of the top three tire companies decreased to 43.3%, while the number of Chinese tire companies on the list rose to 27, with a market share of 11.6%; In 2015, global tire sales further increased to $160.5 billion, and the share of the top three tire companies further decreased to 38.0%, with 36 Chinese tire companies on the list, and a market share of 13.7%.

According to the latest data released by the American "Tire Business", in 2023, the global tire sales are about $181.805 billion, a year-on-year increase of 1.45%. Among them, the top three tire companies achieved a total revenue of $70.292 billion, accounting for 38.66%. In the global top 75 tire company rankings, there are 37 Chinese tire companies on the list, with a market share of 20.79%.

In response, Minsheng Securities stated that the customers in the supporting market are car manufacturers, and market demand grows synchronously with the increase in car production and sales. Pacific Securities believes that the rapid growth of new energy vehicles will help domestic tire companies grow. As the cost advantages of new energy vehicles become more and more obvious, and the global new energy vehicle market continues to strengthen, it brings space for the supporting and replacement markets of tires. Guolian Securities also stated that with the continuous increase in new energy vehicles, the rapid growth of new energy vehicles will drive the supporting demand to usher in a broad development space.

Zhongtai Securities predicts that from 2024 to 2026, the automotive supporting tire market space will gradually grow from 57.7 billion yuan to 64.6 billion yuan, with an annual growth rate close to 6%.

Raw material fluctuations and market valuation disturbances

It is worth noting that although the listed tire companies achieved excellent operating performance in the first half of the year, the performance of the tire industry in the secondary market since May has been "contrary".

Statistics show that since April, the listed companies in the tire industry have collectively shown a downward trend. Among them, Linglong Tire has dropped from 24.26 yuan/share to 15.78 yuan/share, a decline of 34.95% during the period; Sailun Tire has dropped from the highest of 17.55 yuan/share to 13.07 yuan/share, a decline of 25.53% during the period; Senyuan has dropped from 28.52 yuan/share to 23.06 yuan/share, a decline of 19.14% during the period. In addition, Guizhou Tire, General Shares, and Qingdao Double Star have also declined by 35.91%, 37.24%, and 47.21%, respectively.

In a recent research report, Western Securities pointed out that the decline in stock prices of listed tire companies is mainly due to the rise in raw material prices and sea freight, mainly because the proportion of raw material costs in the Chinese tire industry is high, and although most tire companies adopt the FOB model, tire companies still need to bear certain costs when sea freight is high. The second is affected by overseas trade barriers, such as the double anti-investigation launched by the United States against Southeast Asia in 2020, which affects valuation.

From the perspective of cost composition, compared with foreign tire companies, the proportion of raw materials in the operating costs of most domestic tire companies is relatively high, about 70%-80%. Among them, natural rubber, synthetic rubber, carbon black, steel wire cord, and other main raw materials account for more than 60% of the operating costs. Specifically, in semi-steel tires, natural rubber and synthetic rubber account for about 19% and 24% of the raw material costs, respectively; in full-steel tires, natural rubber and synthetic rubber account for about 34% and 11% of the raw material costs, respectively.

According to the statistics of Changjiang Securities, from 2009-2011, 2015-2017, and 2020-2022, the gross profit margin of the tire sector has declined, and the prices of key raw materials such as natural rubber and synthetic rubber have shown different degrees of upward trend, and the average gross profit margin of the sector has shown a downward trend during these three periods. Therefore, the price trend of raw materials is a significant factor affecting the profit level of the tire industry. Most of the time, the average profit rate of the tire industry is negatively correlated with the price of raw materials.Data indicates that since the beginning of the year, both natural rubber and synthetic rubber prices have shown an upward trend, especially since May, when the prices of natural and synthetic rubber have exhibited a further accelerated upward trend.

According to statistics from Business Society, in the first half of the year, the average spot price of natural rubber was about 13,600 yuan/ton, an increase of 1,800 yuan/ton compared to the same period in 2023, a year-on-year increase of 15.25%. Among them, from January to May, the domestic natural rubber spot price rose from 13,100 yuan/ton to 13,600 yuan/ton, with an interval increase of 3.82%. Starting from May 13th, the price of natural rubber accelerated upwards. As of September 10th, the price of natural rubber was reported at 15,400 yuan/ton, up 13.24% from mid-May, up 20.31% compared to the same period in 2023, and a cumulative increase of 17.55% for the year; from January to September, the average price of natural rubber was about 13,900 yuan/ton, up 16.81% year-on-year.

Longzhong Information data shows that in the first half of the year, the average price of styrene-butadiene rubber was about 13,500 yuan/ton, an increase of 2,500 yuan/ton compared to the same period in 2023, a year-on-year increase of 22.73%. As of September 10th, the market price of styrene-butadiene rubber was reported at 15,500 yuan/ton, up 15.67% compared to the same period in 2023, with a cumulative increase of 23.02% for the year. From January to September, the average price of styrene-butadiene rubber was about 13,900 yuan/ton, a year-on-year increase of 25.23%.

Data from the Ministry of Commerce shows that from January to June, the average price of styrene-butadiene rubber, a type of synthetic rubber, was about 13,000 yuan/ton, an increase of 700 yuan/ton compared to the same period in 2023, a year-on-year increase of 5.69%. As of August 30th, the spot price of styrene-butadiene rubber was reported at 14,200 yuan/ton, up 15.45% compared to the same period in 2023, with a cumulative increase of 12.7% for the year; from January to August, the average price of styrene-butadiene rubber was 13,300 yuan/ton, up 8.13% year-on-year.

In response, Linglong Tire stated in its semi-annual report that in the first half of 2024, factors such as rising costs, relatively tight supply, and demand support drove an increase in the comprehensive cost of tire raw materials. Senyuan also stated that due to the relatively lagging adjustment of tire product prices, it is difficult to timely cover the impact of the rise in raw material prices on costs, and the fluctuation of various raw material prices has an adverse impact on the company's profitability in the short term.

According to calculated data, for every 1,000 yuan/ton increase in natural rubber, it is expected to cause a fluctuation of 1-1.5 percentage points in the gross margin of tire companies; for every 1,000 yuan/ton increase in synthetic rubber, it is expected to affect the gross margin by 0.5 percentage points; for every 1,000 yuan/ton increase in carbon black, it will also affect the company's gross margin by about 1 percentage point. Therefore, the fluctuation in raw material costs and the potential impact on the gross margin of tire companies in the future has become an important factor suppressing the changes in the industry's fundamentals.

In response, Changjiang Securities pointed out that during the phase of rising costs, tire companies can smooth the operating risks brought by the rise in tire costs to a certain extent through price increases. In the medium and short cycles, the price of tire raw materials has risen, but with the increase in the proportion of export income of tire companies and the optimization of product structure, the overall profitability of the tire industry in 2024 is still expected to improve.

Xibei Securities believes that the structural transformation of the domestic tire industry and the increase in overseas market share, the demand for semi-steel tires is relatively good, raw materials and sea freight are short-term disturbances, but the price is expected to fall later, and the long-term growth logic of the industry remains unchanged.

Overseas construction is intensified, and production capacity continues to be released.

Looking at the regions, in the first half of the year, the expansion of the export market also provided more development opportunities for domestic tire companies. According to data from the General Administration of Customs, from January to June 2024, China's cumulative export volume of rubber tires was 4.51 million tons, a year-on-year increase of 5.3%; 331 million new inflated rubber tires were exported, a year-on-year increase of 10.5%. Among them, in January and March, the tire export data was significantly higher than the same period in recent years and also better than market expectations, making the tire export market a highlight of the first half of the year.In response to this, Linglong Tire has stated that with the improvement in the quality of Chinese tires and the internationalization of their brands, the competitiveness of Chinese tires in the international market is continuously increasing. Coupled with the impact of geopolitical tensions and supply chain disruptions, Chinese tires are accelerating their overseas expansion.

Data from Changjiang Securities shows that from 2012 to 2023, the overseas business revenue of domestic tire companies listed on the stock market increased from 25.96 billion yuan to 55.67 billion yuan, with an average compound growth rate of 7.2%, significantly higher than the global tire demand compound growth rate. During this period, the proportion of overseas revenue for tire companies increased from 44.8% to 59.5%.

Statistics from Minsheng Securities indicate that since 2019, listed tire companies, including Linglong Tire, Sailun Tire, and Senyuan, have fully seized opportunities, achieving rapid growth in overseas revenue. According to the data, in 2019, the total overseas revenue of the six sample tire companies observed by Minsheng Securities was approximately 28.78 billion yuan. By 2023, the combined revenue of the six sample tire companies had reached 46.21 billion yuan, an increase of 60.6% compared to 2019. Based on this calculation, the annual compound growth rate of the aforementioned six companies from 2019 to 2023 was close to 10%. In terms of revenue proportion, in 2019, the overseas revenue proportion of the aforementioned six companies was about 55.1%, and by 2023, the overseas revenue proportion of the six companies had risen to 58.8%, an increase of 3.7 percentage points.

At the same time, in terms of profitability, after 2019, the gross margin of the overseas market in the tire sector was significantly higher than that of the domestic market. For instance, in 2023, the average overseas gross margin of tire companies listed on the stock market was about 25.2%, while the domestic market gross margin was 14.8%. Changjiang Securities stated that the performance in the overseas market in recent years has become the key to whether tire companies can achieve high revenue and high profitability levels.

Influenced by factors such as the "double anti" policy and demand-driven factors, in recent years, domestic tire companies have continuously optimized their export strategies and actively laid out overseas capacity construction.

On the evening of August 8th, Linglong Tire announced that, based on international market demand forecasts and domestic and foreign tire development trends, to further promote the company's global layout, it has decided to carry out overseas (Serbia) investment expansion projects. According to preliminary investment estimates, the total investment for the project is $645 million, equivalent to 4.621 billion yuan. The project plans to complete the preliminary work before the end of December 2024, start construction in January 2025, and complete and put into use by the end of December 2030, with a construction period of 6 years.

According to the company's disclosure, after the completion of the project, it will achieve an annual production of 1.1 million sets of various high-performance radial tires, including 800,000 sets of TBR (steel radial tires), 50,000 sets of engineering radial tires, 150,000 sets of agricultural radial tires, and 100,000 sets of retreaded tires; 60,000 tons of liquid regenerated rubber.

Public information shows that as early as 2018, Linglong Tire had planned an overseas construction project with a capacity of 13.82 million sets in Serbia. In the first half of this year, the company's Serbia factory's truck and bus tires have reached the first phase of production capacity; as planned, by the end of this year, the company's 6 million passenger car tire production capacity will also be officially put into production.

Since October 2023, Sailun Tire has successively disclosed three overseas expansion plans, with a total plan to expand production capacity by 21.6 million semi-steel tires. Among them, in October 2023, Sailun Tire announced that it would invest in the construction of a new annual production of 6 million semi-steel radial tires project in the Cambodian factory; in January 2024, the company stated that it would increase investment to add an annual production capacity of 6 million semi-steel radial tires. After the completion of the above projects, the Cambodian factory will have an annual production capacity of 21 million semi-steel radial tires and 1.65 million steel radial tires, an increase of nearly 20% compared to the company's existing production capacity.

In December 2023, Sailun Tire announced plans to establish a joint venture in Mexico to invest in the construction of an annual production of 6 million semi-steel radial tire projects; in March 2024, the company once again announced plans to invest in the construction of an annual production of 3.6 million radial tires and 37,000 tons of off-road tire projects in Indonesia.The semi-annual report data shows that as of June 2024, Sailun Tyre has a total planned construction capacity of 26 million all-steel radial tires, 103 million semi-steel radial tires, and 447,000 tons of non-highway tires per year.

According to statistics from Guohai Securities, as of May 2024, Chinese tire companies' overseas bases have cumulatively built a capacity of 87 million semi-steel tire units per year and 26.52 million all-steel tire units per year. At the same time, from the second half of this year to the end of 2025, it is expected that approximately 90 million semi-steel tires and 9 million all-steel tires will enter the production stage per year.

Replacement market expansion, long-term growth trend remains unchanged

From the demand side, the global tire market demand includes both incremental demand (original equipment) and stock demand (replacement). According to statistics from Pacific Securities, in 2023, the global tire market achieved sales of 1.785 billion units, of which the replacement market consumption reached 1.321 billion units, accounting for 74.06%, and the original equipment market consumption was 464 million units, accounting for 25.94%.

The original equipment tires have a clear proportional relationship with new car sales and are greatly affected by the automotive production and sales cycle, while the demand for replacement tires is closely related to the number of cars in use. As a necessary consumer product for cars, tires have a certain replacement cycle, such as semi-steel tires usually being replaced every 2-3 years, and all-steel tires usually every 1-2 years.

Looking at the data, the overall trend of global tire replacement market sales is consistent with the global car ownership. Statistical data shows that from 2010 to 2023, the global car ownership increased from 1.06 billion units to 1.474 billion units, with an average annual growth of 2.57%; during the same period, the tire replacement market sales increased from 1.01 billion units to 1.321 billion units, with an average annual growth of 2.09%.

According to a forecast report released by Allied Market Research, by 2030, the global automotive tire market size is expected to reach $218.9 billion, and the global tire market compound annual growth rate from 2023 to 2030 is expected to be close to 2%.

With the continuous increase of domestic cars' global market share, the proportion of domestic car ownership is also gradually increasing. According to data from the China Association of Automobile Manufacturers, in 2023, China's cumulative car sales reached 30.094 million units, a year-on-year increase of 12%; among them, passenger cars cumulatively sold 26.063 million units. In 2023, the global cumulative car sales reached 92.72 million units. The proportion of China's passenger car sales in the global car sales increased from 24.98% in 2010 to 32.46% in 2023.

At the same time, according to data from the National Bureau of Statistics, at the end of 2010, the national car ownership was about 908.6 million units, accounting for 8.57% of the global car ownership. The Ministry of Public Security's statistical data shows that as of the end of 2023, the national motor vehicle ownership reached 435 million units, of which cars accounted for 336 million units, and the proportion of global car ownership has increased to 22.8%. With the cost advantage and the increase in the proportion of domestic car ownership, the proportion of domestic tire replacement will also increase accordingly.

Minsheng Securities pointed out that the continuous high prosperity of the domestic automotive industry and the continuous growth of domestic car ownership provide a solid support for the continuous growth of the tire market size.