\u3000\u3000 Shandong Linglong Tyre Co.Ltd(601966) (601966)
Performance review
On January 28, 2022, the company issued a performance forecast for 2021. It is expected that the company will realize a net profit attributable to the parent company of RMB 880-1.1 billion in 2021, a year-on-year decrease of 50% – 60%. The performance is basically in line with expectations.
Business analysis
The company’s profitability has declined due to the high price of raw materials and the sharp rise of sea freight. From the cost side, the annual average spot prices of natural rubber, styrene butadiene rubber and CIS polybutadiene rubber in 2021 increased by 12.2%, 17.4% and 14.9% respectively year-on-year. The rise in the price of core raw materials directly led to the increase in the production cost of the company’s products and the significant compression of profit space. In terms of export, under the background of extreme tension in shipping last year, freight rates continued to grow. In 2021, the comprehensive index in China’s export container freight index (CCFI), the annual average of American east route, American West Route and European route increased by 168%, 96%, 105% and 275% respectively year-on-year, reaching an all-time high. The continuous rise of shipping costs not only affects the adjustment of product prices, but also inhibits the enthusiasm of customers to purchase, so the gross profit margin of overseas sales is also significantly damaged.
The inflection point of the tire industry is approaching, and the market share of the company as a leading enterprise is expected to continue to increase. Since the beginning of this year, raw materials have begun to fall from a high level, and the high sea freight is also continuously improving. As the adverse factors on the cost side of the tire industry gradually subside, the company’s profitability will return to the normal range. On the other hand, the company’s China base planning in terms of global strategic layout has been basically completed, and the overseas base project is still vigorously promoted. After the release of the production capacity of 12 million semi steel tires and 1.6 million all steel tires in Serbia, the company’s shipping cost can be greatly reduced, while effectively avoiding the “double reverse” policy and realizing the synchronous growth of revenue and profit. When the current prosperity of the tire industry recovers from the bottom, it is optimistic that the company will continue to expand its market share relying on its forward-looking layout and scale brand advantages.
Investment advice
As the leader of domestic tires, with the continuous expansion of production capacity and brand influence, the company’s global market share is expected to continue to increase. Taking into account the rise of ocean freight and the high price of raw materials in 2021, we lowered the net profit attributable to the parent company in 2021 to 1.02 billion yuan (- 11.5%), revised the net profit attributable to the parent company in 2022-2023 to 2.01 billion yuan and 2.66 billion yuan respectively (the predicted values of net profit attributable to the parent company in 2021-2023 were 1.15 billion yuan, 2.0 billion yuan and 2.61 billion yuan respectively), and the corresponding PE of the current market value was 49.2x, 24.9x and 18.9x respectively, Maintain the “buy” rating.
Risk tips
Risk of lower than expected release of new capacity, risk of international trade friction and risk of price fluctuation of raw materials.
