\u3000\u3000 Sailun Group Co.Ltd(601058) (601058)
Event:
On February 14, 2022, Sailun Group Co.Ltd(601058) issued the announcement on foreign investment of wholly-owned subsidiaries. The company plans to invest in the construction of a project with an annual output of 1.65 million all steel radial tires in Cambodia. The total investment of the project is 1.426 billion yuan, including 1.161 billion yuan of construction investment, 239 million yuan of working capital and 26 million yuan of interest during the construction period. The project is planned to be implemented by carttier, a wholly-owned subsidiary of Sailun International Holdings (Hong Kong) Co., Ltd.
Key investment points:
The company’s capacity is expanded again and the company’s competitiveness is improved again
Sailun has built production plants in Vietnam and Cambodia. The semi steel radial tire of Sailun Vietnam plant was completed and put into operation in 2013, the all steel radial tire and off-road tire were put into operation in 2015, the Vietnam actr jointly built by Sailun and American GUPT company was put into operation in November 2019, and the semi steel radial tire of Sailun Cambodia Puzhai plant was put into production in 2021. Relying on the existing tire production technology and resources, the company studies and judges that there is still great demand potential in the European and North American markets. It plans to invest in the project with an annual output of 1.65 million all steel radial tires in Cambodia, which can effectively take advantage of Cambodia’s own international environmental advantages and preferential policies for foreign investment, and continuously improve the company’s competitiveness in the global tire industry.
The total investment of the project is 1.426 billion yuan, the construction period is 17 months, and it is expected to be put into operation in 2023. The project is expected to achieve an average annual operating income of 1.79 billion yuan and an average annual net profit of about 310 million yuan. According to the results of financial analysis and evaluation, the financial internal rate of return of the project after income tax investment is 18.83%, the after tax investment payback period of the project is 6.36 years, the total investment rate of return of the project is 24.88%, and the net profit rate of the project capital is 43.36%. The project is exempt from tax for 9 years from the year when the income is realized.
Cambodia enjoys preferential import and export tax policies and obvious advantages in labor resources
In the background of the US Double Taxation on China, Thailand, Vietnam, Korea and China Taiwan, the preferential tax policies are a great advantage for western countries and regions to give more preferential bilateral or multilateral trade policies to Kampuchea. In addition, in order to encourage overseas investment projects, Cambodia and Qilu Special Economic Zone shall grant tariff free policies to the equipment and materials imported by the production enterprises exporting products for fixed asset investment and the raw materials used in product production.
Cambodia is one of the most dynamic countries in Southeast Asia, with a large number of working age population, obvious advantages in human resources and low cost. In the past 10 years, Cambodia’s demographic dividend advantage has been fully demonstrated, and the large scale of working age population has provided a strong driving force for economic growth.
In the context of rising raw material prices, proximity to the origin of raw materials can effectively reduce costs
In 2021, the price of bulk chemicals rose sharply due to multiple factors such as double carbon policy and double control of energy consumption. The main raw materials of tire products have increased by different ranges. Cambodia is the sixth largest producer of natural rubber in the world. The natural rubber required for the project can be purchased from Cambodia, Vietnam and other neighboring countries, which can reduce the procurement cost of raw materials.
In 2021, the average price of natural rubber was 13480.41 yuan / ton, a year-on-year increase of + 17.43%; CIS polybutadiene rubber 13205.21 yuan / ton, a year-on-year increase of + 43.99%; Styrene butadiene rubber 13337.12 yuan / ton, a year-on-year increase of + 37.20%; Cord fabric 29329.00 yuan / ton, a year-on-year increase of + 53.83%; Carbon black was 8162.60 yuan / ton, a year-on-year increase of + 47.02%; Accelerator 26055.98 yuan / ton, a year-on-year increase of + 29.64%; Antioxidant 16015.40 yuan / ton, a year-on-year increase of + 20.05%. In Q4 of 2021, the average price of natural rubber was 13680.43 yuan / ton, with a year-on-year increase of + 0.68% and a month on month increase of + 6.40%; CIS polybutadiene rubber 14771.20 yuan / ton, up + 40.26% year on year and + 8.08% month on month; Styrene butadiene rubber 13304.35 yuan / ton, year-on-year + 17.06%, month on month + 0.43%; Cord fabric 30270.16 yuan / ton, year-on-year + 46.25%, month on month -0.41%; Carbon black was 9079.03 yuan / ton, with a year-on-year increase of + 31.17% and a month on month increase of + 16.87%; Accelerator 30643.28 yuan / ton, + 33.94% year on year and + 31.65% month on month; Antioxidant 17448.39 yuan / ton, up + 3.11% year on year and + 30.63% month on month.
According to our calculation, the price index of tire raw materials in 2021 is 165.95, a year-on-year increase of + 36.96 in 2020; Among them, Q4 in 2021 was 175.98, compared with Q4 + 27.49 in 2020 and Q3 + 14.44 in 2021. As of February 11, 2022, the price index of tire raw materials was 168.66.
2021q4 sea freight pressure has eased, but it is still high
In 2021, the global trade in goods is booming and the demand for centralized transportation is strong. The global epidemic remains the main challenge. The operation efficiency of overseas ports has decreased, the congestion is serious, the container turnover rate has decreased, and the sea freight has continued to rise. Since 2021, the growth rate of shipping demand has been much greater than that of container ship capacity. The growth of transport capacity can not meet the demand of export growth, resulting in short-term mismatch between supply and demand, resulting in tension of shipping resources and rising container freight rates. Although the export of tire products is FOB price, the sharp rise of shipping charges will affect the price adjustment of export products, Reduce the gross profit margin of the company’s overseas sales; On the other hand, the high ocean freight will also suppress the enthusiasm of overseas customers to ask for goods, and have a strong suppression on the export volume of tires, thus forming inventory.
As of the first ten days of February 2022, the FBX index (Baltic container freight index) from China to the Western ports of the United States was US $15218 / feu (Note: feu refers to the container with the length of 40 feet as the international unit of measurement), which was 11.10 times higher than that in early 2020; The FBX index from China to Meidong port is US $16745 / feu, which is 6.32 times higher than that in early 2020; The FBX index from China to European ports is US $14728 / feu, which is 7.80 times higher than that in early 2020. According to our estimation, according to the current data, a 40 foot container can carry half steel tires with a value of US $29700. The corresponding route freight is US $15200 in the west of the United States (accounting for 51.24% of the value), US $16700 in the east of the United States (accounting for 56.38% of the value), and US $14700 in Europe (accounting for 49.59% of the value). The freight rate is 6-11 times higher than that in early 2020.
Profit forecast and investment rating: it is estimated that the net profit attributable to the parent company in 2021, 2022 and 2023 will be 1.310, 2.301 and 3.199 billion yuan respectively, corresponding to 26, 15 and 11 times of PE. Comprehensively consider the company’s future development plan and maintain the “buy” rating.
Risk tips: changes in tariff barrier policies in major markets, covid-19 virus epidemic led to long-term downturn in tire demand, project production failed to meet expectations, sales growth failed to meet expectations, sharp fluctuations in raw material prices, exchange rates, safety and environmental protection production, product quality accidents, etc.
