Domestic tire leading enterprises, to build a world-class brand

Affected by the industry's prosperity, the profit margin has fallen after 2020, and 23Q1 has shown a recovery trend. Due to the impact of the epidemic combined with relatively weak overseas demand, the company's gross profit margin and net profit margin after 2020 show a downward trend. The Company's gross margin and net margin for 2022 were 13.61% and 1.72%, respectively, down 3.65pct and 2.52pct year-on-year, respectively. Since 23Q1, as the impact of the epidemic has subsided and the economy at home and abroad has gradually recovered, the prosperity of the tire industry has rebounded at the bottom, and the company's profitability has been repaired to a certain extent. In the first quarter of 2023, the company's gross profit margin and net profit margin were 16.96% and 4.87%, respectively, which improved significantly compared with 2022. The company's expense rate control level is good, and the expense rate of three expenses is gradually declining. Thanks to the company's excellent operation and management ability, the company's expense rate has been well controlled in recent years, and the expense rate of three expenses has shown a downward trend year by year. In 2022, the company's sales expense ratio, management expense ratio and financial expense ratio are 2.97%, 3.49% and 0.33% respectively, and the total expense ratio of three expenses is 6.79%, which is 0.23pct lower than that of 2021. In the first quarter of 2023, the company's sales expense ratio, management expense ratio and financial expense ratio were 3.29%, 3.44% and 0.57%, respectively.

   From the perspective of profitability, the company's gross profit margin in foreign markets is significantly higher than that in domestic markets. The gross margin of the foreign business in 2022 was 20.87%, which was better than the gross margin of the Chinese mainland business in the same period of 5.82%.

2 trillion tire industry space is broad, the industry has shown signs of recovery

2.1. Industry situation: The scale of the tire industry can reach trillions, and Chinese enterprises are rising rapidly

2.1.1. Market size: tires have a certain consumer rigidity, and the global market can reach trillions

Global tires are trillion-class racetracks. The development of the tire industry is related to the development of the global automotive industry, which will be affected by the macroeconomic cycle and downstream demand prosperity, and has a certain periodicity. However, as a necessary consumer product of the stock of automobiles, tires have certain consumption attributes, and to a certain extent, they have the consumption rigidity independent of the atmosphere of the automobile industry. Affected by the global epidemic in 2020, global tire sales and sales have declined to a certain extent, and began to recover in 2021. According to the data of China Business Information Network, Huajing Industry Research Institute and Tire Business, the global tire sales in 2021 reached 177.5 billion US dollars, an increase of 15.6% year-on-year, and the CAGR from 2016 to 2021 was about 3.51%. According to Michelin's annual report, global tire sales in 2021 reached 1.727 billion units, an increase of 8.0%.

2.1.2. Demand structure: The replacement market is the main downstream demand for tires

The replacement market is the main demand in the downstream demand of tires. The downstream demand for tires can be divided into two categories: replacement market and supporting market. Market tires refer to the tires that new cars are equipped with when they leave the factory, and the scale of demand is usually anchored to the production of cars in the current year. Replacement market tires usually refer to the replacement tires used to replace the original factory tires for subsequent use, and the scale of demand anchors the entire vehicle ownership. Since the number of cars in the market will be greater than the production of cars in the year, the downstream replacement market for tires is the largest source of demand. According to Huajing Industrial Research Institute and Michelin Annual report data, the global tire replacement market demand in 2021 is about 1.154 billion, and the supporting market demand is about 356 million, and the replacement market is the main demand for the downstream tire.

2.1.3. Competition pattern: The market share of the Big Three declines and Chinese enterprises rise rapidly

The market share of the Big Three has declined significantly, and Chinese companies have risen rapidly. Bridgestone, Michelin and Goodyear have seen their market share decline significantly in recent years. In 2003, Bridgestone, Michelin and Goodyear accounted for half of the global tire market, with a combined market share of 55.7%. In 2022, the combined market share of the Big Three has slipped to 36.4%. After more than ten years of rapid growth, the comprehensive strength of Chinese enterprises has been continuously enhanced. In the Top 75 global tire list released by Tire Business in 2022, the total number of tire companies from China and Taiwan reached 34, and the overall revenue accounted for 20.6% of the top 75 in the world.