Overseas enterprises have a significant position, and domestic leading enterprises have developed rapidly

(1) Global and China's off-highway tire production and sales are booming

Because off-highway tires are a segment of the tire market, and there are many varieties involved, and the company discloses less information, the industry lacks special statistical data on the supply of off-highway tires as a whole market. However, from the prospectus of Haian Rubber, we can see that the production of engineering tires and all-steel giant tires in off-highway tires has a rapid development. With the acceleration of the world's industrialization process, the global production of engineered tires continues to rise. Global off-highway tire engineering tire production basically maintained an upward trend, from 100 million in 2016 to 340 million in 2021, with a compound annual growth rate of 27.73%, according to Frost Sullivan, 2026, global engineering tire production will further increase to 500 million.

In the vigorous development of the global steel giant tire, China is expected to maintain a high growth rate and increase the global market share. Compared with giant bias tires, giant all-steel radial tires have lower heat generation due to structural differences, effectively reducing tread and shoulder delamination, and their service life is more than 2 times that of giant bias tires, greatly improving the service life of tires. Due to the advantages of the structural design of the giant all-steel radial tire, the product refurbishment rate is higher than that of the giant bias tire, and the giant all-steel radial tire is lighter in weight, lower in rolling resistance, more fuel saving and environmental protection, and can obtain better economic benefits, and the all-steel giant tire gradually replaces the bias giant tire, and the output rises rapidly. According to Frost and Sullivan, in terms of output, the global market size of all steel giant tires increased from 163,000 in 2016 to 192,000 in 2021, with a compound annual growth rate of 3.33%, and the market continues to be in short supply. The size of China's all-steel giant tire market increased from 12,000 in 2016 to 26,000 in 2022, with a compound annual growth rate of 13.92%.

(2) Overseas giants occupy a dominant position, and domestic enterprises are growing rapidly

Due to the complex application road conditions and difficult production, the supply of global off-highway tires mainly comes from overseas tire companies. Among them, Bridgestone, Michelin, Goodyear and other enterprises led. In the whole steel giant tire segment, Michelin, Bridgestone, Goodyear three giant enterprises global market share maintained at more than 85%. We sorted out the production capacity of off-highway tires of overseas tire companies. Due to the limitations of the data, we make the following explanations for this data: (1) The data comes from the Tire Business in the United States, which sorted out the number of factories of some tire companies in the world, the product types of each factory, the production capacity of each factory, etc., from which we sorted out the production capacity information related to off-highway tires. (2) We divide the factories related to off-highway tires into two types: the first type only produces off-highway tires (type 1), the second type produces off-highway tires and other tires (type 2), and the sum of the capacity of the first two types of factories is type 3. "Tire Business" does not separately disclose the production capacity of off-road tires in Type 2 factories, so the range of enterprise off-road tire production capacity should be between Type 1 and Type 3. (3) Because the weight difference of a single tire of off-highway tires may be large, the capacity units disclosed by each enterprise are not consistent (tons or strips), so we have two types of unit calibers in statistics, and the two are listed in parallel.

Due to data limitations, "Tire Business" did not disclose the off-highway tire production capacity of Type 2 factories, so we cannot analyze or compare the entire off-highway tire production capacity of enterprises, but we can analyze and compare the production capacity of type 1. We would like to emphasize that the Type 1 capacity is not the total capacity of the company's off-highway tires, but the total capacity of the plant that only produces off-highway tires. From the results of our statistics, the three global tire giants Michelin, Bridgestone and Goodyear all have pure off-highway tire factories (Type 1), Michelin's pure off-highway tire factory capacity of 138,200 tons/year, Bridgestone's 159,300 tons/year + 1.5 million/year, Goodyear's 30,000 / year. Yokohama Japan also has more pure off-highway plant capacity, but it contains a higher percentage of agricultural off-highway tires than Michelin and Bridgestone.

Michelin: Founded in 1889, Michelin has developed innovative technologies in off-road tires. Michelin is a leading company in the all-steel giant tire, and in 2001 Michelin launched the first 63 inch construction machinery tire. In 2018, Michelin completed the acquisition of the Canadian Camso Group, which by 2018 had taken a leading position in "the market for rubber tracks for agricultural equipment and snowmobiles" and "the market for solid and bias tires for material handling equipment assembly". In the "small infrastructure equipment assembly of track and needed tire solutions" market, the top three, net sales reached $1 billion. The acquisition of Camo Speed further helps Michelin lead the non-road tire market. Michelin has 51 factories in 18 countries or regions on 5 continents, of which the production of off-highway tires is mainly located in the United States and France. Bridgestone: Bridgestone is headquartered in Japan. Bridgestone operates 48 plants in 18 countries on five continents, seven of which specialize in off-highway tires, including three in Japan, two in the United States, one in Spain and one in Thailand.

Goodyear: Goodyear Tire & Rubber Company is one of the largest tire manufacturing companies in the world, headquartered in Ohio, USA, mainly producing tires, engineered rubber products and chemical products. The company introduced the first dozer tire in 1934. In 1939, Goodyear tires were selected for use on Admiral Byrd's snow cruiser expedition to Antarctica. In 1944, Goodyear broke ground on an off-highway tire plant in Topeka, Kansas, one of eight Goodyear off-highway tire manufacturing facilities worldwide. In 1971, the world's largest tire was produced (11.5 feet high / 7,000 pounds). In 1984, the company expanded its off-road tire manufacturing facility in Europe, the Luxembourg off-road Radial Tire Plant. In 2010, Goodyear's 63-inch oversized trailer tire went into production as part of the Goodyear RockMining (RM) line. In 2014, it completed the expansion of 57-inch off-highway tire production capacity to better serve global customers. In 2016, the 63-inch RM-4B+ off-highway tire was introduced, utilizing Goodyear's latest technologies in materials, design, construction and manufacturing.

At present, domestic tire companies are trying to overcome problems such as the difficulty of off-highway tire production technology, and off-highway tire production capacity is gradually catching up with overseas head enterprises, including enterprises such as racing tires. As of the 2022 annual report, the company has a production capacity of 124,600 tons of off-highway tires, the company plans to add 40,000 tons of off-highway tire technology transformation, add 40,000 tons of off-highway tires in the Vietnam factory, and add 150,000 tons of off-highway tires in Qingdao Dongjiakou. In addition, Haian Rubber, Guizhou Tire, Zhongce Rubber, etc. have off-highway tire expansion plans. In the context of better off-highway tire market demand, the income of companies expanding off-highway tires is expected to increase.

Technically speaking, we believe that 63-inch off-highway tires, as the largest size products in off-highway tires, can represent the technical level of enterprises in the off-highway field to a certain extent. According to the Haian rubber prospectus and Triangle Tire official website news, Michelin is a leading enterprise of all-steel giant tires, and Michelin first launched 63-inch construction machinery tires in 2001. From 2015 to 2016, Haian Rubber, Cylon Tire, Triangle Tire have produced the first 63-inch off-highway tire, and currently master the production technology of 63-inch products.

(3) Off-highway tire entry barriers and competitive advantages

Off-highway tires, especially giant tires, have complex application scenarios, and have higher requirements for material properties, tire profiles and tire sizes in the production process, among which the size of giant tires is more than 49 inches, and the maximum size can reach 63 inches, so the production is more difficult and the entry barrier is higher. According to Haian Rubber prospectus, off-highway tires have high barriers in terms of technology, capital, customers and so on. (1) From the level of technical barriers, off-highway tires carry large loads, harsh use environment, long continuous working time, because of the requirements of tires with large rigidity, cutting resistance, puncture resistance, wear resistance, good elasticity, low heat generation, fast heat dissipation and other characteristics, so the product development difficulty is high, long development cycle, the need for long-term technology accumulation. (2) From the level of financial barriers, the off-highway tire industry is a capital-intensive industry. Due to the large size of the product, high production technical difficulty, the need for a large area of land and plant investment, and the machinery and equipment for the production of off-highway tires are customized non-standard equipment, and the unit value is high, so the production enterprises have a large investment scale in fixed assets in the early stage. (3) From the customer level, the unit value of off-highway tire products is high, and the customers are mainly large mining companies, or mining card Oems, which have higher requirements for the timeliness of suppliers and production scale. Therefore, new entrants in the industry need to have strong financial strength and be able to afford higher working capital needs.

Due to size and other reasons, the unit price of off-highway tires is significantly higher than that of other tires, and the larger the size, the more obvious the price increase. According to the disclosure of Zhongce Rubber prospectus, in the first half of 2022, the unit price of semi-steel and all-steel tires of Zhongce rubber is 191.98 yuan/piece and 829.01 yuan/piece, respectively. According to the prospectus of Hai 'an Rubber, the unit price of 49 inch giant tire of Hai 'an rubber in 2022 is 49,300 yuan/piece. On top of this, between 49 and 51 inches, each additional 1 inch of the price increase of $1,600, between 51 and 57 inches, each additional 1 inch of the price increase of $11,500, between 57 and 63 inches, each additional 1 inch of the price increase of $26,800. Due to its larger size, the price of off-highway tires is higher, and the price increase is more obvious when the size is larger.

Off-highway tires have strong profitability and high gross profit margin, and are blue ocean products in tires. Due to the differences in the main product categories, the main products of domestic tire industry leaders such as wheel tires, Linglong tires, Senkirin, Triangle tires, etc., contain half steel tires, full steel tires and other tire products. At present, among listed and planned listed tire companies, only Haian Rubber is a company that specializes in giant tire products. From the perspective of the gross profit margin and net profit margin of several companies in 2020-2022, the average gross profit margin and average net profit margin of Haian Rubber in 2020-2022 are higher than other enterprises, the average gross profit margin of Haian rubber is 34.83%, and the average gross profit margin of other tire companies is between 5.41% and 25.88%. The average net interest rate of Haian Rubber is 10.33%, and the average net interest rate of other tire companies is between -3.73% and 9.87%. We believe that part of the reason behind this is the difference in product structure, and the core is the strong profitability of off-highway tires. In terms of the change trend of gross margin and net interest rate of Haian Rubber in recent years, the gross margin of Haian Rubber in 2020-2022 fluctuated at about 35%, and the net interest rate increased from 4.01% and 6.44% to 20.52%, which has a significant improvement. We believe that mainly because of the gradual withdrawal of the three major international brands of all-steel giant tire products from the Russian market in 2022, large Russian mining companies have turned to China to purchase all-steel giant tire products, and the sales revenue of Haian Rubber all-steel giant tire products in 2022 has increased significantly.