With high growth against the trend in 2020, Pulin Chengshan has entered a period of scale expansion and dividends

On the last day of March, leading tire manufacturer Pulin Chengshan (01809) showed its "report card" for 2020.

Since 2020, when the overall economic situation has been under pressure due to the impact of the epidemic, Prinx Chengshan is building a foundation with solid production capacity expansion and technical strength, driven by the continuous growth of performance, demonstrating its stability Strong confidence for long-term development.

Performance in 2020 bucked the trend and grew rapidly

Under the impact of the spread of the global epidemic, the global tire market demand was sluggish in 2020. Although in the second half of the year, as the overseas epidemic was controlled to a certain extent, , global market demand has recovered, but the market size still declined by 11.7%. Judging from the performance of overseas tire giants, the average year-on-year revenue decline of eight overseas tire companies, including Bridgestone, Michelin, Goodyear, and Continental, narrowed slightly from -22% in the first half of the year, but still maintained The annual decline was 12.5%.

At the same time, although the profitability of overseas tire companies has been differentiated, it has shown an overall downward trend. At the same time, capital expenditures have slowed down significantly in the past three years, and their expansion has stagnated. For Chinese tire companies, this means unprecedented development opportunities.

Zhitong Finance APP learned that tire sales in the Chinese market in 2020 were approximately 320 million units, a year-on-year decline of only 3.4%, in sharp contrast to the 13.2% and 11.2% declines in the European and North American markets respectively. The significant recovery of the Chinese market is mainly due to the rapid recovery of downstream automobile consumption. At the same time, the huge domestic automobile ownership ensures the demand of the replacement market.

The rapid recovery of the Chinese market is accompanied by the excellent performance of leading tire companies. Judging from Prinx Chengshan's core financial indicators in 2020, the annual operating income was approximately 6.283 billion yuan (RMB, the same units below), an increase of approximately 12.4% over the same period last year; the net profit was approximately 604 million yuan, an increase of approximately 12.4% over the same period last year. 26.1%, and the overall gross profit margin has steadily increased to 22.3%, showing a trend of rapid development.

It can be seen that in the face of the impact of the new coronavirus epidemic, the company has withstood the pressure of the downward economic environment, bucked the trend and achieved "qualitative" improvement and "quantitative" growth, and relied on the increase in operating rate The scale effect and new increment of production capacity released have achieved performance exceeding expectations.

Judging from sales data, Pulin Chengshan sold approximately 15.1 million tires during the year, an increase of approximately 22.4% compared to the same period in 2019. Among them, the sales of all-steel radial tires were approximately 6.4 million, an increase of approximately 21.6% compared to 2019; the sales of semi-steel radial tires were approximately 8.1 million, an increase of approximately 27.4% compared to 2019.

From the perspective of sales structure, all-steel tires still contribute more than 75% of the company's sales. At the same time, the sales contribution of semi-steel tires has increased significantly, and bias tire sales continue to shrink. This is also consistent with the industry. In recent years, the tire radialization rate has been continuously increasing, which is consistent with the transition from all-steel tires to semi-steel tires.

Divided by channels, Pulin Chengshan has experienced new changes during the year. The company mainly distributes products through three channels, namely international marketing, domestic supporting and domestic replacement markets. During the year, the sales revenue of Prinx Chengshan's domestic dealers, international dealers, automotive accessories and OEM customers reached 1.95 billion yuan, 2.36 billion yuan, 1.75 billion yuan and 230 million yuan respectively, accounting for 31.0% and 37.6% of the total revenue respectively. %, 27.8% and 3.6% (2019 proportion: 37.3%, 33.5%, 21.9% and 7.3%).

Since the second quarter of 2020, benefiting from the rapid recovery of the domestic automobile manufacturing industry, Prinx Chengshan's supporting business has also developed rapidly. Throughout the year, we cooperated with more than 30 automobile manufacturers on 45 supporting projects, and the supporting business revenue increased by approximately 43.0% compared with 2019. Pulin Chengshan's breakthrough in the supporting business will help enhance the brand's recognition in the retail market and increase its share in the replacement market.

At the same time, since the second half of the year, the international supply chain has shifted to the Chinese market, and orders from overseas have continued to increase. Pulin Chengshan has strengthened its overseas market development in areas less affected by the epidemic and made every effort to develop new customers. During the period, 32 new overseas dealers were developed, and revenue achieved substantial growth, approximately 25.9% higher than the same period last year.

During the year, sales in the domestic replacement market recorded a slight year-on-year decrease of 6.5%, mainly due to the difficulty in fully meeting customer demand in the second half of the year. In terms of the priority allocation of internal channels, the domestic supporting market is relatively higher than the replacement market. Therefore, it is not that the demand in the domestic replacement market has weakened, but that Prinx Chengshan has made some adjustments to production capacity, which has affected the growth of some channels.

Thanks to the company’s establishment of a mature and comprehensive global sales network covering major tire markets, the channel construction carried out in the early stage has exerted a strong ability to resist risks during the year, and the diversified market layout has played a role in risk hedging. , a reasonable proportion of the Chinese and overseas markets, which will increase the scale of operations to a certain extent.

In terms of production costs, the company's tire product prices are currently rising steadily, while raw material prices fluctuate slightly but are still at the bottom. Although the price of natural rubber rose in 2020 due to the short-term supply-side tightening, the company also transmitted raw material fluctuations downstream through product price increases. In addition, as the weather warms up, many production areas such as Yunnan, Hainan, and Vietnam are opening up and entering peak production. It is difficult for natural rubber to experience a major upward cycle in the short term, and the company's profitability is expected to remain stable.

From the perspective of medium and long-term development trends, the relative competitive advantages of Chinese tire companies are currently strengthening, coupled with the dual pressures on the commercial supporting end and retail channel end under the impact of the epidemic, Chinese tires have excellent quality, high cost performance, and good profit-making effects. The product is expected to take this opportunity to enter the supporting systems of more mid-to-high-end car companies, and at the same time seize the domestic retail market sold by overseas tire companies. China's leading tire company has ushered in a rare window period for performance release and brand promotion. Currently, the global tire industry is facing a gradual reshaping. China is expected to have several global tire leaders in the future, among which Pulin Chengshan is a strong competitor.

Innovative R&D plus production capacity improvement

While achieving outstanding sales results, the company is also advancing the process of R&D innovation and production capacity expansion in an orderly manner.

In 2020, Pulin Chengshan actively developed new products, optimized the product structure, and completed the research and development and launch of 357 products, including 42 all-steel radial tires, 314 semi-steel radial tires and 1 bias tire. The number of new product developments has increased significantly compared with 2019, further improving market competitiveness and market segment share. At the same time, the company reserves and develops 12 new all-steel radial tires and 7 semi-steel radial tires with new patterns and products based on supporting market demand, replacement market development trends and overseas market expansion.

In terms of production capacity expansion, during the year, Prinx Chengshan’s first overseas production base, the Thailand factory, was put into production as scheduled in the first half of 2020, and achieved a first-phase all-steel capacity of 800,000 pieces/year in the fourth quarter. , semi-steel products reach an annual production capacity of 4 million pieces, including 35 all-steel products and 175 semi-steel products. The factory was built in accordance with Industry 4.0 standards. In addition to effectively avoiding trade barriers, it can also make full use of Thailand's raw material origin resources, bringing considerable cost advantages to the company.

At the same time, the company has completed the European all-steel radial tire product portfolio planning and the semi-steel "Pulin" brand product line planning. The reserve development work of related products is in progress and is expected to be completed in the second half of 2021. It will be gradually put into the EU market and further expand the North American market, laying a sales foundation for the subsequent release of production capacity of the Thai factory.

According to the sales demand forecast, Prinx Chengshan has launched the second phase of Thailand's full steel project of 1.2 million units/year in the second half of 2020, and plans to start the semi-steel production of 4 million units/year in the first half of 2021; In the second half of 2020, the production expansion project of 1.05 million pieces/year of all-steel and 2.8 million pieces/year of semi-steel with the Shandong factory was launched to improve the delivery level and meet the needs of market and enterprise development.

In the market where the Hang Seng Index continued to be under pressure in 2020, Pulin Chengshan was able to grow steadily against the trend and hit a new listing high of HK$9.68 in 2020. However, compared with the valuation of more than 20 times of comparable A-share listed peers, Pulin Chengshan's PE of approximately 7.7 times in the past year has been undervalued for many years. The rise in stock price is also the company's step towards valuation restoration. The embodiment of the road.

In addition to the company's own performance that is stable and improving, there are also factors that the company has insisted on paying dividends and continued to give back to shareholders since its listing. The release of the 2020 report card caused the stock to rise by 6.53% the day after the results. It can be seen that the rapid growth of its market value has become an established trend and it still has huge development potential in the future.

At present, the company's brand value and production capacity advantages are still on an upward trend, and its competitive advantages are gradually expanding. In the context of paying more attention to refined operations, cost control and product strength improvement, Prinx Chengshan is expected to rely on core technology research and development innovation as the foundation, double expansion of production and sales scale to further build a moat, drive sustained and rapid growth in performance, and give shareholders a more ideal long-term Return.