Core Viewpoint - The company reported a solid performance in the first half of 2025, with revenue and adjusted net profit growth aligning with expectations, driven by store expansion and service diversification [1][2]. Group 1: Financial Performance - In the first half of 2025, the company achieved revenue of 7.88 billion yuan, a year-on-year increase of 10.5%, and a net profit attributable to shareholders of 307 million yuan [1]. - Adjusted net profit reached 410 million yuan, reflecting a year-on-year growth of 14.6%, with an adjusted net profit margin of 7%, marking a new high for the half-year [2]. - The gross profit margin for the first half of 2025 was 25.2%, showing a year-on-year decrease of 0.7 percentage points but a quarter-on-quarter improvement of 0.3 percentage points [2]. Group 2: Business Development - The company’s revenue growth was primarily driven by the expansion of its store network and the diversification of service categories, with a net increase of 1,205 stores, totaling 7,205 stores, a year-on-year increase of 14.2% [1]. - Revenue from fast repair services saw significant growth, exceeding 60% year-on-year, with a penetration rate of over 10% among transaction users [1]. - The company is focusing on enhancing its supply chain and developing a collaborative ecosystem for new energy services, with the number of platform users for new energy vehicles reaching 3.4 million, a year-on-year increase of 83.5% [2]. Group 3: Strategic Initiatives - The company is implementing a dual-track strategy to enhance its product matrix, focusing on both domestic brands and international brands [2]. - The proportion of self-controlled products in the deep beauty category has surpassed 70%, indicating a strong emphasis on proprietary product development [2]. - The company is proactively launching differentiated products such as hybrid-specific engine oil and new energy-specific tires, positioning itself in high-value service markets [2]. Group 4: Valuation and Outlook - The company maintains its profit forecasts for 2025 and 2026, with the current stock price corresponding to price-to-earnings ratios of 22.0 times and 16.4 times for 2025 and 2026, respectively [3]. - The target price has been raised by 12% to 23.74 HKD, reflecting an upside potential of 24.6% compared to the current stock price [3].

Core Insights - The transition from traditional fuel vehicles to electric vehicles (EVs) is driving a revolution in the tire industry, with companies like Linglong Tire emerging as key players in this new landscape [1][2] Company Overview - Linglong Tire, founded by Wang Xicheng in 1987, has evolved from a small tire repair shop into the sixth-largest tire manufacturer globally, with a production output of 9.2 million tires in its first year and a revenue of 65 million yuan [3][4] - The company's core products are passenger and light truck tires, which accounted for 57.1 billion yuan, 61.5 billion yuan, and 65.4 billion yuan in revenue from FY2022 to FY2024, showing a consistent upward trend [4][5] Industry Trends - The tire industry is experiencing significant changes due to the rise of electric vehicles, which require tires with lower rolling resistance to enhance driving range [6][7] - A 10% reduction in rolling resistance can increase the range of electric vehicles by approximately 3%-5%, with 20%-30% of energy loss during vehicle operation attributed to tire rolling resistance [7][8] Innovations in Tire Technology - Tire manufacturers are adopting new designs and materials to meet the demands of electric vehicles, such as Linglong's SPORT MASTER e tire, which can improve vehicle range by about 8% [8] - The weight of electric vehicles, which can be 15%-30% heavier than their fuel counterparts, necessitates enhanced durability in tires, as electric vehicle tires wear out 20%-30% faster than traditional tires [8][9] Market Opportunities - The market for electric vehicle tires is expected to grow significantly, with projections indicating that by 2025, domestic sales of new energy commercial vehicles could reach 900,000 units, representing a penetration rate of about 30% [10] - Linglong Tire has been proactive in this market, supplying tires for various electric vehicle models from manufacturers like FAW Hongqi and BYD, with 917 million units of electric vehicle tires expected to be sold in 2024 [10][11] Competitive Landscape - The tire manufacturing industry is consolidating, with the number of manufacturers in China decreasing from over 600 in 2010 to fewer than 200 by the end of 2024, leading to increased market concentration among the top players [11]

Investment Rating - The report does not explicitly state an investment rating for the passenger car tire industry Core Insights - The passenger car tire industry is experiencing significant growth driven by the increasing demand for new energy vehicles and the rising vehicle ownership in China. The market is characterized by a competitive landscape with both domestic and international brands vying for market share. The report highlights the importance of technological innovation and adaptation to meet the evolving demands of the automotive market, particularly in the context of new energy vehicles [3][4][5]. Summary by Sections 1. Definition and Classification of Passenger Car Tires - Passenger car tires are specifically designed for vehicles such as sedans, sports cars, and SUVs, requiring higher performance and stability under various driving conditions [3]. - Classification includes PC tires for regular cars, SUV tires for multi-purpose vehicles, performance tires for sports cars, and specialized tires for new energy vehicles [4]. 2. Industry Chain - The industry chain consists of upstream raw materials (natural rubber, synthetic rubber, carbon black, steel wire), midstream tire manufacturing, and downstream automotive manufacturing and aftermarket services [5][6][7]. 3. Upstream Raw Materials - Natural rubber prices are expected to rise due to adverse weather conditions and supply chain disruptions, with prices projected to reach 16,890 CNY/ton by the end of 2024, a 29.33% increase from the beginning of the year [8]. - The cost of raw materials constitutes nearly 70% of tire production costs, significantly impacting overall profitability [41]. 4. Midstream Production - Major production regions for passenger car tires in China include Shandong, Jiangsu, and Zhejiang, with Shandong accounting for 50% of national production capacity [10][12]. 5. Downstream Market Trends - The aftermarket for automotive services is shifting towards online platforms, with over 65% of car owners using apps for purchasing parts and services [15]. - The demand for tire replacement is increasing, with approximately 180 million tires replaced annually in China [16]. 6. Market Demand and Growth - The production of passenger cars is directly linked to tire demand, with each new vehicle requiring four tires. The growing vehicle ownership in China is expected to further increase this demand [16][20]. - The tire production volume in China is steadily increasing, with a projected output of 9.35 billion tires by 2024 [22][23]. 7. New Energy Vehicle Tire Demand - The rapid growth of new energy vehicles, with sales expected to reach 12.87 million units in 2024, is driving the demand for specialized tires that meet specific performance criteria [29]. - New energy vehicles require tires with low rolling resistance, high durability, and better noise reduction capabilities [26][28]. 8. Export Market Dynamics - China's tire exports reached 349 million units in 2024, with a 13.4% year-on-year increase, indicating strong international demand [34]. - The export market is crucial for the industry, with significant competition from countries like Brazil, the UK, and Russia [34]. 9. Competitive Landscape - The market is competitive, with domestic brands like Linglong and Zhongce rapidly expanding in the mid to low-end segments, while international brands dominate the high-end market [36][37]. - Linglong Tire has emerged as a leader in new energy vehicle tire supply, achieving significant revenue growth [39][40]. 10. Future Trends - The industry is expected to see continued growth in new energy vehicle tires, increased focus on sustainability, and advancements in smart and digital technologies [45][46][47][48].