Summary of Conference Call Notes Industry Overview - The Chinese tire industry is actively expanding into overseas markets, with companies like Zhongce, Sailun, and Senqilin increasing their overseas factory construction efforts. New production capacity is expected to be gradually released in the coming years, significantly enhancing performance [2][4]. - Adjustments in tax policies in the U.S. and the implementation of anti-dumping measures in Europe are anticipated to drive tire prices up, thereby improving profit margins for related companies. Zhongce has already achieved a 4% price increase in the European market, with further price hikes expected [2][5]. Company-Specific Insights - Pulin Chengshan is highlighted as a well-governed company, with 70% of its revenue coming from overseas markets. The company plans to build a new factory in Malaysia, expected to commence production in early 2027, contributing to profit growth [2][7]. - The company's return on equity (ROE) has remained stable at over 20% in recent years, indicating robust operational capabilities. However, its net profit margin is around 12%, which is relatively low due to the impact of full-steel and small-sized non-highway tire businesses on overall profitability [7]. Financial Projections and Valuation - The tire sector's valuation is projected to increase from the current 10 times earnings to between 15-20 times or more. This change is primarily driven by the profitability of high-end matching businesses and the enhanced certainty brought by global scattered capacity layouts [2][6]. - The high-end matching business is expected to transition from unprofitable to profitable by 2026, enhancing brand strength and driving demand in the replacement market. The global scattered layout reduces reliance on trade barriers in a single region, increasing performance certainty [3][6]. Investment Recommendations - Pulin Chengshan's current valuation is extremely low, at only 3-4 times earnings, despite its strong fundamentals. The company is currently under the radar due to low liquidity in the Hong Kong stock market and not being included in major indices. However, with the upcoming Malaysian factory and increased attention on the sector, there is significant valuation upside potential [4][8]. - Investors are advised to gradually focus on Pulin Chengshan in the first half of 2026, as the company, being an export-oriented small enterprise, is expected to benefit from favorable pricing conditions under the European anti-dumping policies [8].
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