Operation revenue growth is all negative, and keeping the same can be regarded as a complete victory

In the first half of the year, the continuous spread of COVID-19 brought a huge impact to global economy, and the operation of tire enterprises faced dual pressures of epidemic prevention & control and economic downturns.

China’s tire production enterprises have been affected by the epidemic since late January, causing domestic tire enterprises to delay their resumption of work after the Spring Festival, hindering logistics and hitting sales. Since March, the epidemic broke out overseas, and exports were blocked. According to data released by the National Bureau of Statistics, the total output of tire casing in China from January to June was 357 million units (including some motorcycle tires), a year-on-year (same below) decrease of 12.1%.

For ease of comparison, the total production time in the first half of the year is calculated as 180 days, and 18 days of production were affected by the epidemic (from January 28 to February 14 when work and capacity were fully resumed and reached). If the operation revenue drops by more than 10%, it is considered to be affected by the epidemic. The operation revenue and net profit of listed companies in the first half of 2020 are shown in Table 1.

It can be seen from Table 1 that the operation revenue growth of eleven enterprises is all negative year on year. Among them, four have dropped by more than 10%, and up to 25%. It should be said that they were greatly affected by the epidemic. Among the other seven, Guizhou Tyre, Sailun Group, Double Coin Group and Doublestar Group have dropped by 3% ~ 7%. Under the influence of the epidemic, this result is extremely rare. While Triangle Tyre, Linglong Tire and Prinx Chengshan has operation revenue fallen within 1.0%, basically keeping the same. It can be said that they have achieved a complete victory in the fight against the epidemic.

China has achieved remarkable results in the overall promotion of epidemic prevention & control and economic & social development. In Q2, the economy recovered from the sharp contraction in Q1 and rebounded strongly, with the growth rate rising from -6.8% in Q1 to 3.2%.

Thanks to this, the domestic tire market has recovered rapidly, and listed tire enterprises took the lead in getting out of the haze of the epidemic. After entering March, the operating rates of major enterprises have basically returned to the level before the epidemic. Especially in Q2, the production and sales volume and operation revenue of several enterprises have achieved an increase of more than 50% from the previous quarter.

Judging from the business data released by enterprises for Q2, compared with Q1, the sales volume of Sailun Group increased by 2.47% and operation revenue increased by 11.39%; the sales volume of Aeolus Tyre increased by 59.0%, and sales revenue increased by 51.6%; the domestic market revenue growth of Qingdao Doublestar even exceeded 100%, and the overall operation revenue increased by more than 50%.

Table 1: Revenue and net profit of listed tire companies in the first half of 2020

Although raw and auxiliary materials are at a low level, half enterprises still have a decline in net profit

In terms of net profit, eleven enterprises performed differently. It can be seen from Table 1 that nine enterprises are in the black and two are in the red. Among them, six enterprises achieved net profit growth, with Linglong Tire, Sailun Group and Triangle Tyre rising by about 20%, Guizhou Tyre doubling it, and Fengyuan Tire eliminating losses and increasing profits; General Science Technology, Giti Tire and Aeolus Tyre, although achieving profitability, had a relatively large decreasing amplitude around 40%. Among the two loss-making enterprises, Doublestar Group was affected by Q1, and its profit in Q2 was written off; and Double Coin Group suffered further losses.

In the first half of the year, COVID-19 affected not only logistics and human flow, but also cash flow. Enterprises laid more emphasis on “cash is the king” and “the last word is to put money in my own pocket.” All enterprises have strengthened their efforts on operation management and control, lowered operating expenses, and strived to increase net profits and gross profit margins, making them not too terrible, even if may decline.

Fortunately, during the same period, the prices of main raw materials have declined to varying degrees, which has promoted the reduction of production costs. But it brought about a decline in tire sales prices as well.

In Q2, Linglong Tire’s five main raw materials overall dropped in price by 19.15%, including natural rubber, synthetic rubber, carbon black, steel cord, and cord fabric. Due to market structure changes and internal product structure adjustments, tire prices increased by 0.36%.

The quarter-on-quarter data in Q2 counted by Triangle Tyre shows that, for the price of main raw materials, that of natural rubber fell by 14.0%, that of synthetic rubber by 24.0%, that of carbon black by 15.3%, and that of steel cord by 3.4%, leading tire prices to fall by about 2.6%.

The average quarter-on-quarter procurement price in Q2 counted by GS shows that the price of natural rubber decreased by about 6.8%, that of synthetic rubber by about 13.5%, that of carbon black by about 16%, and that of steel cord by about 9.6%, resulting in a quarter-on-quarter decrease of about 5.8% in the average price of tires.

In the first half of the year, as for the year-on-year procurement price of main raw materials counted by Giti Tire, that of natural rubber decreased by about 2.72%, that of synthetic rubber by about 12.52%, that of compounding agent by about 10.96%, and that of carbon black by about 22.65%, driving the average sales price of tires to drop by about 5.07%.

As the domestic market has recovered well, tire enterprises have increasing demand on raw materials, and the prices of raw materials have continued to rise. At present, some tire enterprises have begun to announce an increase in tire sales prices due to the pressure of production costs.

“Exported goods for domestic sales” is not the only way out

Since March, the epidemic has spread globally. Tire exports in February and March stopped abruptly as soon as they showed signs of improvement. Orders were reduced or postponed, export products flowed back, and the pressure of competition in domestic market increased sharply.

CRIA’s statistical data is a good proof of this. In the first half of the year, the export delivery value of tires fell by 16.25%, and the export rate (value) was 38.07%, a decrease of 2.02 percentage points.

Take Qingdao Doublestar as an example. In the first half of the year, international market operation revenue dropped by 37.25%; and domestic market operation revenue increased by 11.10%, accounting for 73.19%, an increase of 13 percentage points.

From the view of domestic market demand, according to statistics from the China Association of Automobile Manufacturers, China’s automobile production and sales respectively fell by 16.8% and 16.9% in the first half of the year, showing an overall downward trend. However, those of commercial vehicles increased by 9.5% and 8.6% respectively, mainly due to the pull of truck production and sales, which increased by 11.5% and 10.8% respectively.

Among them, the pull of increasingly unobstructed logistics, bottom-level entrepreneurship and stall economy has contributed to the outstanding data of light truck sales. It has increased by 15.4% in April, by 43.4% in May, and by 81.5% in June. Although sales in July fell by 18.30% month-on-month, they still maintained a substantial year-on-year growth, reaching 68.7%.

Aeolus Tyre, the commercial tire manufacturer, seized the vigorous development momentum of OEM market and seized production with full power. In April, the monthly sales volume of all-steel truck tire OEM market in China hit a record high in recent years.

Baoding Changan Shenqi wing lift transport van has become a hot commodity for stall economy. Linglong Tire, its OEM manufacturer, also echoed with Baoding Changan, and solemnly recommended light truck tire specifications.

While seizing market opportunities, listed enterprises have lost no opportunity to innovate marketing strategies in accordance with market changes.
Linglong Tire’s overall sales volume in domestic retail market has increased by 35% in the first half of the year through the creation of a new retail smart marketing platform combining online and offline. Among them, that of all-steel tire has increased by 49% and that of semi-steel tire by 28%. Especially since the deployment of new retail in March, the cumulative growth rate exceeded 51% in the four months up to June.

Qingdao Doublestar has fully promoted “three new” strategy, that is, “new retail” of online orders and offline services, “new business format” of “tire and wheel in one” cross-border integration, and “new business model” which vigorously promotes “Internet of Tires”, creatively changing from “sales of kilometers” to “sales of tires”. Therefore in Q2, the quarter-on-quarter operation revenue has increased by over 50%, and the quarter-on-quarter net profit has increased by 122.18%.

Sailun Group also launched a new retail intelligent management system, which realized the organic integration of online and offline, opened up the information flow and material flow from factory to consumer, and provided the foundation and basis for the supply chain model of “point-to-point” order production and distribution optimization, which is conducive to further narrowing the distance between the company and consumers.

Prinx Chengshan has newly developed 19 domestic dealers and added 143 to 519 qualified five-star tire stores. The cumulative contribution of customers in five-star stores accounted for 34% of the total sales of the domestic all-steel tire replacement market, and the market share was further improved.

Fengyuan Tire has innovated its marketing methods. It widely applied online communication tools, and relied on e-commerce platform to try promoting goods sales through live streaming, which achieving good results.

In the international market, listed companies actively responded to the severe international environment and vigorously adjusted the structure of market, customers and products.

As Prinx Chengshan responded quickly to the epidemic, its international marketing was not significantly impacted, with operation revenue falling by just 0.5%. At the same time, it has steadily expanded its North American sales channels, laying the foundation for the sales of Thai plant in the second half of the year.

Fengyuan Tire completed the delivery of foreign trade orders from nearly 60 countries in Q1, effectively stabilizing the production and operation situation. Although foreign trade declined in Q2, the basic market remained stable.

In the post-epidemic era, with the impact of stricter environmental protection policies and the intensification of international trade frictions, the differentiated development of China’s tire industry will accelerate. Only by advocating innovation, building brands, and truly adhering to high-quality and sustainable development can one win in the future competition.