New stock outlook | Shandong Linglong Tyre: Increasing investment in "7+5" layout to accelerate the road to becoming a global tire giant.

The trend of A-share listed companies sprinting towards Hong Kong stocks continues, with another A-share company knocking on the door of the Hong Kong Stock Exchange. Shandong Linglong Tyre (601966.SH) has submitted a prospectus to the Hong Kong Stock Exchange, planning to list on the main board, with CITIC SEC and Zhongtai International as joint sponsors. A-share companies seeking secondary listings in Hong Kong value "internationalization." Shandong Linglong Tyre is no exception. The funds raised from the Hong Kong listing plan of the company include plans for capacity expansion, especially the construction of overseas factories; enhancing research and development capabilities; and improving global marketing strategies. According to reports, due to a continuous decline in stock prices for four years, Shandong Linglong Tyre's A-share market value is currently only about 22 billion yuan. According to the prospectus, the product portfolio of Shandong Linglong Tyre includes a wide range of passenger and light truck tires, truck and bus tires, and off-road tires, with various specifications to adapt to different applications. In terms of the brand matrix, the company's brands include Linglong, Leao, Uniforce, Atlas, Green Max, and Rovelo. Based on the 2024 global sales volume, Shandong Linglong Tyre is already the largest OE tire manufacturer in the Chinese market, ranking third globally in OE tire manufacturers. In the field of new energy vehicles, Shandong Linglong Tyre has been the world's largest OE tire manufacturer for five consecutive years. Stable growth of leading tire manufacturers The prominent market position has provided strong sales performance support for Shandong Linglong Tyre. In the past three complete years, Shandong Linglong Tyre's revenue has continued to expand at a compound annual growth rate of 13.9%. The data shows that in 2022-2024, the company achieved revenues of 17.006 billion yuan, 20.165 billion yuan, and 22.058 billion yuan, respectively. Looking at the breakdown, passenger and light truck tires have always been the company's largest source of revenue, with the proportion increasing in recent years. According to financial reports, the revenue of this business has increased from 9.709 billion yuan in 2022 to 14.43 billion yuan in 2024, with the proportion increasing from 57.1% to 65.4%. Truck and bus tires are the second-largest business for Shandong Linglong Tyre, with revenues of 6.224 billion yuan, 6.728 billion yuan, and 6.688 billion yuan during the reporting period, accounting for 36.6%, 33.4%, and 30.3% of revenues, respectively. During the same period, Shandong Linglong Tyre also generated some revenue from off-road tires, as well as other businesses including materials and waste sales, but the revenue shares were relatively small. Overall, it is easy to see that passenger and light truck tires, which contribute the largest proportion of revenue, have been the biggest growth driver for Shandong Linglong Tyre in recent years. The orderly growth of this business has benefited from a combination of increasing volumes and prices. In terms of sales volume, there was a 28.3% year-on-year increase in 2023, followed by an approximately 11.2% increase the following year; at the same time, the average selling price remained basically stable in 2022 and 2023, with a slight increase in 2024. As revenue steadily expands, Shandong Linglong Tyre's profitability has also made significant strides in recent years. The data shows that from 2022 to 2024, Shandong Linglong Tyre's gross profits were 1.871 billion yuan, 3.601 billion yuan, and 4.344 billion yuan, with corresponding gross profit margins of 11%, 17.9%, and 19.7%, respectively. In particular, the gross profit margin saw a sharp increase in 2023, mainly due to the scale economies resulting from the increase in production and sales quantity, as well as a decline in prices of raw materials such as natural rubber and synthetic rubber. During the reporting period, Shandong Linglong Tyre's net profits were 292 million yuan, 1.391 billion yuan, and 1.752 billion yuan, showing a consistent trend of growth. It is worth mentioning that, not only has Shandong Linglong Tyre achieved significant success in the domestic market, its performance overseas has also been gradually improving. This can be attributed to the company's high emphasis on the international market. Previously, Shandong Linglong Tyre formulated the "7+5" strategy (which includes establishing 7 factories in China and 5 factories overseas), continually advancing its global layout. By the end of last year, Shandong Linglong Tyre had established seven major production bases worldwide, including two overseas bases in Thailand and Serbia. In the prospectus, Shandong Linglong Tyre stated that through optimizing industrial layout and strategic capacity growth measures, the company's global expansion pace will accelerate further. Accelerating domestic substitution Progressing globalization through "7+5" strategy From an industry perspective, the global tire industry has steadily grown since 2020, with global tire sales reaching 1.784 billion units in 2023. Currently, the global tire market is primarily driven by replacement demand. For example, in 2023, replacement market demand accounted for approximately 1.321 billion units, while original equipment manufacturer (OEM) market demand accounted for approximately 464 million units, representing 74% and 26% of the market share, respectively. The industry has a high degree of concentration, with the top three companies - Michelin, Bridgestone, and Goodyear - holding a combined market share of nearly 40%. In fact, in the automotive components industry, foreign manufacturers dominate a majority of the market share, mainly due to the late start of domestic manufacturing and the heavy reliance on foreign investment. However, in recent years, domestic brands have increased their focus on research and development, with technological advancements keeping pace with international standards, especially in artificial intelligence, positioning them at the forefront of the industry. These technological advancements have also driven an increase in the penetration rate of domestic brands. In the tire industry, for example, in the global "Top 75 Tire Companies" list released in 2023, China had 36 companies listed, including leading domestic companies such as Zhongxin Rubber, Sailun Group, and Shandong Linglong Tyre among the top 20 global tire companies. Recently, the United States initiated a tariff war, increasing tariffs on automotive components, which undoubtedly accelerates domestic substitution. Meanwhile, high-quality suppliers like Shandong Linglong Tyre, representing domestic brands, will receive significant attention from domestic car manufacturers. Shandong Linglong Tyre insists on balancing supporting and retail businesses, which is closely related to the industry structure. The retail business primarily caters to tire replacement demands, with products exported to 173 countries around the world, covering Europe, the Middle East, the Americas, the Asia-Pacific, and Africa, with a relatively balanced market distribution. The supporting business mainly provides services to more than 200 production bases of over 60 global major OEMs, such as Volkswagen, Audi, BMW, BYD Company Limited, and Geely, ensuring a high level of customer satisfaction. Additionally, the company actively explores the middle and high-end supporting markets, changing the image of domestic low-end brands. By strengthening cooperation with BBA and achieving breakthroughs, the company has become a supporting supplier for several high-end domestic brand models since 2024, including becoming the main tire supplier for Volkswagen Tiguan, entering the global high-end supporting market. In addition to benefiting from domestic substitution, the company's global steady expansion and strong export demand in the industry position it as a key player alongside the top three industry giants. Looking towards the future, Shandong Linglong Tyre plans to firm up its international manufacturing efforts around the "7+5" and "3+3" strategies. In the "7+5" strategy, Shandong Linglong Tyre currently has five production bases in China in Zhaoyuan, Dezhou, Liuzhou, Jingmen, and Changchun, with plans to build two more production bases in Shaanxi and Anhui. It also has two production bases overseas in Thailand and Serbia, and continues to explore building factories on a global scale to leverage global resources and expand its footprint in the global tire market. Building on the foundation of the "7+5" global strategy layout, Shandong Linglong Tyre has also implemented a "3+3" strategy for producing off-road tires based on strategic planning, aiming to establish production capabilities for off-road tires at three domestic and three overseas production bases. In recent years, the growth of global port transportation, expansion of mining activities, mechanization and automation of modern manufacturing logistics, and the emphasis on infrastructure development in developing countries have all significantly driven the continued growth of off-road tire demand. Currently, off-road tires have a promising market outlook, particularly in overseas regions. From a commercial perspective, off-road tires have high barriers to entry, making them an attractive field for Chinese tire companies like Shandong Linglong Tyre. In light of this, Shandong Linglong Tyre aims to achieve a production capacity of 330,900 tons of off-road tires by the end of 2030. By knocking on the door of the Hong Kong Stock Exchange, Shandong Linglong Tyre is not only an important part of its "7+5" global strategy, but also a key initiative to accelerate its internationalization and enhance global competitiveness. Leveraging the momentum of China's rise in the tire industry and its continuous deepening of product, technology, and global layout, the company has firmly established itself as a leader in the domestic OE market, and has significant advantages in the global, especially in the new energy vehicle supporting segment. The funds raised through its secondary listing on the Hong Kong Stock Exchange will serve as a powerful engine to support its global expansion, technological advancement, and brand value enhancement.