Sinolink: Tariff pressure tests the performance differentiation of tire enterprises, and the industry is expected to improve in the second half of the year.

Sinolink released a research report stating that although the overall demand of the tire industry is relatively stable, the demand for semi-steel replacement market is stronger in terms of structure, and leading companies with increased overseas production capacity are expected to continue to see growth in income. In the first half of 2025, the tire sector's profit showed a decline, mainly due to the sudden impact of the US tariff policy. Considering that the tariff impact has gradually been absorbed in the second quarter, coupled with a decrease in raw material prices bringing cost relief, it is expected that profits will recover in the third quarter. Several overseas tire companies have announced plant closures and production cut plans. Against the backdrop of consumption downgrading, domestic tire companies are expected to seize the opportunity to continue to capture global market share. Positive outlook for domestic tire companies that have taken the initiative to go global and have relatively perfect overseas layout. Sinolink's main points are as follows: The overall demand of the tire industry is supportive but there is differentiation in structure, with a slowdown in export growth. In the first half of 2025, global tire market demand increased by 2% year-on-year to reach 918 million units, with radial tires increasing by 1% year-on-year to 106 million units, and semi-steel tires increasing by 2% year-on-year to 812 million units, with the highest growth rate seen in the replacement of semi-steel tires, increasing by 3% year-on-year. China's tire exports growth has slowed down, with exports of passenger car tires holding steady at 172 million units in the first half of 2025, while exports of truck tires increased by 2% to 63 million units. In the second quarter of 2025, exports of passenger car tires decreased by 3.6% year-on-year to 87.36 million units, while exports of truck tires increased by 1.1% to 33.3 million units. Looking at the US market, despite the unexpected tariff events in the second quarter, import demand remains strong. In the first half of 2025, the total imports of passenger car tires into the United States reached 84.91 million units, a 3% increase year-on-year, with supply from Thailand, Vietnam, and Cambodia accounting for 41%; imports of truck tires reached 32.65 million units, a 12% increase year-on-year, with supply from Thailand, Vietnam, and Cambodia accounting for over half. Steady growth in tire sector income, with profitability declining under tariff impact. In the first half of 2025, the tire sector achieved a total operating income of 55.6 billion yuan, a 10% increase year-on-year; net profit attributable to shareholders was 4 billion yuan, a 30% decrease year-on-year; the overall sales gross margin was 18.4%, a 5.2 percentage point decrease year-on-year; and the net profit margin was 7.5%, a 4.1 percentage point decrease year-on-year. In the second quarter of 2025, total operating income reached 28.6 billion yuan, a 9.9% increase year-on-year, and a 6.2% increase quarter-on-quarter; net profit attributable to shareholders was 2 billion yuan, a 33% decrease year-on-year, with a basic quarter-on-quarter stability; the sales gross margin was 18.9%, a 4.9 percentage point decrease year-on-year, and a 1.1 percentage point increase quarter-on-quarter; the net profit margin was 7.3%, a 4.5% decrease year-on-year, and a 0.4 percentage point decrease quarter-on-quarter. The main reason for the profit decline is the sudden impact of the US tariff policy. Considering that the tariff impact has gradually been absorbed in the second quarter, coupled with a decrease in raw material prices bringing cost relief, it is expected that profits will recover in the third quarter. Significant differentiation in company performance, with leading domestic tire companies expected to continue to increase market share. Leading tire companies with overseas bases and production capacity have stronger operational resilience. In the first half of 2025, Sailun Group's total operating income increased by 16% year-on-year to 17.6 billion yuan, while net profit attributable to shareholders decreased by 14.9% year-on-year to 1.83 billion yuan. Looking at the overseas layout of tire companies, after completing the first round of expansion into Southeast Asia, leading tire companies have started the second round of expansion. Sailun's Indonesia and Mexico plants went into operation in the first half of this year, with a new plant planned in Egypt. Zhongce Rubber Group's Indonesia plant is contributing profits and its Mexico plant is under construction, Linglong's Serbia plant and Qingdao Sentury Tire's Morocco plant are continuing to ramp up production. Unlike the continuous overseas expansion of domestic tire companies, several overseas tire companies have announced plant closures and production cut plans. Against this backdrop of consumption downgrading, domestic tire companies are expected to seize the opportunity to continue to capture global market share. Investment advice and valuation From a fundamental perspective, although the overall demand of the industry is relatively stable, the semi-steel replacement market has stronger structural support, and leading companies with increased overseas production capacity are expected to continue to see growth in income. In terms of profit, with the gradual absorption of the tariff impact and a decrease in raw material prices, it is expected that corporate profits will also be repaired to a certain extent. From a trade risk perspective, the long-term impact of US tariffs is expected to be achieved through end price increases; the European Union has officially launched an anti-dumping investigation into new passenger car and light truck inflatable rubber tires imported from China. Tire companies with multiple overseas bases can mitigate risks by flexibly allocating orders. If the EU imposes high tariff rates, considering short-term supply shortages and relatively long overseas production expansion cycles, it is expected that overseas capacity exports to the EU will have good price elasticity and profit margin in the next 2-3 years. Although the industry still faces risks such as intensified competition, anti-dumping duties, and rising raw material prices, from an industry trend perspective, on one hand, the market for high-cost-effective tires still has growth potential in the context of consumption downgrading, and the market space that domestic tires can capture in the long term will be higher than before. On the supply side, many overseas tire companies have begun to close or reduce some production capacities, while leading domestic tire companies have started their second round of overseas expansion, consolidating their cost-effective advantages while continuing to improve their risk resistance. On the other hand, if the EU anti-dumping tax rate is implemented, short-term overseas production supply will be relatively tight, and tire companies with a global layout and increased overseas production capacity are expected to achieve both volume and price increases in EU orders. At the same time, the competitive situation in the US market, which was originally intense, is expected to be relieved, further promoting the optimization of the tire industry landscape. Positive outlook for domestic tire companies that have taken the initiative to expand overseas and have relatively perfect overseas layouts. Risk warning: significant fluctuations in raw material prices, international trade frictions, significant fluctuations in shipping costs, significant fluctuations in exchange rates, increased competition due to domestic companies establishing overseas factories.