According to the public data, under the background of adverse economic environment, quickened transformation and upgrading of the industry and deepening of supply-side structural reform, along with quick development of automobile industry and gradual recovery of transport industry, the tire industry lived through the shocks and tests brought about by deep adjustment of economic and market environment, the enterprises sought for overseas development, green development and intelligent development in succession to realize stabilization of growth of industry economy.
Economic Data Stops Falling and Becomes Stable and Growth Obviously Rises Again
From 2012 to 2015, affected by domestic and overseas development environment change and economic transformation and upgrading activities, the economic downward pressure was always large and the development of China rubber industry went straightly down to have negative growth in 2015. In 2016, there were still 3 enterprises among the listed companies, Aeolus Tyre Co., Ltd., Triangle Tire Co., Ltd. and Giti Tire Co., Ltd., whose operating income realized negative growth. See Table 1 for main accounting data of 9 listed tire companies and Table 2 for output, sales and inventory conditions.
Table 1 Main Accounting Data of Primary Tire Business of 9 Listed Companies
Table 2 Output, Sales and Inventory Conditions of 9 Listed Tire Companies Ten Thousand Units
Note: The output and sales of Aeolus Tyre in 2016 cover those of the passenger car tire products.
The explanation of Triangle Tire for decrease in operating income was: Affected by factors such as product structure adjustment, transformation and upgrading and policy-based removal, the output and sales of tires in 2016 had a slight year-on-year decrease. Among it, the operating income of domestic market was 2.851 Billion Yuan, with a decrease (year-on-year, the same below) of 5.29%; and the operating income of overseas market was 3.818 Billion Yuan, with a decrease of 7.92%. Main reasons: firstly, policy-based removal affected the capacity to some extent. After all tire production lines in the old plant area were shut down at the end of September 2015, newly-built capacity existed in the process of gradual release and boost, which affected the market supply of 2016 to some extent; this effect had been eliminated and the capacity got gradually boosted at the end of the year; secondly, the company implemented transformation and upgrading strategy, adjusted the product structure and eliminated the products with low technical content in recent years, which affected the output and sales of the tires in a given period; thirdly, “anti-dumping and anti-subsidy” of America, etc. affected the export sales to some extent.
Giti Tire thought that it is mainly obvious fall of export sales market that caused decrease in operating income. American market was originally the main market of Giti Tire; however, America levied high “anti-dumping and anti-subsidy” tax rate on Chinese passenger car and light truck radial tires, which caused sharp fall in its sales in America. Although it adjusted its product structure and actively broadened its sales in domestic market and non-American market, it was still difficult to offset the shock brought about by fall in sales of American market. The export sales reduced by 0.502 Billion Yuan compared with that in 2015; and the domestic sales increased by 0.350 Billion Yuan compared with that in 2015, but the sales still decreased by 4.83% on the whole.
The main reason for increase in income of General Science Technology getting listed on September 19 of last year was that it raised fund to invest on all-steel tire project, actively exploited domestic and overseas market and constantly enlarged and perfected the international marketing network. Although its operating income of international market was only 0.27 Billion Yuan, it realized an increase of 35.87%.
In 2016, Guizhou Tire faced great difficulty in its production and operation. Through concerted efforts as well as support and help of relevant government units, the company achieved certain effect in its production and operation, various degrees of growth in tire production, sales and operating income and certain profits in its performance. On one hand, international trade protectionism further rose to increase the difficulty of tire export of this company; on the other hand, special tire remote removal, upgrading and transformation project was carried out, due to capacity loss caused by installation and debugging of a large amount of new equipment, overhaul and renovation of removal equipment and trial production of multiple series of products, the design capability was not achieved and the capacity was not given full play within the year, which resulted in rise in costs, influence on sales and sales income and adverse influence on operating profit of the company. In addition, increasing costs of main raw materials such as rubber also increased the pressure of production and operation of the company.
Gross Profit Rate Generally Declines and Price Hike is Inferior to Cost Increase
It can be seen from Table 1 that there are 6 enterprises with a year-on-year decrease and 3 enterprises with increase in gross profit rate. The average gross profit rate of 9 listed companies is 18.90%.
In 2016, tire industry underwent the trend of lower first and higher later as well as shocking ascending of natural rubber price, especially jumping rise in the fourth quarter. In addition, the prices of raw materials and energies such as carbon black and rubber chemicals rose and artificial cost, land cost and environmental protection cost also increased. For example, the price of SICOM natural rubber of Singapore increased from USD 1,440/ton at the end of the third quarter to the peak of USD 2,208/ton, with a rise of 53.3%; the price of BR increased from 13,600 Yuan/ton at the end of the third quarter to the peak of 18,800 Yuan/ton at the end of the year, with a rise of up to 38.2%; the price of carbon black had a large rise, especially the rises in the second and fourth quarter were obvious, and the average rise of the whole year reached about 40%; and the price of steel cord continuously increased, and the average increase of the whole year reached about 30%.
To respond to the price and supply risks, the listed tire enterprises signed an annual strategic contract with the suppliers to directly purchase, and locked the price of natural rubber in advance and stabilized partial supply by signing a long-term contract, such as Sailun Jinyu; or under the trend of shocking ascending of the market, centralizedly purchased respectively at the time of low and horizontal price movement and staged callback by prospective deployment and staged storage mode to effectively control the purchase cost, such as Triangle Tire.
Under the cost pressure, since the fourth quarter of last year, tire enterprises generally increased the sale prices of partial tire products until the first quarter of 2017 according to the price conditions of the same industry, costs of raw materials and profit rate level. Even so, the price hike was still inferior to the cost increase, plus the increase of operating income, which resulted in that there were 6 enterprises among the listed companies whose operating cost had a year-on-year increase, with the highest increase of over 40%, and 3 enterprises whose operating cost had a year-on-year decrease, with the lowest decrease of Triangle Tire of only 9.81%.
Global Strategic Advantages are Obvious Enterprises Actively Seek for Overseas Layout
Along with increase of labor cost, land cost, etc. in China as well as disappearance of demographic dividend and constantly increase of overseas trade barrier, more and more domestic tire enterprises went abroad, reasonably avoided shock of global trade protectionism, promoted product differentiation innovation and global layout, adjusted enterprise development structure and promoted transformation and upgrading. Among 9 listed tire enterprises, there are 3 establishing production base overseas and 3 disclosing in its annual report that it will timely quicken overseas layout by itself or through methods such as international merger and acquisition.
Sailun Jinyu took the lead in setting up raw materials base and tire production factory in areas with low labor cost and rich natural rubber such as Thailand and Vietnam. Such commercial mode of global operation of this company plays a role in reducing enterprise cost and avoiding trade barrier. While America imposed “anti-dumping and anti-subsidy” on semi-steel tires produced by China, this company gradually transferred the original orders of semi-steel tires exported from China to America to Vietnamese factories for production, which largely increased the output and sales of semi-steel tires and improved the profitability of Vietnamese factories and realized the operating income of 1.183 Billion Yuan. Nowadays, the capacity of semi-steel tires of this factory reaches 7.80 million units, the capacity utilization rate reaches 72.95% and 1.20 million all-steel tires invested with 1.37 Billion Yuan is also under construction. Efficient and stable operation and constant improvement enable Vietnamese factories to become an important base of Sailun Company to further explore internationalization.
Along with capacity improvement and market plan adjustment, the output of semi-steel tires of Thailand Factory of Linglong Tire in 2016 increases by 28.03% compared with that in 2015. All-steel tire was put into production in July 2015, and the capacity got constantly enlarged in 2016, with the output 8.21 times of that in 2015. So far, Thailand Linglong has reached scale and normalized production and basically possessed the annual production capacity of 10 million semi-steel tires and 1.20 million all-steel tires. In the future, the company will implement “3+3” strategy to build the second and third tire production base of the company in Europe and America.
Huayi Group (Hong Kong) Co., Ltd., a wholly-owned subsidy of Shanghai Huayi (Group) Company, jointed venture with Thailand Taibeijia Enterprise Co., Ltd. to set up Huayi Group (Thailand) Co., Ltd., with the registered capital of USD 100 Million and Huayi Hong Kong holding 80% of shares, both parties jointly invested to build a tire production base in Thailand. At present, the project is under vigorous construction.
As for the enterprises not building factories overseas, their strategic planning of building factory overseas can be seen from their annual report.
Triangle Tire will take chance to establish overseas base. Its development strategy is that while continuously and solidly establishing global development concept, unswervingly following the path of global brand, actively promoting global development layout, deepening global strategic promotion of production and manufacturing, technical research and development and marketing, quickening the step of capital “going out”, taking chance to establish overseas production base through newly building, capital operation, etc., improving the overall manufacturing level of the company and realizing global operation at a higher level.
Qingdao Doublestar will explore in building factory overseas and industry merger and acquisition. Its development strategy is that with open mind, strengthening technical cooperation with international institutions, quickening internationalization process and exploring building factories overseas to realize global layout and improve the international influence of Doublestar brand; with establishment of green tire intelligence demonstration base as the opportunity and market demand as the orientation, fully setting up new platform for overseas development through the mode of industry merger and acquisition to realize the target of “marketing localization, manufacturing intercontinentalization and R&D globalization” and “creating world brand of Doublestar Tire”.
General Science Technology will promote the building layout of overseas production base. Its development strategy is that in 2017, closely centering on the concept of “three self developments”, that is, taking selfowned brand, self-dependent innovation and self-owned capital as the grasp to realize second entrepreneurship of the company and build General Science Technology as a globally renowned tire enterprise. To prevent inter-national trade barrier risks, General Science Technology will reduce the influence of overseas trade protection policies on export business of the company by promoting building layout of overseas production base and actively exploiting new market.
Global development strategy enables large-scale tire enterprises to stay competitive in international market for long. To maximumly solve the risks of overseas operation, many listed companies indicate in their annual report that they will improve cultivation and introduction of international talents, implement localized management mode and realize sufficient understanding of local operation environment.
