First, the tire industry intelligent leader
Sen Qilin is the forerunner of intelligent manufacturing in China's tire industry. Founded in 2007, the company is mainly engaged in the research and development, production and sales of high-performance radial tires and aviation tires. In 2014, China's first tire industry 4.0 smart factory - Sen Qilin Qingdao Intelligent Factory put into operation, the entire production line relies on a large number of intelligent equipment, compared with the traditional production line land area reduced by 50%, the output rate of a single equipment increased by 50%, 5 million semi-steel tire production capacity employs only more than 230 people, labor efficiency is more than 4 times that of the traditional tire production line, the product qualification rate reached 99.8%. In 2015, the company successfully copied the Qingdao model in Thailand, built the world's most advanced tire industry 4.0 smart factory at that time, and successfully operated the intelligent manufacturing base with an annual output of 10 million semi-steel radial tires. From 2016 to 2018, the company's intelligent practice achievements were successively selected as "2016 Intelligent Manufacturing Comprehensive Standardization and New Model Application", "2017 Intelligent Manufacturing Pilot Demonstration Project", and "2018 Manufacturing and Internet Integration Development Pilot Demonstration Project". Sen Qilin has become the only enterprise in the tire industry to be selected as an intelligent manufacturing demonstration project of the Ministry of Industry and Information Technology for three consecutive years.
The shareholding structure is clear and the shareholding is concentrated. As of the end of 2021, Mr. Qin Long controls a total of 50.25% of the company's shares (directly holding 41.99% of the shares, and indirectly controlling 8.26% through concerted actors), and is the controlling shareholder and actual controller of the company. Director/General Manager Lin Wenlong holds 5.77% of the shares, and Xinjiang Xinshi, Ningbo Senrun, Xinjiang Henghou and Xinjiang Ruisen are the consistent actors, holding a total of 9.07% of the company's shares.
Since 1989, the actual controller of the company is also the founder of the company, Mr. Qin Long, began to engage in rubber and tire foreign trade business, has represented Hangzhou Zhongce, Linglong Tire, Michelin, Ruke Haoma, Ma Brand and other well-known tire brands at home and abroad, rubber trade volume since 2000 has been among the best in the Chinese market, the foreign market demand and tire industry operation has a deep understanding and grasp. In the process of selling tire brands at home and abroad, the actual controller has opened up the sales market in the United States and reserved high-performance and large-size tire sales channels mainly in the European and American markets. In the process of development, the company has successively integrated the tire business of Sentaida Group controlled by Mr. Qin Long and its North American sales subsidiary, laying a good foundation for the company to enter the production and manufacturing field of semi-steel radial tires and open up the US market.
(1) Focus on overseas markets, products towards the high-end
The company focuses on green, safe, high-quality, high-performance radial tires and aviation tires. According to the application field, the company's products are divided into economy passenger car tires, high-performance passenger car tires, special performance tires, light truck tires, heavy truck tires and special tires (racing tires, aviation tires). In the field of semi-steel tires, the company's product structure is based on large-size high-performance passenger cars and light truck tires with rim size of 17 inches and above, with more than 10,365 subdivision specifications of products, with full-size semi-steel radial tire manufacturing capabilities, products are widely used in all kinds of cars, off-road vehicles, urban multi-purpose vehicles, light trucks and pickup trucks and other models. In the field of all-steel radial tires, the company has more than 221 sub-specification products, covering steering wheels, trailer wheels, drive wheels and all-wheel position products, and has a relatively mature all-steel radial tire manufacturing capacity. In the field of aviation tires, the company is one of the few international aviation tire manufacturing enterprises, which can produce multi-specification aviation tire products suitable for domestic large aircraft, Boeing, Airbus and other aircraft models.
Continue to build independent brands, products towards the high-end field. Sen Qilin attaches great importance to the promotion of its own brand, and has successively created a full range of sizes of Lu hang (LANDSAIL), DELINTE (DELINTE) brand, as well as sentury brand for the high-end retail market, and through GROUNDSPEED, AVANTECH, CITYSTAR to improve product coverage grade, improve their brand value and influence. From 2014 to 2016, "LANDSALI" was the highest ranked Chinese brand in the Finnish TestWorld summer tire test.
From 2014 to 2021, the company's DELINTE brand tires have a market share of 2.5% in the US ultra-high performance tire market for 8 consecutive years, making it the only Chinese brand on the list. At the same time, the "Luhang" brand was twice selected by CCTV2's "Consumer Proposition" program, as a representative of Chinese-made tires and competed with foreign brands, and received good reviews. In 2021, the company's three independent brands of "Sen Qilin Sentury", "Luhang Landsail" and "Delinte" have a market share of 2% in the US replacement market, and the company's total tire products have a market share of about 4.5% in the US replacement market and a market share of more than 4% in the European replacement market.
Deeply rooted in the US market, overseas sales channels are becoming more and more mature. At present, the company has formed a sales pattern with the foreign replacement market as the core sales field, continuously cultivating the domestic replacement market, and focusing on the global high-end main engine factory supporting market. Benefiting from the accumulation of tire trading business for many years by the actual controller, Sen Qilin has a perfect overseas tire replacement market sales system. As of the end of 2019, the company has 201 distributors overseas, and the overseas market covers the Americas, Europe, Asia Pacific and Africa. Since 2009, the company has cooperated with major North American tire dealers such as MID-STATE, AMERICANOMNI, DISCOUNTTIRE and so on. In 2016, the company set up Sen Qilin (North American shares) to further strengthen its expansion into the North American market. In 2019, the U.S. market contributed nearly 60% of Sen Qilin's operating income.
Strengthen R&D investment and accelerate the pace of product innovation. The company adheres to the R&D concept of "independent research and development, continuous innovation, leading technology, focusing on the future", relying on the national high-tech enterprises, national accreditation laboratories, Shandong Enterprise Technology Center, Shandong Aviation Tire Technology Innovation Center and other industry-leading technology platforms to accelerate the pace of cutting-edge, high-end tire product research and development and innovation. At present, the company has successfully developed and mastered: ultra-low rolling resistance tires, winding extrusion puncture-proof puncture-proof tires, high mileage, ultra-low noise, ultra-low rolling resistance special new energy electric automobile tires, ultra-long mileage explosion-proof safety tires, graphene conductive static low rolling resistance high wet slip tires, high-performance sports tires and other cutting-edge tire research and development technology. Among them, the ultra-low rolling resistance, high-performance green car tires with high moisture resistance have been highly recognized by the market; graphene conductive electrostatic tires have broken the "devil's triangle" law of high tire performance, high moisture slip resistance and low roll resistance, and achieved a reduction of 1.8 meters in the wetland braking distance, 6% increase in wet slip resistance, and a 1.5-1.8 times increase in tire mileage; the flat ratio of 20 series radial tires and Formula 4 racing tires has filled the research and development gap in related fields in China.
Production capacity is gradually put into operation, and the field of aviation tires is raised and invested. The company currently has two major production bases in Qingdao and Thailand, and by the end of 2021, the production capacity of semi-steel tires is about 22 million pieces/year. In terms of domestic factories, the company's intelligent transformation of the first production line of the Qingdao plant is expected to expand the production capacity of semi-steel tires from 12 million to 15 million in 2022. In terms of overseas factories, the Thailand plant has a production capacity of 10 million semi-steel tires in 2021, and the second phase of the Thailand project with an annual output of 6 million high-performance semi-steel tires and 2 million high-performance all-steel tires has been basically completed, and can be put into large-scale production in 2022. At the same time, the company accelerated the construction of the Spanish factory, with a design capacity of 12 million semi-steel tires, and is expected to become the first smart tire factory of Chinese tire companies in developed countries in Europe and the United States after the completion of the project. In terms of off-highway tires, the company's investment in the aviation tire project (30,000 new tires + 50,000 refurbished tires) is expected to be put into operation in 2022. After the completion of the company's construction capacity and planning projects, the production capacity of semi-steel tires will reach 43 million pieces/year, the production capacity of all steel tires will reach 2 million pieces, and the production capacity of aviation tires will reach 80,000 pieces.
(2) The product structure is improved and the business situation is improving
Revenue showed a ladder growth, and the sharp increase in profit was due to the capacity increase in Thailand. From 2015 to 2021, the company's operating income increased from 2.024 billion yuan to 5.177 billion yuan, with an average annual compound growth rate of about 16.94%; the net profit attributable to the mother increased from 140 million yuan to 753 million yuan, with an average annual compound growth rate of about 32.37%. The substantial increase in performance is mainly due to the effective release of the production capacity of the Thai factory with the operation of the Thailand factory, and the Thailand factory has gradually undertaken overseas orders since the Thailand factory was put into operation in 2016. Compared with domestic factories exporting to the US market, Thai factories have greater tariff advantages, and profitability has been greatly improved. In 2021, due to the sharp rise in raw material costs and the high sea freight rate, the company's net profit attributable to the mother declined for the first time since 2015.
Product structure upgrade, profitability continues to improve. The company's revenue is mainly derived from economy passenger car tires, high-performance passenger car tires and light truck tires. Among them, high-performance passenger car tires and light truck tires are mainly used in high-end cars and light trucks, and the tire size is larger than that of economic passenger cars, and the gross profit margin of single tire is also higher. In recent years, the company's market penetration in the United States has increased, while the product structure has been continuously optimized, the proportion of revenue of high-performance passenger car tires and light truck tires has increased, and the company's profitability has also continued to increase. From 2017 to 2020, the company's gross profit margin and net profit margin achieved stepwise growth, and the gross profit margin increased from 28.3% to 33.8%, ranking the forefront in the same industry; the net profit margin increased from 10.84% to 20.84%, an increase of nearly double, and the company's profitability was at a high level in the industry. In 2021, due to the tension of sea containers caused by the repeated global epidemics, the high price of maritime transport, the sharp rise in raw material prices, and the anti-dumping duties imposed by the United States on the tires of cars of origin in Thailand, the company's gross profit margin fell sharply to 23.33%, the lowest since 2015; the net profit margin fell to 14.55%.
Expense ratios continue to decline, and ROE leads the industry. The overall scale of the company continues to expand, the expense ratio has decreased year by year, and since 2018, the management expense ratio and sales expense ratio have been at a low level in the industry. In 2021, the company's sales expense ratio, management expense ratio and financial expense ratio were 2.83%, 4.68% and 1.65%, respectively. From 2015 to 2020, benefiting from the company's rising profitability and proper cost control, the overall ROE was stable and rising, which was higher than the industry average for a long time. In 2020, the company's ROE reached 17.67%. In 2021, due to multiple factors such as the sharp increase in the price of upstream raw materials and the high sea freight rate, the company's ROE fell to 11.34%.
The company's R&D expenses have increased steadily, and it has continued to strengthen its R&D investment. In 2021, the company invested about 109 million yuan in R&D, an increase of 22.15% year-on-year, and the R&D expense ratio was 2.10%. In 2021, the company's product independent research and development and innovation capabilities continued to improve, the company added 13 new patents, including 2 invention patents, 8 utility model patents, 3 design patents; by the end of 2021, the company has obtained a total of 89 patents, including 12 invention patents, 27 utility model patents, and 50 design patents.
Profitability remains of high quality over the long term. From 2017 to 2020, the company's sales cash collection ability has steadily increased, the ratio of accounts receivable to revenue has continued to decline, and the ratio of operating cash flow to net profit attributable to the mother has increased significantly. In 2020, the company's net operating cash flow was 1.681 billion yuan and net profit attributable to the mother was 981 million yuan, the ratio of the two was 1.71. In 2021, due to factors such as rising raw material prices and shipping, the company's inventory and accounts receivable increased significantly, and the quality of profitability was affected to a certain extent.
Second, China's tires have accelerated their entry into overseas markets
(1) The tire market space is vast, and the domestic substitution potential is large
The global tire market has been affected by the epidemic to a certain extent, and the scale is still close to one trillion yuan. According to the statistics of Tire Business, from 1999 to 2011, the global tire market sales continued to grow, reaching a peak of $187.5 billion in 2011, and the CAGR in 2012 was about 8.62%. From the overall trend point of view, the tire market slowly declined after 2011, and rebounded in 2017. Affected by the epidemic in 2020, the operating rate of global tire manufacturers has dropped sharply, and the epidemic prevention and control has restricted travel, which has also reduced the demand for tires, resulting in a 9.31% year-on-year decline in the tire market size, about 151.4 billion US dollars. In terms of sales volume, according to Michelin statistics, the global tire sales volume in 2020 was 1.577 billion, down 12% year-on-year, and it is expected to return to pre-epidemic levels in 2022.
The global sales center of semi-steel tires is about 1.5 billion pieces/year. From 2010 to 2019, the global semi-steel tire market maintained steady growth, with sales reaching 1.571 billion pieces/year in 2019. Affected by the epidemic in 2020, a large number of automakers stopped production, and sales fell to 1.371 billion units/year, down 12.73% year-on-year. According to Michelin's financial report, it is expected that global semi-steel tire consumption can return to pre-epidemic levels in 2022.
Europe, North America and Asia are the main consumer markets for semi-steel tires. From a structural point of view, in 2020, the global semi-steel tire original market sales of 351 million pieces, replacement market sales of 1.02 billion pieces, the ratio of original and replacement market size is about 1:3. From a geographical point of view, the original market is mainly concentrated in Asia, accounting for about 50% of sales in 2020; replacement markets are mainly concentrated in Europe, North America and Asia, with sales accounting for 32.55%, 28.04% and 25.39% in 2020, respectively.
The global all-steel tire sales center is about 220 million pieces /year. From 2015 to 2019, the global sales volume of all-steel tires was stable at about 220 million pieces/ year. In 2020, affected by the epidemic, the global sales volume of all-steel tires fell to 206 million, down 7.19% year-on-year, a decrease of less than semi-steel tires. Mainly due to the fact that China's all-steel tire market was stimulated by the early elimination of China III diesel vehicles and the tightening of the policy of overtaking in various places, the Chinese market grew by 33% against the trend throughout the year.
All-steel tire consumption is concentrated in Asia. The structure of the all-steel tire market is similar to that of semi-steel tires, and the ratio of original and replacement scale is about 1:3, and the global semi-steel tire original market sales volume is 48.2 million in 2020, and the replacement market sales volume is 158 million. From a geographical point of view, Asia is the main market for global all-steel tires, with original and replacement sales of 33.8 million and 71.7 million in 2020, accounting for 70.12% and 45.38% of the global market, respectively.
China's tire market is huge, and the market share of semi-steel tires is low. According to Michelin statistics, in 2020, China's semi-steel tire original market size of 112 million, replacement market 127 million. The original market for all-steel tires is 30.4 million, and the replacement market is 50.3 million. Among them, the semi-steel tire original, semi-steel tire replacement and all-steel tire replacement market have been affected by the epidemic, and the scale has declined in 2020. The original steel tire market benefited from the downstream heavy truck sales boom, and the scale increased by 32.75% year-on-year. The essence of the all-steel tire belongs to the means of production, the cost performance is more important, and the domestic brand has accounted for more than 80% of the domestic market share by virtue of its price advantage. The essence of semi-steel tires is still a consumer goods, more emphasis on channel management and brand building, Michelin, Bridgestone, Goodyear and other overseas giants in the country for many years, the channel system is perfect, deeply recognized by consumers, the market share of up to 70%.
(2) The concentration of the global market has declined, and the share of Chinese tires has increased
The share of the first echelon of the tire market has declined, and the market share of Chinese companies has continued to rise. In terms of competition pattern, global tire companies are divided into three echelons, the first echelon is michelin, Bridgestone, Goodyear composed of the "big three"; the second echelon is the "eight multinational groups" composed of mainland Germany, Sumitomo, Pirelli, Hankook, Ruckus Holma, Cooper, Toyo and Kumho. The third echelon is tire companies, including Chinese tire companies. From 1999 to 2020, the proportion of sales of first-tier tire companies continued to decline, the proportion of sales of second-tier tire companies remained stable, and the sales of Chinese tire enterprises grew strongly, accounting for 16.38% from 3.52% in 1999 to 16.38% in 2020. Sen Qilin is a rising star in China's tire industry, accounting for 2.93% of the total sales of Chinese companies on the world's top 75 tires listed from 0.58% in 2010.
Tire giants cut capital expenditures, and short-term growth is weak. Since 2018, the capital expenditure of the world's tire giants has entered a downward channel. In 2019, among the 8 international tire giants we counted, 5 had negative growth in capital expenditure and 3 had a growth rate of less than 10% in capital expenditure. In 2020, in the face of the performance pressure brought about by the impact of the epidemic, the international tire giants further reduced capital expenditures, except for Hankook, the capital expenditure of other tire giants fell by 15%-40% year-on-year. It is expected that the growth of overseas giants will be weak in the short term. Sen Qilin has continuously increased capital expenditure since 2018, with capital expenditure reaching 935 million yuan in 2020, an increase of 93.6% year-on-year.
(3) To avoid the "double reverse" crackdown, domestic tire companies have set off a wave of overseas factory construction
The "double reverse" of the United States hit China's tire exports hard. In 2014, China exported 476 million tires with an export value of 16.5 billion US dollars, of which 96 million were exported to the United States, with an export amount of about 4 billion US dollars. Since 2015, the United States has successively implemented "double reverse" for mainland passenger cars and light truck tires, truck and bus tires, and the domestic tire export market has been hit hard. In 2018, the Sino-US trade dispute began, and the United States imposed a 10% tariff on China's tire exports, which rose to 25%, and the export of mainland tires to the United States was even worse. As of 2020, China's exports of tires to the United States have fallen to 41.71 million, and the export value has fallen to about $1 billion.
Judging from the US automobile tire import data, the number of light truck car tires (excluding retreaded tires) imported from China in the United States since 2014 has fallen off a cliff, from 56.83 million in 2014 to 3.15 million in 2020, and rebounded slightly in 2021 to 4.6 million. In terms of truck and bus tires, with the continuous change of the "double reverse" policy of the United States on the tires of Huaka bus tires, the number of truck and bus tires imported from China by the United States fluctuated slightly, briefly rebounding to 9.27 million in 2018, but after the announcement of the final results of the cut in early 2019, the number fell by 65.42% year-on-year; by 2021, the number of truck and bus tires imported from China in the United States was only 1.11 million. The "double reaction" has dealt a heavy blow to the export of Chinese tire enterprises to the US market, promoted Chinese tire enterprises to speed up the process of global layout, and set off an upsurge of overseas investment and factory construction.
In order to avoid high tariffs, domestic tire companies have set off a wave of overseas factories. According to our statistics, at present, a total of fifteen enterprises have built factories overseas or plan to build factories overseas, of which Sen Qilin, Sailun, Linglong and Zhongce have large overseas production capacity. Sen Qilin Thailand Phase I has a production capacity of 10 million semi-steel tires / year, and the second phase of Thailand 6 million semi-steel tires and 2 million all-steel tire projects have been basically completed, and it is expected to be put into large-scale production in 2022.
At present, the production capacity of overseas factories is mainly concentrated in Thailand, and it may enter Europe in the future. From the perspective of overseas factory distribution, Thailand has become the first choice for China's tire overseas factory construction, Linglong, Zhongce, Sen Qilin and other factories are built in the Rayong Industrial Park in Thailand, a total of 48 million semi-steel tires / year, all-steel tire production capacity of 8.8 million / year, under construction / planning semi-steel tire production capacity of 13 million / year, all-steel tires 3.7 million / year. Europe is the next key layout area of China Tire, Sen Qilin plans to build a semi-steel tire production capacity of 1200 / year in Spain, Linglong Tire Serbia factory plans to build 12 million semi-steel tires / year, all-steel tires 1.6 million / year, the first phase of the project is under construction.
Overseas factories have increased rapidly and their revenue has increased significantly. According to the statistics of the China Rubber Industry Association, in 2020, China's wheel tire overseas factories produced a total of 42.3 million semi-steel tires and 8.63 million all-steel tires, which were 78.8% and 121.89% of the decline in exports to the United States caused by the "double reverse" (from 2014 to 2020, the United States imported about 53.68 million light truck car tires from China, and about 7.08 million truck and bus tires), which greatly compensated for the gap in the sales of domestic direct exports to the United States. In terms of sales revenue, from 2015 to 2020, the total revenue of overseas factories rose from 2.870 billion yuan to 19.196 billion yuan, and the CAGR was about 46.24%. In 2019, the output of semi-steel tires in Thailand was 9.3712 million pieces, accounting for 24.24% of the overseas semi-steel tire production of Chinese tire enterprises.
The United States' "double reaction" to Thailand and Vietnam is lower than that of China. In 2020, the United States launched anti-dumping investigations into passenger cars and light truck tires in Taiwan, Thailand and South Korea, as well as "double reverse" investigations into passenger cars and light truck tires in Vietnam. At the end of May 2021, the final results of the ruling were announced, and 21.09%, 14.62% and 17.08% anti-dumping duties were levied on Thai Linglong, Sumitomo Thailand and other tire companies in Thailand, respectively, and 6.23% countervailing duties and 0% anti-dumping duties were levied on Sailun Vietnam. According to the experience of China's tire "double reverse", the future administrative review tax rate will be reduced to a certain extent compared with the final tax rate, and the export pressure of overseas factories to the United States is lower than that of China. Sen Qilin implements a tax rate of 17.08% with reference to other tire companies in Thailand, and the additional tariffs are jointly borne by all aspects of purchase and sale, which is expected to have a limited impact on the operation of the Thai factory.
We calculated the combined tax rate for exports from Factories in Sen Qilin, Linglong, Zhongce and Sailun to Europe and the United States. In terms of passenger cars and light truck tires, Thailand and Vietnam have no obvious advantages in exporting to the EU compared with China, and the comprehensive tax rate of exports to the United States is significantly lower than that of China. The tax rate in Vietnam is only about 10%, Thailand is only about 20%, the domestic Sen Qilin, Linglong, and Sailun are about 45%-50%, and the zhongce is close to 220%. In terms of truck and bus tires, the comprehensive tax rate of Exports from Thailand and Vietnam to Europe and the United States is about 4%-4.5 percent, and domestic exports to the EU must pay 49.31 per article of specific tax, and the comprehensive tax rate of Sailun, Linglong, and Zhongce exports to the United States is about 80%.
(4) Capital expenditure expands production capacity, and R&D investment improves quality
Chinese tire companies have bucked the trend and invested heavily in capital expenditure to build new capacity. Investing in new production capacity, producing higher quality tires, obtaining better profits and continuing to invest cash flow constitutes a positive cycle of continuous development of domestic tire companies. Since 2018, under the background of the continuous decline in capital expenditure of overseas "big three + eight multinational groups", Chinese tire companies have expanded against the trend, invested in factories and carried out intelligent transformation to improve product quality. In 2020, the capital expenditure of Linglong tires was 2.449 billion yuan, the capital expenditure of Sen Qilin was 935 million yuan, and the capital expenditure of Sailun tires was 1.547 billion yuan, all of which were at the highest level since 2011. In 2020 and 2021, Sen Qilin capital expenditure continued to grow significantly, reaching 1.467 billion yuan in 21 years, an increase of 56.9% year-on-year.
Adhere to R & D investment, strengthen product competitiveness. The R&D activities of tire companies are mainly used to improve production processes, improve product quality, and develop new products that are more in line with customer needs. From 2017 to 2020, the R&D expenditure and R&D expense rate of leading enterprises in the tire industry such as Linglong, Sailun and Sen Qilin continued to increase, the R&D team continued to expand, and the number of patent applications increased year by year, laying a solid foundation for creating high-quality and good tires.
Benefiting from the construction of new production capacity and the improvement of R&D intensity, the product structure of tire companies has improved. In 2017-2019, Mori Kirin high-performance passenger car tires (for C-class cars, D-class off-road vehicles and SUVs) and light truck tires (for pickup trucks, commercial vehicles, and light trucks) contributed the main increase in revenue. In 2020Q3, the comprehensive proportion of products above 17 inches of Linglong Tire Semi-steel reached 23%, and the company expects to reach 60% in 2025 and 75% in 2030.
(5) Pass the authoritative evaluation and gain overseas recognition
China Tire's overseas evaluation performed well, with a record number of people on the list in 2020. The quality of China's tires has improved, and it has gradually won consumer recognition overseas. We have counted the performance of 2010-2020 Zhongce, Linglong, Sailun, Sen Qilin and Triangle products in ADAC, Autobild, Testworld and other evaluations, and we can see that (1) the number of Chinese tires in various evaluations has increased year by year, and in 2020, a total of 14 products from five companies have been selected for various lists, setting a new high in the calendar year; (2) The size of China's tires on the list has gradually increased, and the R15 size in 2018 still accounts for the vast majority, 2020 The year is mainly focused on the R16 and R18 sizes.
Through evaluation and publicity, excellent tire companies such as Sen Qilin have gradually opened up overseas markets. According to China Rubber statistics, in the North American car tire replacement market and light heavy tire replacement market, the market share of Sen Qilin and Sailun has gradually increased. In the field of car tire replacement, in 2014, only one Chinese enterprise, Sailun Tire, had a market share of more than 1%, and in 2019, Sen Qilin came to the fore, and the total market share of the two brands reached 3.5% in 2020. In 2021, Sen Qilin will have a market share of about 4.5% of all tire products in the US replacement market.
Third, Sen Qilin: grasp the trend and resonate with the same frequency as the development of the industry
(1) Intelligent tire production, cost reduction, efficiency and stable quality
Entering the era of Industry 4.0, intelligent manufacturing has become the only way for the transformation and upgrading of the tire industry to enter a new stage of development. As a pioneer in the field of intelligent manufacturing in China's tire industry, Sen Qilin began to explore the application of intelligent mode in the tire industry from 2012, and after long-term polishing, it has formed an intelligent manufacturing mode with five modules of "intelligent central control system, intelligent production execution system, intelligent warehousing and logistics system, intelligent detection and scanning system, and intelligent scheduling and early warning system" as the main body, and a highly "intelligent" system to improve production efficiency, reduce production costs, and ensure product quality functions. The results of the project have also been selected as "2016 Intelligent Manufacturing Comprehensive Standardization and New Model Application", "2017 Intelligent Manufacturing Pilot Demonstration Project", and "2018 Manufacturing and Internet Integration Development Pilot Demonstration Project".
One of the "intelligent" effects: the cost structure has improved significantly. The traditional tire manufacturing industry has the characteristics of labor-intensive production, and Sen Qilin intelligent manufacturing greatly improves the efficiency of equipment use, reduces the number of labor and raw material consumption, and reduces the sensitivity of production costs to raw material prices and labor costs. Compared with the cost structure of Sailun, Linglong and triangle tires, the manufacturing cost (mainly composed of depreciation) in the cost structure of Sen Qilin products accounts for a relatively high proportion, and the raw material and labor costs account for a relatively low proportion. Affected by the sharp rise in raw material prices, the proportion of Sen Qilin raw materials in operating costs rose to 65.66% in 2021.
The second effect of "intelligence" is that the number of workers has decreased significantly, and per capita income generation has increased. From 2015 to 2021, thanks to the application of intelligent manufacturing mode, the company's per capita income generation has increased significantly. In 2020, the company's per capita income generation reached 1.87 million yuan, far exceeding that of tire companies at home and abroad; in 2021, per capita income generation continued to grow, reaching 1.9189 million yuan. From the perspective of the unit labor cost of wheel tire products, the company's average labor cost in 2020 is 6.48 yuan / article, which will drop to 6.25 yuan in 2021, while the average labor cost of Sailun, Linglong and Triangle in 2020 is 18.14, 15.44 and 13.69 yuan / article, respectively. The company's unit labor cost is significantly lower than that of peer enterprises, with high labor efficiency and strong cost advantages.
The third effect of "intelligence": stable production quality and high operating rate of production lines. With the advancement of intelligence and the reduction of manual intervention in the production process, the quality control of Sen Qilin Tire has been enhanced, and the stability and pass rate of product quality have been improved. According to the prospectus, the company's product qualification rate in Qingdao and Thailand factories remained above 99.5% from 2018 to 2019. In terms of capacity utilization rate, the capacity utilization rate of Sen Qilin in 2017-2020 ranks at the forefront of the industry, except for 2019, the capacity utilization rate remains above 90%. In 2021, the company's capacity utilization rate will reach 102%. In 2019, the company made strategic adjustments in the supporting market, basically terminated cooperation with the original private vehicle manufacturers, and instead increased the development of the supporting markets of first-line vehicle manufacturers at home and abroad. At the same time, due to the intelligent upgrading and transformation of the old production line of the Qingdao factory in the run-in period, coupled with the application of some production capacity to new product development, the output has declined, resulting in a slight decline in the overall capacity utilization rate in 2019, and the capacity utilization rate in 2020 and 2021 has increased year by year. Overall, the company's capacity utilization rate remains at a high level, higher than that of enterprises in the same industry.
(2) Focus on high-performance, large-size tires to build core competitive advantages
The trend of large size of semi-steel tires is becoming clearer. The R of the tire represents the rim diameter, the larger the rim diameter, the better the handling stability, and the stronger the braking effect. With the increase in sales of suVs and other models, large-size tires are also becoming more popular. According to Michelin's forecast, compared with 2019, global sales of semi-steel tires of 19 inches and above will increase by 69%, sales of 18-inch tires will increase by 46%, and sales of tires of 17 inches and below will shrink by 10% in 2023.
Large-size tires account for a high proportion of the market, to meet the needs of the US market. The company's product structure is mainly based on large-size high-performance passenger cars and light truck tires with rim sizes of 17 inches and above. Considering the popularity of pickup trucks, off-road vehicles, SUVs and other models in the United States, Mori Kirin adjusted its product structure and launched a variety of SUVs & off-road vehicle tires. According to tire reviews, 11 of the 24 tires launched by Mori Kirin in overseas markets are SUV & OFF ROAD tires. Judging from the sales situation, the sales of light truck tires and high-performance passenger car tires (for C and D-class cars) continued to rise. In recent years, the company's large-size high-performance passenger car tire sales volume of 17 inches and above has remained above 50%, which is one of the very few international large-size high-performance products accounting for more than 50%.
High-performance tires are recognized by consumers. DELINTE and LANDSAIL are the main series of products of Sen Qilin, positioned in the mid-market and sold globally. From 2014 to 2021, DELINTE Tire maintained a market share of 2.5% in the United States for 8 consecutive years, and was the only Chinese brand on the list. LANDSAIL tires have been listed many times in evaluations held by overseas authoritative institutions such as Auto Bild. In the 2021 Auto Bild and Vi Bilagare summer tire tests, the Landsail LS588 UHP and Landsail Qirin 990 ranked eighth and seventh, respectively. In June 2021, the Qirin 990 of "Sen qilin Sentury" /"Luhang Landsail" achieved 1st rolling resistance and 4th overall ranking in the Finnish TM tire evaluation.
Products exported to the U.S. market have high gross margins, significantly improving profitability. The U.S. market is not only the company's main source of revenue, but also profitability is better than other regional markets. In terms of internal comparison, Sen Qilin Qingdao factory is mainly exported to Europe and South America, with a unit price of about 170 yuan / piece, and a gross profit margin of about 22%. The Thai factory is mainly exported to the United States, with a unit price of about 260 yuan / piece, and a gross profit margin of about 37%. External comparison, Sen Qilin 2020 domestic revenue accounted for only 7%, semi-steel tire ex-factory price and gross profit margin is higher than other domestic tire companies accounting for a large proportion of domestic sales.
(3) Retail supporting efforts to continue to shape the brand
Dealers dominate the US tire market, and the construction of Sen Qilin marketing network has been effective. Consumers buy tires mainly through distributors. According to MTD statistics, tire dealers account for about 60% of the US tire retail market and 80% of the wholesale market. Since its establishment, Sen Qilin has continued to promote the construction of dealer network, as of 2019, the company has 201 overseas dealers, cultivating 6 large-scale dealer customers with a cooperation amount of more than 300 million yuan.
Sen Qilin has established a long-term and stable cooperative relationship with internationally renowned tire dealers. The company has established a good reputation in overseas markets and actively developed channel providers with large chain retail stores. The company's top five dealers account for 45% of sales, of which DISCOUNT TIRE is one of the largest tire retailers in the United States; TURBO WHOLESALE TIRE is also a tire dealer in the United States; INTER-SPRINT is headquartered in the Netherlands with sales areas covering Europe; oak TYRES is a British tire dealer with a global sales network covering more than 30 countries and regions.
Vigorously develop domestic retail channels, and make obvious breakthroughs in the replacement market. In 2021, the company will accelerate the development of the domestic market, comprehensively upgrade the sales platforms "Qilin Cloud Store", "Qilin Tong", dealer system, ERP system, etc. that the company independently developed for the automotive after-sales service market, and continue to expand the channel network by launching a number of flexible and pragmatic business policies and holding high-frequency and high-density retailer meetings in various regions of the country. By the end of 2021, the domestic replacement market achieved sales revenue of 603 million yuan, an increase of 101.81% year-on-year, and the proportion of Chinese mainland business revenue increased from 6.67% to 12.55%, making a significant breakthrough.
Adhere to the supporting high-end route, and strive to attack the supporting market. At present, the company has formed a sales pattern with the overseas replacement market as the core sales field, continuously cultivating the domestic replacement market, and focusing on the global high-end main engine factory supporting market. The company always adheres to the principle of supporting high-end OEMs in the world. In 2021, the company passed the strict audit of the headquarters of the German Volkswagen Group, and obtained the global formal supplier qualification of the German Volkswagen Group at one time, achieving a major breakthrough in the supporting of high-end OEMs. In addition, the company's Ford project 195/65R15 in Turkey passed the test and approval of Ford Automobile; successfully passed the audit of the only flying automobile tire project in China - Xiaopeng Flying Automobile Tire Project; the company has become a strong competitor in the field of domestic new energy vehicle supporting with low roll resistance, high wear resistance and low noise new energy vehicle tire products. At present, the company has become a qualified supplier of German Volkswagen Group, Guangzhou Automobile, Great Wall Motor, Geely Automobile, BAIC Automobile, Chery Automobile and other vehicle manufacturers.
(4) Layout new retail and promote channel reform
"New retail" refers to consumers placing orders online, spending in physical stores, and providing consumers with a "more, faster, better and more economical" shopping experience through big data and modern logistics. The most significant difference between it and traditional retail is that the products sold are transformed from a single tangible entity to a combination of "product + experience", "product + service", "product + social", etc. The transformation of tangible and intangible "product +".
Two factors, customer and channel, drive tire manufacturers to lay out new retail. In terms of customers, China's consumer market is getting younger and younger, and consumer service experience requirements and after-sales rights protection awareness are constantly increasing. Tire brands want to win favor, must provide richer purchase options, more convenient pre-sales, after-sales experience, and more professional maintenance services through new retail. In terms of channels, under the traditional manufacturer-dealer-retailer three-tier distribution system, tire distributors mainly rely on information asymmetry between manufacturers and retailers to earn the difference in price, and provide fewer additional services. In recent years, with the development of informatization, this business model has become unsustainable, and the problems of dealer profits have decreased, inventory backlogs, and string goods have become increasingly serious. In order to strengthen channel construction and control, tire factories have carried out new retail, help dealers to build online marketing systems, logistics system construction, so that they can transform into chain stores, logistics providers, service providers, etc., by providing tire factories with logistics, after-sales, customer development and other services to obtain profits.
Tire manufacturers' ability to obtain information will determine the success or failure of new retail. New retail can achieve online and offline integration, and its most fundamental driving factor is data. Only by using big data means to collect and sort out the massive data in the production and marketing links can tire manufacturers get accurate portraits and shopping behaviors of consumers, understand consumer needs, design products that match consumer needs and optimize the shopping experience. On the other hand, data can also redefine the supply chain, reverse-pulling marketing, distribution, logistics, procurement production and product development from the consumer side, making it a coordinated system that integrates real-time information, achieving efficiency improvements and cost savings.
In order to meet the increasing service experience requirements of consumers and strengthen the control of downstream dealers and retailers, Zhongce Rubber, Linglong Tire, Sailun Tire, Sen Qilin and other tire leading enterprises have successively entered the new retail, launched application software, collected multi-party data, and empowered stores.
Sen Qilin launched the "Kirin Cloud Store" APP. In 2020, on the basis of consolidating and expanding the traditional overseas sales market, the company will rapidly increase the deployment of troops in the domestic market and build a new smart retail model. In April 2020, the company launched the "Qilin Cloud Store" APP. "Qilin Cloud Store" digitally upgrades the traditional tire sales system, breaks the traditional tire sales model, builds a completely independent research and development of the automotive aftermarket supply chain platform, and deeply links manufacturers, dealers, retailers and end consumers through the information upgrading of manufacturing, product circulation and product sales, and is closely connected and empowers each other. "Qilin Cloud Store" helps the company to achieve the extension from intelligent manufacturing to intelligent sales, further promotes the high-level and in-depth combination of company informatization and industrialization, and helps the new retail model to innovate and transform. "Qilin Cloud Store" links retail stores and dealers to achieve positive empowerment:
(1) For retail stores, "Qilin Cloud Store" provides them with a perfect online workbench, which greatly improves the business efficiency and performance growth of retail stores;
(2) For dealers, "Qilin Cloud Store" acquires retail store customers and directly distributes them to dealers to help them quickly develop the market. At the same time, independent dealers manage the background to achieve an online business management model that integrates order receiving, scheduled delivery, and store management;
(3) For consumers, the "Qilin Cloud Store" has carried out innovative integration with traditional e-commerce, consumers can conveniently select tires online on Tmall Pingtai, retail stores can change tires offline, and tens of thousands of certified retail stores distributed throughout the country continue to provide services for consumers. In the after-sales process, the "Qilin Bao" WeChat Mini Program allows consumers to achieve online and offline convenience in after-sales service.
From the launch of the "Qilin Cloud Store" to the end of 2021, the company has registered about 32,000 stores, and the annual domestic replacement market achieved sales revenue of 603 million yuan, an increase of 101.81% year-on-year.
Fourth, lay out aviation tires and enter new fields
The aviation tire industry barriers are high, and foreign tire giants monopolize the market. Aviation tires are the top products in the field of tire manufacturing, according to the different uses of aircraft, aviation tires can be divided into civil aviation tires, military aviation tires and general aviation tires, of which the civil aviation tire market is the most important market. In the field of civil aviation, as an important A-class safety component of the aircraft, the aviation tire has extremely high requirements for professional and technical indicators such as load capacity, deformation rate, and rotation speed, and the industry barriers in technology research and development, qualification certification, brand channels, etc. Are high, and there are few market competitors, and its market has always been monopolized by a few international tire giants such as Michelin, Goodyear, and Bridgestone.
In 2018, China's civil aviation tire market was about 5-7 billion yuan. According to the statistics of "Global Aviation Tire Market Demand Analysis", in 2018, the demand for retreaded tires in the mainland civil aviation market was about 196,000 pieces, the demand for new tires was about 134,000 pieces, the price of each retreaded tire was about 8,000 yuan / piece, and the price of each new tire was about 24,000-32,000 yuan / piece. According to this calculation, in 2018, the domestic civil aviation refurbished tire market was about 1.568 billion yuan, and the new tire market was about 3.216-4.288 billion yuan.
The localization rate of aviation tires is low, and Sen Qilin has achieved technological breakthroughs. According to the Liding Industry Research Institute, the localization rate of civil and general aviation tires in the mainland is less than 10% on average, and overseas manufacturers rely on advanced research and development technology and strong brand influence to occupy more than 95% of the market, basically forming a monopoly. After more than 11 years of continuous R&D investment, Sen Qilin has become one of the few aviation tire manufacturing enterprises in the world with the ability to design, develop, manufacture and sell aviation tire products (according to the "Current Situation of Aviation Tire Market at Home and Abroad" (2017) of the Tire Branch of the China Rubber Industry Association, the only Chinese aviation tire manufacturers are Sen Qilin, Yinchuan Giti Great Wall Tire Co., Ltd., China Chemical Group Shuguang Rubber Industry Research and Design Institute Co., Ltd. (Lanyu Aviation Tire Development Company) and Beijing Dadi Shenzhou Tire Technology Co., Ltd.
The company has overcome the key technologies of large-scale aviation tire structure design, the stress distribution design technology of high-rise aviation tire carcass skeleton material, the high-performance low-heat formula technology, the multi-level aviation tire manufacturing process technology and many other key technologies, and continues to innovate in the design method, formula system and aviation tire production process of large-scale radial aviation tire and oblique aviation tire.
At present, the company has formed an aviation tire technology with independent intellectual property rights. As of December 31, 2021, the company has 10 patents related to aviation tires, and initially has a technical foundation for intelligent and industrialized aviation tires. The company has developed multi-specification aviation tire products suitable for Boeing 737 series and other aircraft, and successfully passed the testing of various technical standards, and has obtained the approval of the technical standards of the Civil Aviation Administration of China (CTSOA certificate), and obtained the approval of the important modification design (MDA certificate) of the Civil Aviation Administration of China.
Sen Qilin promotes the industrialization of aviation tires. In the field of civil aviation, the company and COMAC have cooperated with COMAC on domestic large aircraft aviation tires, and have entered the list of potential suppliers of CR929 between China and Russia, the directory of C909 and C919 cultivation suppliers of COMAC, and became a qualified supplier of ARJ21-700 aviation tires of COMAC in 2019. In the field of general aviation, the company successfully supported and supplied UAV products such as double-tailed scorpion and fluttering eagle produced by Sichuan Tengdun Technology in 2017. In the future, the company will lay out and produce Boeing series, Airbus series, domestic C919 and other trunk line large civil aviation airliners, cargo aircraft tires and ERJ-170, ARJ21 and other mainstream imported and domestic new regional airliner tires in the field of general aviation; the company will also advance the layout of R & D and production of helicopters, unmanned aerial vehicles, private aircraft, agricultural and forestry aircraft, sports aircraft and other mainstream imported and domestic general aviation tires in the field of general aviation, and strive to seize the opportunity in the market and better meet the future market demand.
Raise investment in aviation tire projects to create a new growth pole. Aviation tire technology and products are cutting-edge products in the field of tires, and the precipitation of aviation tire technology can promote and drive the research and development of high-end semi-steel radial tires. The company timely conforms to the new trend of the industry, advances the strategic layout, invests about 314 million yuan to build an annual output of 80,000 aviation tires (including 50,000 retreaded tires) project, plans to complete the production line in 2022, and reach production in 2024, when the annual output of 30,000 new tires, 50,000 retreaded tires will be formed, and the release of production capacity will boost the company's performance growth and improve the company's ability to participate in the international high-end tire market competition. After the project reaches production, it is expected to contribute 83.4 million yuan to the company's net profit every year. The company will continue to adhere to the advantages of product research and development in the field of civil aviation tires, actively promote the development of global customers in the field of aviation tires, supply various types of aviation tires for the commercial Aviation series, Airbus series and Boeing series models of various airlines at home and abroad, become one of the main manufacturers of civil aviation tires in the world, and strive to occupy 50% of the Chinese market within ten years.