Sailun Tire (601058.SH) Updated Research: Current Price ≈ Zero-Growth Value, Mispricing and Verification Window During the Cost Stress-Test Period

Rating: Cautiously Bullish | Target Price: RMB 14.2-16.1 (base-case fair value) | Current Price: RMB 12.65 (as of 2026-10-12 close) | Margin of Safety: +12.3% (calculated as: (base-case fair value lower bound 14.2 − current price) / current price) | Time Horizon: 12-18 months | Market Cap: RMB 41.59 billion (total shares 3.288 billion)

I. Changes from Previous Conclusion and Earnings Reconciliation

This is an updated report following the initial initiation on 2026-08-09. Core change: divergence between fundamental verification and stock price reaction — the top verification point set in the previous report (whether H1 gross margin holds above 26%+ and whether net profit attributable to parent exceeds RMB 2.0 billion) was fully delivered, yet the stock declined from RMB 13.61 to RMB 12.65 (approximately -7%), as market focus shifted to the squeeze on 2026H2 earnings from natural rubber hitting a nine-year high.

Earnings reconciliation (previous thesis forecast vs actual): The previous report forecast FY2026E net profit attributable to parent of RMB 3.9-4.3 billion (midpoint RMB 4.1 billion), with a full-year "moderate recovery" — actual 2026H1 net profit attributable to parent was RMB 2.160 billion (+17.97%), non-recurring net profit RMB 2.058 billion (+12.75%), gross margin 26.99%, falling within the forecast track and slightly in the upper half (implying H2 only needs RMB 1.74-2.14 billion to meet the range, corresponding to H2 YoY +2.9% to +32.5%); the K1 checkpoint "gross margin holds above 26%+" was actually 26.99%, and "net profit exceeds RMB 2.0 billion" was actually RMB 2.160 billion — both fully delivered, directional judgment correct. The reason the stock fell rather than rose lies not in disclosed results, but in October's accelerating rise in natural rubber (RU main contract closed at RMB 20,645/ton on 10-09, a nine-year high), which triggered downward revisions to Q3-Q4 gross margin expectations — the company judgment was right, but the market narrative shifted to costs, which is the core issue of this update.

Previous watchlist status: K1 (H1 report disclosure) delivered; K6 (natural rubber breaking RMB 20,000/ton) triggered (10-09 RU closed at RMB 20,645/ton); its transmission to gross margin is under verification (Q3 results to be disclosed 10-31), monitoring strengthened and retained; K2 (EU anti-subsidy final ruling before 2026-12-05) and K3 (USMCA review) still in progress; K4/K5 price trigger lines updated with this report's target price range to RMB 16.1/RMB 10.

II. Summary of Core Conclusions

Sailun is a net beneficiary of the current tire industry shakeout cycle: 2026H1 revenue of RMB 20.027 billion (+13.88%), net profit attributable to parent of RMB 2.160 billion (+17.97%), gross margin 26.99% — against the contrast of earnings collapse at Linglong (-88%) and Sailun peer Sentury (-37%), this demonstrates the shock resistance of its multi-base + product structure; global sales share continues to rise (H1 volume +15.0% vs global +1.4%). At RMB 12.65, the current price almost exactly equals the zero-growth earnings power value (EPV midpoint RMB 12.38/share), PB of 1.84x sits at the 2% percentile of the past 5 years while PB/ROE is at the lowest tier in the sector — the market has priced a potentially reversible raw material cost swing as perpetual stagnation. Core constraints: the cost transmission test from natural rubber's nine-year high (Q3-Q4 gross margin likely to decline QoQ), the EU anti-subsidy final ruling (landing in December), consecutive negative FCF, and concentrated single-point profit exposure in Vietnam (approximately 46% of group in 2025). Base case: 2026E net profit attributable to parent of RMB 3.9-4.4 billion × 12x (anchored to its own 3-year median PE and peer static median), fair value RMB 14.2-16.1, +12.3% to +27.3% versus current price; bear case RMB 9-11 (-28.9% to -13.0%).

III. Investment Opportunity Assessment

• Regime: Industry shakeout period + high cost cycle (headwind). The PCR replacement market is "losing money upon starting up," and Chinese overseas capacity plans to double in 2-3 years — the industry has entered destocking and capacity-clearing phase; Sailun, with full utilization and structural upgrades, has become the share harvester, but the cost shock of natural rubber at RMB 20,645/ton has not yet appeared in the financials.
• Primary stock price driver over the next 6-12 months: Q3 report (scheduled for 2026-10-31) verification of the net effect of "price increase transmission vs high-cost raw materials entering the books" — this is the settlement point of the market's current disagreement.
• Verifiable expectation gap: Back-solving from a reasonable 12x PE, the current price implies only approximately RMB 3.47 billion of 2026E net profit attributable to parent (YoY -1.6%), about 10% below TTM RMB 3.851 billion and about 20% below H1 annualized RMB 4.32 billion — while the company actually delivered +18% in H1. Note: sell-side consensus of RMB 4.505 billion (only -1.4% revision in 90 days) has not yet reflected the natural rubber shock; the first stop of the expectation gap may be sell-side downgrades rather than a rising stock price — the truly robust anchor is the fact itself that "the current price prices growth at zero."
• Verification catalysts: 10-31 Q3 report (Q3 gross margin ≥24% as stabilization signal); December EU anti-subsidy final ruling (a combined tax burden ≤32% removes suppression); price increase letter implementation rate and RU price inflection; Egypt Phase I trial production.
• Falsification conditions: Q3 single-quarter gross margin falling below approximately 22% (the dividing line for full-year YoY turning negative); self-produced average price below -3% YoY for two consecutive quarters (overseas price war spreading); EU combined tax burden rising above 38% and the Eurasian Economic Union imposing heavy taxes on Vietnam.

IV. Investment Thesis

C1 — Earnings recovery was delivered in H1, but starting from Q3 the company enters a genuine stress test of natural rubber costs; full-year net profit of RMB 3.9-4.4 billion is the base case, and a fall below the 22% gross margin line means growth goes to zero (confidence 0.50)

Key evidence:

• Source / Sailun Tire 2026 Semi-Annual Report (disclosed 2026-08-31) / key accounting data: revenue RMB 20.027 billion (+13.88%), net profit attributable to parent RMB 2.160 billion (+17.97%), non-recurring net profit RMB 2.058 billion (+12.75%), weighted ROE 9.63% (+0.66pp).
• Source / same as above / consolidated income statement calculation: H1 gross margin 26.99% (Q1 26.86%, Q2 27.10%), +2.45pp YoY, holding above 26%.
• Source / Announcement on Key Operating Data for Q2 2026 (No. 2026-031): combined procurement prices of four main materials +6.81% YoY and +15.85% QoQ; self-produced self-sold average price -2.54% YoY and only +1.32% QoQ — the transmission gap between cost and price had already opened in Q2.
• Source / Securities Times 2026-10-09: Shanghai rubber futures closed at RMB 20,645/ton on 10-09, a nine-year high (approximately +50% YoY), spot up +28% YTD, carbon black +59.7% YoY, a six-year high.

The H1 recovery was jointly driven by "2025 low-price raw material inventory + overseas ramp-up + structural upgrades," while the Q2 procurement price increase of +15.85% QoQ means high-priced raw materials will enter the books concentrated from Q3; the industry's 70+ price increase letters (2-6%) in September-October are insufficient to fully cover natural rubber's +49.8% rise (implemented increases estimated to offset only about 1/3 of the cost increase). Supply-side evidence (rubber trees' 6-8 year tapping cycle, the Chinese Academy of Tropical Agricultural Sciences forecasting a global supply-demand gap of approximately 280,000 tons in 2026, Thai weather damage) suggests a non-trivial probability of natural rubber staying elevated, with uncertainty over the 2027 pullback timing — this is the core divergence between this report and sell-side consensus. Base assumption: H2 gross margin of 24-26%, full-year net profit attributable to parent of RMB 3.9-4.4 billion (H2 requires RMB 1.74-2.24 billion, YoY +2.9% to +32.5%); in sensitivity terms, each 1pp decline in H2 gross margin affects net profit by approximately RMB 175 million; if combined Q3/Q4 gross margin falls below approximately 22%, full-year growth goes to zero (this line is a "YoY-turning-negative dividing line," not an absolute profit/loss line — peer Sentury remains marginally profitable at a 19.55% gross margin).

C2 — Overseas multi-base footprint is a tariff hedge, not an exclusive barrier, and profit dispersion is lower than the capacity narrative suggests: Vietnam alone contributes about half of group profit, a third trade front has emerged, and the Egypt base has upgraded from a bonus to a strategic necessity (confidence 0.50)

Key evidence:

• Source / Sailun Tire 2025 Annual Report / key consolidated and associate companies: Sailun Vietnam's 2025 net profit attributable to parent of RMB 1.603 billion (approximately 46% of the group's RMB 3.522 billion, before intra-group elimination); in 2026H1, Vietnam + CART TIRE together accounted for approximately 82% of group net profit attributable to parent.
• Source / US Federal Register / Sohu Finance 2026-10-05: US final ruling in the sunset review of anti-dumping and countervailing duties on Asian tires; Vietnam CVD maintained — Sailun Vietnam 6.23%; superimposed on the US Section 301 blanket 10-12.5% tariff on Chinese-owned Southeast Asian bases effective 2026-07-24, Vietnam's tariff-advantaged channel to the US has narrowed.
• Source / EU Implementing Regulation (EU) 2026/1540 (effective 2026-07-08): Sailun subject to the cooperating company tier 24.4% anti-dumping duty, valid for 5 years; anti-subsidy final ruling no later than 2026-12-05; in the superimposed scenario, the combined tax burden could reach 38-42% (Guotai Junan estimate).
• Source / Kommersant 2026-09-24 (citing the Eurasian Economic Commission): the Eurasian Economic Union proposed five-year anti-dumping duties of 11.31%-22.37% on truck tires originating in Thailand/Vietnam, with Sailun Vietnam on the list (draft proposal, pending formal decision).

The five bases (Vietnam/Cambodia/Indonesia/Mexico + Egypt under construction) remain the best geographic footprint among A-share peers — Vietnam's PLT anti-dumping 0.00% individual rate is best-in-class, and Mexico currently enjoys zero tariffs to the US under USMCA — but since 2026 the old logic of "overseas capacity = immunity" has systematically failed: Section 301 blanket tariffs, EU AD implementation, and the Eurasian Union draft proposal constitute a third front, and with the profit engine highly concentrated in Vietnam, the group-level impact of any targeted measures against Vietnam would be approximately 1.5-2x what capacity-proportional estimates suggest. If the EU anti-subsidy ruling follows European Commission practice by deducting double remedies (combined approximately 25-32%), suppression is removed; if double remedies are approved (38-42%), the China-to-Europe channel is damaged, and the ramp-up timing of the Egypt base (tariff-free to Europe, Phase I of 9 million PCR tires) will directly determine its ability to capture European orders. USMCA annual review uncertainty (the US rejected extension of the joint review in July 2026) is also marginally weakening the Mexico nearshoring logic.

C3 — Valuation discount is significant: the current price sits in the upper half of the zero-growth EPV range, the growth option is worth only about 2%, PB is at the 2% percentile of the past 5 years and PB/ROE is at the sector's lowest tier; but consensus itself has not yet been fully revised down (confidence 0.55)

Key evidence:

• Source / this report's valuation estimates (2026-10-12): PE(TTM) 10.8x (2%/16%/10% percentiles for past 1/3/5 years); PB 1.84x (9%/3%/2% percentiles for past 1/3/5 years); TTM net profit attributable to parent of RMB 3.851 billion falls within the 2023-2025 non-recurring range (RMB 3.146-3.992 billion), earnings are broadly representative, and percentile distortion is limited.
• Source / this report's three-tier EPV calculation: normalized FCFF of RMB 4.5 billion, WACC 9%, less net debt of RMB 9.34 billion → EPV midpoint RMB 12.38/share; current price of RMB 12.65 is only about 2% above it, with the growth option accounting for about 2% of the current price.
• Source / Eastmoney consensus (2026-10-12): 2026E net profit attributable to parent RMB 4.505 billion (n=21, only -1.4% revision over the past 90 days); back-solving from a reasonable 12x PE, the current price implies only approximately RMB 3.47 billion for 2026E (YoY -1.6%).

The market is pricing the current stock with "natural rubber costs eating all of 2026 growth + perpetual growth below 2%," while the company actually delivered +18% in H1, has a five-year revenue CAGR of approximately 19%, and a global share of only about 4% that is still rising. Two fragilities must be candidly disclosed: first, EPV is highly sensitive to normalized cash flow — each downward revision of FCFF by 11-16% (to RMB 3.8-4.0 billion) lowers the zero-growth floor from RMB 12.38 to RMB 10.0-10.7, at which point the current price would be 18-26% above the floor and the "growth option only 2%" conclusion would not be robust; second, on the PB/ROE metric, Sailun's 0.107 is comparable to Guizhou Tire's 0.104 — "lowest tier" rather than the absolute lowest. Even so, in the pessimistic scenario (FCFF RMB 3.8 billion, 10x PE), the 2026E implied earnings at the current price are only approximately RMB 4.16 billion — not excessively front-loaded. The directional conclusion of a discount holds; the magnitude should be understood as a scenario range.

C4 — Off-highway tires and Liquid Gold are the structural upgrade directions: share gains are real but coexist with "price-for-volume" tension, and the RMB 5 billion+ profit center is more likely to be achieved around 2028 (confidence 0.50)

Key evidence:

• Source / company investor relations activity records (disclosed 2026-09-15): 2026H1 off-highway tire volume +45% YoY, continued expansion with BHP, Vale, and Rio Tinto (five-year global framework agreement); full-series industrialization of 49-63 inch giant engineering radial tires.
• Source / CCTV report (2026-09-23, republished by Sina): Liquid Gold tires have entered OEM mass production supply for the BYD Sealion 06EV and certain versions of the Geely Boyue REV.
• Source / Announcement on Key Operating Data for Q2 2026: Q2 self-produced self-sold volume of 23.7186 million tires (+19.97%) while average price -2.54% YoY — volume-price tension exists, with part of the share gain bought by price.

Off-highway tire gross margin is above the company average (industry-caliber OTR approximately 37%+), and long-term contracts with mining giants provide order visibility; Liquid Gold, endorsed by official media, has entered the OEM volume ramp-up channel. But the conversion chain has two discounts: the company stopped disclosing product-level volume/price details after 2021, so the monetary contribution of off-highway and Liquid Gold cannot be externally verified (e-interaction responses are qualitative); new base ramp-up periods have industry precedents of revenue growth without profit (Zhongce Indonesia's net profit of only RMB 7.42 million in Jan-May 2026, Linglong's Serbia losses), and the simultaneous ramp-up of three bases — Egypt/Indonesia/Mexico — will dilute 2027 margins. The direction of structural upgrading is credible; the timing of the RMB 5 billion+ profit center is conservatively viewed as around 2028.

C5 — Balance sheet and governance signals constitute secondary frictions rather than the main valuation constraint: negative FCF during expansion and rapid receivables growth require tracking, but the valuation ceiling is currently mainly determined by the earnings cycle and tariff expectations (confidence 0.50)

Key evidence:

• Source / 2026 Semi-Annual Report / consolidated cash flow statement and balance sheet: H1 operating cash flow of RMB 1.033 billion vs cash paid for long-term asset purchases of RMB 2.598 billion (+48.5%), FCF of -RMB 1.565 billion; interest-bearing debt of RMB 14.673 billion (+RMB 2.6 billion from year start), net debt RMB 9.336 billion, debt-to-asset ratio 52.46%; financial expenses of RMB 457 million (+429.74%, mainly due to FX swinging from a gain of RMB 136 million to a loss of RMB 242 million).
• Source / same as above / consolidated balance sheet: accounts receivable of RMB 7.423 billion (+20.77% from year start), a growth rate approximately 1.5x the revenue growth rate (13.88%) — the third consecutive period at approximately 1.5-1.9x revenue growth, with no special explanation from the company.
• Source / Announcement on the Donation of Shares by a Person Acting in Concert with the Actual Controller (No. 2026-036, 2026-10-01): donation of 37.86 million shares (1.15% of total) to the Qingdao University of Science and Technology Education Development Foundation; actual controller system's shareholding reduced from 26.30% to 25.15%; recipient subject to a 6-month lock-up, with disposals aggregated with the actual controller's quota.

The leverage constraint is not imminent: net debt/2026E EBITDA of approximately 1.3x and net financing inflow of RMB 1.934 billion show unimpeded access to funding; only a deep recession (EBITDA falling another 45%) would touch the 2.5x warning level. The real item to watch is working capital: receivables + inventory consumed approximately RMB 2.85 billion in half a year, and H1 OCF/net profit was only 0.48; if natural rubber stays elevated combined with channel destocking, high-priced inventory write-downs (RMB 229 million already provisioned in H1) and receivables turnover could continue to erode the cash content of profits. On governance, the donation is charitable in nature, and the lock-up plus aggregated disposal quota design limits marginal supply (approximately RMB 530 million in market value); however, the disposal pace after the lock-up expires at the end of March 2027, the system's pledge ratio of 34.26% (9.01% of total shares), and related-party purchases from Mesnac (RMB 1.641 billion actually in H1) merit continued tracking.

V. Core Financial Data

Reasons for metric changes (items with YoY ≥±20%, all with company explanations):

• Financial expenses +429.74% (0.86→4.57 RMB 100mn): The company explained "mainly due to increased foreign exchange losses" — FX gains/losses swung from a gain of 1.36 RMB 100mn in the prior-year period to a loss of 2.42 RMB 100mn (RMB appreciated ~3%/6% against USD/EUR in H1); interest expense of 2.29 RMB 100mn actually declined YoY.
• Asset impairment losses (inventory write-downs) of -2.30 RMB 100mn (vs. -1.54 RMB 100mn prior year): The company stated in an investor-platform reply that "the operating scale continues to expand, and finished goods inventory at end-June grew versus the beginning of the period… provisions made strictly per accounting standards"; this against the backdrop of Q2 composite raw material purchase prices rising +15.85% QoQ.
• Cash for long-term asset purchases +48.5% (17.50→25.98 RMB 100mn): "Mainly due to increased purchases of land and equipment for project construction" — directed toward Egypt (total investment USD 1.141bn), Dongjiakou, Cambodia's Kampot, and the ramp-up of Indonesia/Mexico.
• Long-term borrowings +33.02% to 57.82 RMB 100mn; net financing cash flow 19.34 RMB 100mn (+35.33%): "Mainly due to increased borrowings for production and operational needs."
• Administrative expenses +27.61% (5.15→6.57 RMB 100mn): personnel costs 4.68 RMB 100mn (+52.8%) and higher depreciation/amortization, while share-based compensation of 1.26 RMB 100mn actually declined YoY — front-loaded expenses from overseas new plant startups.
• FY2025 cost of revenue +20.32% outpaced revenue +15.69%, gross margin -3.08pp: raw materials account for 81.3% of costs, natural rubber purchase prices +7.96%, and overseas gross margin fell a larger -4.13pp — recovered by 2026H1 (overseas/domestic gross margins 27.3%/25.6%).

VI. Latest Results Review (2026H1)

2026H1 revenue 200.27 RMB 100mn (+13.88%), net profit attributable to parent 21.60 RMB 100mn (+17.97%), recurring net profit 20.58 RMB 100mn (+12.75%); Q2 alone: revenue 105.66 RMB 100mn (+15.2%), net profit attributable 11.03 RMB 100mn (+39.26%), gross margin 27.10% — amid industry-wide cost shocks that saw Linglong (H1 -88.13%) and Sailun peer Sentinel (H1 -37.47%, gross margin down to 19.57%) hit hard, Sailun was the only sizable A-share tire company to post double-digit growth, validating three points: ① the solid profit base of mature Vietnam/Cambodia plants (Vietnam + CART TIRE combined accounted for 82% of H1 net profit attributable); ② product mix (OTR +45%, liquid gold OE fitments) hedges against declining average prices; ③ 2025 low-cost raw material inventory and procurement pacing smoothed part of the cost shock. Points for sober assessment: H1's high growth includes a "windfall before FX backlash" (H1 financial expenses of 4.57 RMB 100mn already include FX losses of 2.42 RMB 100mn; excluding this increment, recurring growth would be higher) and a time lag in that "Q2 purchase prices +15.85% QoQ have not yet fully flowed into the books" — market concerns about Q3 have merit. On "beat or miss": no sell-side quarterly breakdown available in this run to check against; against consensus (2026E 45.05 RMB 100mn), H1's 48% completion is on a normal-to-fast pace; management gave no full-year quantitative guidance, stating only that it would "offset costs via price adjustments and mix optimization" in its interim report. Interim dividend of RMB 0.15 per share (total ~4.93 RMB 100mn, ~22.8% of H1 net profit attributable, based on 3.288bn total shares).

VII. Business Model and Earnings Quality

Business model in brief: Asset-heavy global manufacturing, dealer-driven (dealers accounted for 90.6% of main business revenue in 2025), predominantly replacement market — a "consumables" business with no subscription character but repeat-purchase attributes; five global bases (4 in China plus Vietnam/Cambodia/Indonesia/Mexico in production, Egypt/Dongjiakou under construction) form a tariff-responsive capacity layout. Pricing power is weak-to-moderate: 2025 volume +12.44% while average price rose only +3.2% (estimated); 2026Q2 average price -2.54% YoY; gross margin swings with the natural rubber cycle (27.6%→24.6%→27.0%), partially hedged by mix upgrading.

Cash content of earnings (OCF/attributable net profit, FCF/attributable net profit): 2023 1.72/1.06 → 2024 0.56/-0.43 → 2025 1.19/-0.18 → 2026H1 0.48/-0.72. Two warning points: First, OCF/net profit has long been unstable and was only 0.48 in H1, mainly because receivables + inventory absorbed 2.85 RMB bn in half a year (working capital increase of 2.94 RMB bn > revenue increase of 2.44 RMB bn). Second, FCF has been negative for two and a half years with a widening gap (-17.4→-6.4→-15.7 RMB 100mn in H1); book profits are not currently converting into freely disposable cash — a feature of the expansion phase (CapEx/depreciation & amortization at ~2.3x for three consecutive periods) — but it means shareholder returns depend on incremental financing. The gap between recurring and attributable net profit is small (H1 non-recurring items only 1.02 RMB 100mn: fair value/disposal gains 0.74 RMB 100mn + government grants 0.16 RMB 100mn), with no one-off profit dressing; under A-share standards no Non-GAAP adjustment is needed.

Return on capital: Estimated ROIC ~14.2% in FY2024 and ~11.1% in FY2025 — above WACC (~9%) but trending down, reflecting capex dilution; ROE of 17.04% (2025) remains top-tier in the sector. The long-term ROIC >15% moat benchmark was met in 2024 but breached in 2025 — "excellent but diluted by expansion."

Capex quality: Annualized CapEx of ~4.8–5.2 RMB bn over 2024–2026H1, 2.3x depreciation & amortization; investment is highly concentrated in growth capacity (Egypt USD 1.141bn, Dongjiakou, Kampot Cambodia, Indonesia/Mexico ramp-up). No maintenance/growth split disclosed (cannot be precisely separated), but incremental capacity has visible order support (mining long-term contracts + replacement channels) — "demand-backed expansion" rather than idle capacity building. Post-commissioning return validation of overseas bases: Vietnam's 2025 net profit of 16.03 RMB 100mn (~17% net margin) proves the model viable, but Indonesia/Mexico are still in a ramp-up, near-breakeven phase (investor-platform confirms "gross margin is positive" but gave no figure).

Red flags: ① Profits highly concentrated in two overseas plants (Vietnam + CART TIRE at 82% of H1 attributable net profit) — amplifies exposure to any single geopolitical event; ② receivables growth at ~1.5–1.9x revenue growth for three consecutive periods, unexplained by the company; ③ low customer/supplier concentration (top five customers 16.79%, top five suppliers 22.79%) is a positive signal.

VIII. Management Assessment

Track record of delivering on statements: Good verifiable promise-vs-delivery record. ① Third-tranche 2023 ESOP performance test (2025 attributable net profit ex-share-based payments ≥90% above 2022's 13.32 RMB 100mn): actual +169.48% (35.89 RMB 100mn); all three tranches unlocked — but the 2022 base year was a profit trough, making target-setting relatively lax, so the "overachievement" deserves a discount; ② shareholder return plan (Dec 2025) pledges annual cash dividends of no less than 30% of distributable profit: FY2025 cash dividend executed per plan (estimated payout ratio ~30%), delivered; 2026 interim dividend RMB 0.15 per share, total ~4.93 RMB 100mn (based on 3.288bn shares); ③ annual report operating plans contain no quantitative revenue/profit targets, hence nothing to check against. Verdict: pragmatic-to-conservative (lax targets, but never missed).

Shareholder friendliness: Neutral-to-friendly. Payout ratio rose from nearly 20% in 2024 to ~30% in 2025 (estimated); 2026 launch of interim dividends (frequency upgrade signal); but no buyback (in July 2026, after investor prompting, the company explicitly stated "no buyback/shareholding increase plan disclosed"), and there is a history of equity dilution via the 2021 private placement + 2022 convertible bonds (since converted). At current price, 2026 dividend yield ~3.2% (if full-year payout remains 30%+).

Risk signals: ① Controlling shareholder's system pledged 296mn shares within the year (9.01% of total shares, 34.26% of shares under its control); purpose of new pledges: "debt repayment"; ② concert party donated 1.15% of shares to the Qingdao University of Science and Technology Foundation — philanthropy plus industry-academia ties (Sailun was founded from a Qingdao University of Science and Technology background), but the donee's sales after the March 2027 lock-up expiry constitute a potential supply channel; ③ related-party purchases from Mesnac (same controlling shareholder) of 16.41 RMB 100mn in H1 (annual estimate 30.75 RMB 100mn), with pricing fairness reliant on procedural safeguards; ④ positive signal: executives bought 81.9k shares in the secondary market at RMB 13.08 in May 2026, with no major shareholder reductions in the window. Periodic reports are filed at the deadline (interim report on Aug 31, the last day), with no earnings preannouncements — information transparency is mediocre.

IX. Segment Breakdown

Profit driver: The overseas segment, with ~3.4x domestic revenue and higher, faster-recovering gross margins (H1 27.3% vs 25.6%), contributes the vast majority of gross profit — by revenue share × gross margin estimation, overseas contributes ~78% of main business gross profit. Digging deeper: both segments are consolidated figures, and since 2021 the company has stopped disclosing passenger/ truck-bus/OTR product-level volume-price detail (company's reply: with more factories, figures are presented in aggregate); the profit contribution of OTR tires (industry gross margin 37%+) and liquid gold cannot be externally verified — this is the biggest information blind spot in analyzing the company; the investor platform and IR meeting minutes offer only qualitative color (OTR H1 volume +45%, liquid gold OE ramping). The gross margin gap between the two segments narrowed to ~1.7pp (H1 basis) from ~5pp in 2025, as domestic gross margin recovered faster.

X. Financial Engineering and Cross-Period Consistency

Accounting red flags:

• Receivables growth persistently above revenue (severity: medium): 2024 +41.97%/2025 +28.23%/2026H1 +20.77% vs revenue +22.42%/+15.69%/+13.88% — roughly 1.5–1.9x for three periods, with no specific explanation in the annual report. Lengthening collection cycles from overseas distribution expansion is a reasonable inference but unconfirmed by the company.
• Large, persistent related-party purchases (severity: medium): 2026 purchases from Mesnac and its controlled subsidiaries estimated at 30.75 RMB 100mn, 16.41 RMB 100mn already incurred in H1 (53% of plan) — a controlling-shareholder-affiliated enterprise, with pricing fairness reliant on procedural safeguards.
• Discontinued product-level volume-price disclosure (severity: low): degraded post-2021 to aggregate tire-only disclosure; the share of high-margin businesses cannot be externally verified.

Cross-period consistency:

• OCF/attributable profit and FCF swing sharply (1.72→0.56→1.19→0.48); the company has not explained the swings (2025 OCF +82.58% attributed to "increased cash received from sales"), consistent with the expansion-phase profile of high revenue growth plus working capital build-up.
• FX gains/losses swing in direction (-0.34 RMB 100mn → +3.48 RMB 100mn → -2.42 RMB 100mn); the company attributes these to FX volatility and claims adherence to risk-neutral hedging (hedge limit raised in August) — consistent with its explanation.
• Product-level disclosure granularity degraded (detail → aggregate); the company explains "aggregated presentation due to scale expansion" — consistent with its explanation but reduces external verifiability.

Conclusion: No profit-manipulation-grade financial engineering detected; principal reservations are declining disclosure granularity (product-level discontinuation) and persistent deviation in receivables growth — neither changes the judgment on earnings authenticity, but both reduce the precision of that judgment.

XI. Industry-Specific Chapter: The Three Battlegrounds of Tire Manufacturing

Beyond the generic financial framework, three industry-specific dimensions truly determine individual stock outcomes. Sailun's position on each:

1. Capacity to respond to trade barriers (the current primary battleground). Tires are a hotspot for trade remedies: the US comprehensive tariff on direct China shipments reaches 188.8% (anti-dumping + countervailing + Section 301 + base tariffs), effectively shutting the direct-export channel; the EU's AD of 24.4% is in effect with countervailing duties in final determination in December; the Eurasian Economic Union has proposed duties of 11.31%–22.37% on Thai/Vietnamese truck tires. There is only one response — move capacity to tariff-friendly locations. Chinese tire makers' overseas capacity is ~208mn units in 2025, with 415mn units planned (doubling in 2–3 years), 43 overseas plants across 26 companies. Sailun's five-base matrix (Vietnam: 0% AD + 6.23% CVD; Cambodia; Indonesia; Mexico with zero tariffs under USMCA; Egypt under construction with no EU tariffs) is the best combination in the A-share universe, but one must be clear-eyed: the universal 10–12.5% Section 301 tariff on Southeast Asian bases has already downgraded "overseas = tariff-free" to "overseas = relatively low tax," and the profit engine is concentrated at a single point — Vietnam (~46% of group in 2025). The apparent diversification of the location mix exceeds the true diversification of profits.

2. Raw material pass-through capability (determines the 2026H2–2027H1 financials). Raw materials are 81.3% of costs (natural rubber + synthetic rubber + carbon black combined over 60%); RU main contract hit a nine-year high of 20,645 yuan/ton (+49.8% YoY), and carbon black +59.7% hit a six-year high. The pass-through toolkit: price-increase letters lagging 1–2 quarters (currently the fourth round, 2–6%), product mix upgrading (OTR/liquid gold/larger sizes), and low-cost inventory management. Sailun's pass-through capability is stronger than pure passenger-tire peers (Sentinel's gross margin already down to 21.27%, General Tire's net margin 2.4%), but 2025's history of "price hikes failing to prevent a -13.3% net profit decline" proves it is a "high-margin victim" rather than immune. Sensitivity: every 1pp decline in H2 gross margin ≈ -1.75 RMB 100mn attributable net profit.

3. Utilization rates and capacity absorption (determines long-term position on the cost curve). Industry passenger-tire operating rate is 79.5% (-9.6pp YoY), with some firms "losing money at any operating level"; Sailun's H1 volume +15.0% implies full production, widening its per-tire depreciation dilution advantage — full utilization is itself the cash-flow expression of a moat. The next test of capacity absorption is the ramp-up of overseas new bases: industry precedent (Zhongce's Indonesia ramp-up net profit of only 7.42mn yuan, Linglong's Serbia losses) suggests that "revenue up, profit not" during the 12–24 month ramp is the norm; Sailun's Indonesia/Mexico plants have passed breakeven (investor platform confirms positive gross margin), and Egypt starts production in 2027 — a half-step ahead of peers.

XII. Valuation and Odds

Current market data (as of close on 2026-10-12): share price RMB 12.65, market cap RMB 41.59 billion, total shares 3.288 billion. PE(TTM) 10.8x — 2nd percentile over the past 1 year / 16th over 3 years / 10th over 5 years; PB 1.84x — 3rd percentile over 3 years / 2nd percentile over 5 years; PS(TTM) 1.06x. Representativeness check of percentiles: TTM net profit attributable to parent of RMB 3.851 billion falls within the three-year adjusted (ex-non-recurring) range (RMB 3.146–3.992 billion), H1 YoY +18%; earnings are broadly representative, so the PE percentile can serve as a reference (sole caveat: TTM includes part of the 2025 downturn, so the actual percentile is slightly optimistic). Forward basis: consensus 2026E of RMB 4.505 billion implies 9.2x, 2027E of RMB 5.62 billion implies 7.4x; this report's own 2026E of RMB 3.9–4.4 billion implies 9.5–10.7x, with PEG (own basis) of approximately 0.8.

Notes on peer benchmarking: the TTM PEs of Linglong/Sentury/General are contaminated by a period of profit collapse (H1 net profit -88%/-37%/rebound off a low base); the static PE median of about 11.7x is a more comparable anchor. On PB, Sailun trades about 114% above the peer median, but its PB/ROE (0.107) sits with Guizhou Tire (0.104) in the lowest tier of the sector, significantly below Linglong (0.115)/Sentury (0.121)/General (0.304) — the high PB is a reasonable reflection of its 17.1% ROE rather than a bubble.

Market-implied expectations: backing out from a justified 12x PE (its own 3-year PE(TTM) median of 12.16x, independent of the current price), the current price implies 2026E net profit attributable to parent of only about RMB 3.47 billion (YoY -1.6%); the reverse Gordon framework implies a perpetual growth rate of about 1.7% (sensitive to discount rate assumptions; g of 0.7–2.7% when r is 10–12%). In one sentence: the current price requires Sailun's 2026 growth to fall to zero, whereas reality shows H1 already +17.97% with full-year likely at RMB 3.9–4.4 billion. The market's pessimism on the near term (Q3–Q4 cost shock) has grounds; the true mispricing lies in treating a reversible fluctuation as perpetual stagnation — but as noted in C3, the robustness of this conclusion is constrained by FCFF assumptions and the fact that "consensus has not yet been revised down fully."

Three-tier value (EPV):

• Asset value (floor): RMB 6.88/share (book net assets attributable to parent; conservative basis with no premium for overseas base replacement value).
• EPV zero growth: midpoint RMB 12.38/share — normalized net profit attributable of RMB 3.7 billion (midpoint of RMB 3.458 billion adjusted 2025 and annualized RMB 4.12 billion from 2026H1 adjusted, covering one round of raw material fluctuation) → NOPAT RMB 4.21 billion (+ D&A RMB 1.75 billion − maintenance CapEx about RMB 1.5 billion − change in working capital 0) → normalized FCFF RMB 4.5 billion, WACC 9%, less net debt of RMB 9.34 billion (RMB 2.84/share). Sensitivity must be disclosed: at FCFF of RMB 3.8–4.0 billion, EPV falls to RMB 10.0–10.7 (inputs cut 11–16%, floor down 14–19%) — if natural rubber prices persist throughout 2027, the normalization basis itself must be revised down.
• Growth option: current price − EPV ≈ RMB 0.3/share, about 2% of the current price — the market is paying almost nothing for growth; if 2027–28 net profit of RMB 5 billion materializes and 11x is applied, that corresponds to about RMB 16.7/share, implying option value of about RMB 4, of which the current price pays only a fraction.

Support structure of the current price: the price is mainly supported by the zero-growth earnings tier (EPV accounts for about 98%), with asset value (RMB 6.88) and the bear-case range (RMB 9–11) providing downside references — the current price carries only about a 2% premium to the EPV midpoint, sitting "near the floor" rather than "mid-slope."

Three scenarios and odds (12–18 months):

The current price of RMB 12.65 falls between the bear-case upper bound and the base-case lower bound — a lower position in the distribution, with odds asymmetrically favorable (upside to base-case midpoint +19.8%, downside to bear-case midpoint -21.7%). The probability-weighted midpoint is about RMB 14.6 (about +16% vs. the current price). Anchoring discipline of the scenario table and valuation conclusions: the base case's 12x is anchored to its own 3-year median and the peer static median, independent of the current multiple (the current 10.8x is for reference only); the bear case is constructed on independent stress assumptions (gross margin 22–23% path); external pessimistic reference points (Guotai Junan's 2026-05-06 scenario of combined EU CVD tax burden of 38–42%; peers' H1 elasticity of -37%~-88%) serve only as comparability references, without direct mapping.

Own earnings forecast vs. market expectations:

We are 3–13% below consensus for 2026 and 11–25% for 2027; the core disagreement lies in the pace of natural rubber price decline and the CVD tariff rate — if Q3 results confirm Q3 gross margin ≥24% and a decline in RU, we will revise upward toward consensus; otherwise, consensus will be revised down toward us.

Valuation conclusion: undervalued, target price range RMB 14.2–16.1 (base-case fair value), margin of safety +12.3% (on the base-case fair value lower bound). Quality (structural: global #10, highest ROE in the sector, five bases + OTR niche) and price (cyclical: percentile bottom driven by market fear of natural rubber) differ in nature — if natural rubber does not fall back in 2027, the undervaluation may be self-sustaining (value-trap risk corresponds to the bear case's 30% probability); if it does, a Davis double-play ensues.

XIII. Industry Landscape and Competitive Positioning

1. Market size. Tires are a consumables business tied to the global vehicle fleet, with rigid demand and weak cyclicality. By volume: 2025 global PCR + TBR shipments were about 1.894 billion units (+1.38%, third consecutive year of growth; Michelin annual report basis as cited in Sailun's 2025 annual report); by value, roughly on the order of USD 200 billion (third-party estimates range USD 150–272.4 billion; wide dispersion across aggregation bases, to be verified). China basis: 2025 motor vehicle tire outer-tire output was 865 million units (+2.1%, CRIA Tire Branch survey basis; NBS full scope including motorcycle tires: 1.207 billion units, +0.9%); sales revenue of key Tire Branch member companies was RMB 228.66 billion (+3.7%); exports of 8.933 million tons (+2.9%) worth USD 21.52 billion (+0.7%, volume for price). Growth outlook: low single-digit growth globally over the medium-to-long term (driven by fleet size + replacement cycles); China's output growth plunged from +9.2% in 2024 to +0.9% in 2025, indicating the industry has entered a plateau. Three structural growth drivers: NEV-specific tires (20–30% pricier than standard tires, potentially 60%+ of global OE by 2030, association-cited forecast), larger rim sizes (18-inch+), and the first concentrated NEV tire-replacement wave (releasing 2026–2028). No exogenous, step-change demand inflection — NEV penetration is structural upgrading, not a volume shift (penetration about 40% in 2024 → 47.9% in 2025 → 49.6% in 2026).

2. Value chain and value distribution. Upstream: natural rubber/synthetic rubber/carbon black/steel cord; raw materials exceed 70% of production cost (81.3% for Sailun); natural rubber prices are the first-order variable of industry margins — in 2026 a strong El Niño disrupted Southeast Asian supply, with the RU main contract at RMB 20,645/ton, up 31.6% from January and +49.8% YoY, a nine-year high, prompting price hikes from over 60 tire companies. Midstream: tire manufacturing (semi-steel/all-steel/OTR), where scale, automation, and compounding technology determine position on the cost curve; in 2025 domestic capacity utilization was 74.2% for all-steel and 79.5% for semi-steel (-9.6pp YoY), with some semi-steel players losing money at current operating rates. Downstream: the replacement market accounts for roughly 70% (fleet-driven, cycle stretched from 4–5 years) + OE market (2025 global vehicle sales of 96.47 million units, +5%); on the OE side, OEMs keep squeezing prices and commercial-vehicle OE was "volume without profit" in 26H1; on the replacement side, semi-steel faces low-price involution; online retail accounts for 21.5%. Margins accrue mainly to "premium product mix" rather than to any particular tier: OTR gross margin 37%+ (25Q1–Q3 industry basis) > replacement semi-steel > OE. Sailun sits in midstream manufacturing, with 76.7% of revenue from overseas and predominantly replacement — stronger bargaining power over downstream than OE-oriented peers, passively bearing upstream rubber prices with lagged pass-through via price-hike letters.

3. Supply-demand and competitive landscape. Demand side: global fleet growth + faster NEV tire wear and shorter replacement cycles + emerging-market infrastructure driving all-steel demand (2025 China TBR exports +5.9%). Supply side: Chinese overseas bases had about 208 million units of capacity in 2025, planned to reach 415 million units at full build-out — doubling in 2–3 years (Thailand/Vietnam/Cambodia/Indonesia/Malaysia/Serbia/Morocco/Egypt/Mexico, etc.; Tire Branch statistics; as of 2026H1, 26 Chinese companies had 43 overseas plants); domestically, over 100 million units of new semi-steel capacity was released over the past two years. Supply-demand balance judgment: structural oversupply is concentrated in the semi-steel replacement market — 26H1 saw "severe oversupply, losses at current operating rates, vicious price wars, channel destocking" (association's words); the association explicitly flagged overcapacity risk in the Thailand–Vietnam–Cambodia region; all-steel is relatively healthy (OE 26H1 +11.6%). Concentration: global top three (Michelin/Bridgestone/Goodyear; Tire Business Top 75 by sales; no consistent disclosure of the CR3 percentage, marked "not available"); among Chinese players: Zhongce #9, Sailun #10, Linglong #15, Prinx Chengshan #21, Guizhou #24, Triangle #25, Sentury #28; Chinese imported tires hold a 28% share of the EU market (2024, European Commission). Entry barriers: globalized capacity + capex (tens of billions of RMB per base), certifications and brand, 2–3-year OEM qualification cycles, compounding technology, distribution networks. Competitive intensity: extreme — vicious price wars in semi-steel replacement, export volume-for-price (26H1 export volume +4.6% but value only +2%, PCR export average price -4.2%). Substitutes: no direct substitutes; retreaded tires/tire-as-a-service remain marginal models.

4. Cycle and regulation. Industry cycle position: a downturn/shakeout-bottoming phase within maturity — 2025 saw "pressure in H1, recovery in H2"; 2026 brings renewed raw-material price increases + elevated channel inventories + rising volume with falling prices, and the industry has entered a destocking and capacity-clearing phase (Sailun's 2025 net profit -13.3%, Linglong -21.9%, Sentury -48.5%, General -46.1% confirm an industry-wide downturn). Leading indicators: capacity utilization, RU price and basis (contango, far-month premium annualized at 6.77%), export price-volume scissors, coverage of price-hike letters (60+ companies), and milestones in US/EU trade remedy proceedings. Regulation (tariff matrix, as of 2026-10): ① US–China direct-ship combined rate as high as 188.8% (AD/CVD 30%+ + Section 301 + 12.5% base), effectively closing the direct-ship channel; ② US–overseas bases: Section 301 imposes 10–12.5% on Chinese-owned bases in Southeast Asia/North Africa (effective 2026-07-24); US–Vietnam PLT AD/CVD grants Sailun a 0.00% individual rate (best among peers) + CVD 6.23% (maintained in sunset review on 2026-10-05); ③ EU: AD final duty 24.4% (cooperative tier, effective five years from 2026-07-08) + anti-subsidy final ruling due before 2026-12-05; ④ Eurasian Economic Union proposes 11.31%–22.37% on Thai/Vietnamese truck tires (draft); ⑤ Others: containment from Brazil/India/South Africa/Mexico/Peru, etc. Green barriers: EU CBAM becomes mandatory in 2026 (tires in the first batch), EUDR delayed to end-2026, Russia doubling its PAHs environmental tax. Direction: short-term headwinds (rising tariff and compliance costs, order hesitancy ahead of CVD implementation), medium-term tailwinds (barriers accelerating the exit of small/mid-capacity lacking overseas footprints and green-compliance capability, with share concentrating toward "multi-base + technology + brand" leaders — the association expects the top ten's market share to keep rising).

5. Peer benchmarking table (based on 2026-10-12 closing prices):

(Peers' 2026H1 basis: Linglong net profit attributable RMB 101 million, -88.13%; Sentury -37.47%; Guizhou +44.2%; General 26Q1 +114.8% off a low base.)

6. Company's industry positioning. Sailun is a first-tier challenger in the global tire industry: global #10, China #2 (Tire Business Top 75 by 2024 sales; by volume, about 4% of global PCR+TBR); 26H1 volume +15.0%, far outpacing global +1.4% — share trend clearly rising. Three sources of moat: ① first-mover multi-base overseas footprint (first Chinese tire maker to go abroad in 2012; Vietnam + Cambodia mature, Indonesia/Mexico ramping; overseas plans of 9.75 million all-steel units/89 million semi-steel units/130,000 tons non-road); ② OTR niche (one of the few globally mastering 63-inch giant tire technology, a Caterpillar supplier, tied to BHP/Vale/Rio Tinto); ③ "Liquid Gold" (EVEC rubber) low-rolling-resistance, wear-resistant compound positioned for the NEV replacement upgrade. Cross-checking company-claimed vs. third-party figures: the Tire Business Top 75 ranking and the China Rubber Industry Association's China ranking (Sailun second in China, Zhongce first) are directionally consistent, with no conflicting figures. Over the past year the stock fell -10.9%, significantly outperforming Linglong (-29.8%) and Sentury (-31.7%). Position on the three decisive battlegrounds: best-in-A-share response to trade barriers (though concentrated in Vietnam as a single point); stronger raw-material pass-through than pure semi-steel peers (though 2025 proved it is not immune); counter-cyclical full utilization (H1 +15% vs. industry semi-steel utilization declining to 79.5%) — overall judged a net beneficiary of this clearing cycle.

XIV. Overall Conclusion and Monitoring

Overall assessment: Cautiously bullish, confidence 0.55, over a 12–18 month horizon. The current price of 12.65 yuan sits in the upper half of the zero-growth value range (EPV midpoint 12.38 yuan, sensitivity floor 10.0 yuan), meaning the growth option is nearly free; the base-case fair value of 14.2–16.1 yuan implies +12.3%~+27.3%, with the odds distribution skewed to the downside (upside to base-case midpoint +19.8% vs. downside to bear-case midpoint -21.7%). Strategic implication: the current price is a "discount zone ahead of the verification window," suited for staggered position building rather than a full bet — before the two major uncertainty events are resolved, namely the natural rubber pass-through test (Q3 earnings) and the EU final ruling (December), positions should retain drawdown tolerance; if Q3 gross margin ≥24% and the CVD lands mildly, add to positions as confirmation. Calibration note versus our own historical calls: this report's confidence level falls within the band where the rolling hit rate of the full library is roughly 45–50%, and we do not claim to beat the base rate — the differentiated insight lies in the falsifiable proposition that "the market is pricing reversible cost swings as permanent stagnation," with the test point being the Q3 report on 10-31.

Risk warnings (ranked by impact): ① Natural rubber above 20,000 persisting through 2027 (Q3/Q4 gross margins sliding toward 22–23%, full-year growth dropping to zero, triggering the bear case); ② EU CVD stacking on the AD duty (combined tax burden 38–42%, damaging the European channel); ③ Eurasian Economic Union anti-dumping duties on Vietnam landing + US policy reversals on Vietnam (Vietnam alone accounts for roughly half of group profit, with the impact masked by the capacity narrative); ④ Prolonged overseas price war (if average prices stay below -3% for two consecutive quarters, the growth cushion fails and the valuation anchor shifts from growth to cyclical); ⑤ Deterioration of earnings cash conversion amid elevated receivables/inventory, plus write-downs on high-cost inventory; ⑥ Governance signals (the foundation's share-reduction channel, system pledges) capping the valuation ceiling.

Monitoring schedule: Q3 report (2026-10-31: Q3 gross margin / blended procurement price QoQ / price increase realization); EU countervailing duty final ruling (no later than 2026-12-05, combined tax burden ≤32% as the removal of the overhang); RU price and inventory inflection point (a fall below 18,000 as a recovery signal); Egypt Phase I trial production milestone (2026Q4–2027Q1); annual dividend plan (2027-04, payout ratio ≥30%); stock price trigger lines: 16.1 yuan (upper base-case bound, margin of safety exhausted, reassess) / 10 yuan (bear-case midpoint, re-evaluate entry).

Data and methodology notes: Price and market cap anchored to the 2026-10-12 close (12.65 yuan); financial data as of the 2026 semi-annual report (disclosed 2026-08-31); valuation multiple percentiles from exchange public valuation data (1/3/5-year windows as of 2026-10-12); gross margins for 2023–2024 are consolidated-statement estimates; 2026Q2 single-quarter figures derived as the difference between H1 and Q1; FCF = net operating cash flow minus cash paid for purchases of long-term assets; Sailun Vietnam's profit share does not reflect intercompany eliminations; EU/Eurasian Economic Union duty rates are subject to official final texts. This report does not constitute investment advice.