With the Chinese government’s new industry regulations triggering a trend for mergers among local tire makers, which is expected to cease price competition to stabilize China’s tire market, the Taiwan-based Cheng Shin Rubber Co. and Kenda Rubber Industrial Co. are expected to benefit from the trend to gain steam in the marketplace in the short term.
This March, China publicized new regulations for the local tire making industry, raising the threshold for newcomers and holding insiders back to impetuously invest in output of lower-end products to curb an output boom. This is predicted by market observers to prompt insiders to seek the possibility of merging with each other to grow in the short term.
The prediction has come true, as the first merger between Chinese tire makers was seen in early July, with Sailun Group, a large-sized tire producer well-known nationwide, already buying a full stake in a smaller peer in northeast China to expand its organization scope. The trend is expected to squeeze smaller players out of the field, with larger ones surviving, and, in turn, will help ease price competition to stabilize the domestic market for tires.
Prepared for the transition in China’s tire market, Cheng Shin, whose three brands marketed in the country, namely Cheng Shin, Maxxis and Sakura, have been officially recognized as Famous Trademark of China, said that it will put heavier emphasis on branding and exploring distribution channels in the market in the future.
Kenda is also optimistic about the merger and acquisition trend in China’s tire industry, stressing that this will enable the domestic market to develop more soundly than before, and grant more sustainable business chances to insiders with nationally known brands.
Cheng Shin and Kenda, both operating production plants in Taiwan and China at present, raked in NT$3.286 billion and NT$494 million, respectively, in net profits for the first quarter of this year, with EPS (earnings per share) of NT$1.33 and NT$0.72.
