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DRC – Uncertain tariff context affects business prospects in key US market

• The proportion of DRC's truck & bus radial tire (TBR) export revenue to the US has inched up from 13.9% to 20.4% in 2024. The U.S. is identified as a strategic market for the DRC in the long term as key markets in the mainland and Brazil have declined sharply due to the intense competition of Chinese and Thai tires over the years.
• The 90-day tax deferral from the Trump administration helps reduce pressure on tire businesses such as the DRC temporarily. The synchronous reciprocal tariff on tire products of other countries is 10% and China's is 145%, which will help maintain DRC's advantage in low selling prices compared to its main competitor, Thailand. We believe that DRC will boost export orders in Q2-2025 – the period when Thai tires are subject to AD tariffs. and "racing" before the final decision for Trump's reciprocal tariffs for all countries in early Q3-2025. DRC's business results this quarter may be more dramatic than the rest of 2025.
• After the tax deferment period from Q3-2025, in the unchanged tax scenario for Vietnam of 46%, the expected price advantage for Thai tires is expected to be "leveled" when the total tax applied to tires of these two countries is similar. DRC will suffer from the dual impact of the decline in the overall market size and have difficulty expanding its market share here. Therefore, the growth of DRC's market share depends on the ability to share the tariff burden for agents compared to competitors in Thailand and Cambodia. We think DRC will choose the strategy of sacrificing profit margins to ensure output.
• At the moment, the tariff variables in the U.S. market or the extent of the decline in market share in the Brazilian/domestic market are unclear, so we move the recommendation of NEUTRAL to the DRC on MONITOR until there is a clearer update on the above issues from the business or the Trump administration.