Investment highlights

For the first time, Tourover-W (09690) was given an outperforming industry rating. The target price is HK$53.50. Based on the market sales rate valuation method, the corresponding valuation multiplier is 2024e 2.5x P/S. The company is China's leading online and offline integrated automotive service platform. It is a pure and scarce target for the automotive aftermarket. The reasons are as follows:

Positioning the stock car market, the two major factors of increasing car ownership and increasing vehicle age are boosting the expansion of the automotive aftermarket. Compared with the new car market, the stock car market has shown certain anti-cyclical characteristics, and the number of cars owned in the Chinese market has been steadily increasing year by year. Furthermore, we expect that as the stock of passenger cars rises in age, the increase in the proportion of older models will drive an increase in average bicycle maintenance costs. We expect China's auto service aftermarket to exceed 1.9 trillion yuan in 2027, with a compound growth rate of 9% starting in 2022.

Building an integrated online and offline platform to solve industry pain points is expected to reshape the competitive landscape in the post-market. Currently, the automobile maintenance market has many pain points, such as complex spare parts SKUs and many distribution levels, leading to fragmentation of the competitive pattern in the aftermarket. The number of traditional auto repair stores exceeds 700,000. Since 2014, the company has explored an integrated online and offline business model: using the Tourover App as the traffic entry point to achieve full process, end-to-end management through stores and supply chain management. Currently, it has formed a full range of services covering tire and chassis parts repair, car beauty and maintenance, and rear parts. It has opened a large business model gap with traditional auto repair stores. Currently, it has more than 5,000 offline stores, becoming the largest independent auto repair shop in China. We expect to reshape the market pattern.

Strong digital control builds core competitiveness, standardization is easy to replicate and expand, and the flywheel effect can be expected.

We believe that the company is good at using digital management tools, such as order management system (OMS), unified store management system (SMS), warehousing management system (WMS), and transportation management system (TMS), etc., to implement strong control over store operations and optimize warehousing and distribution systems. Currently, standardized store opening processes can be achieved, the business model is easy to replicate and expand, and as the number of factory stores continues to increase, the company's product sales side is expected to achieve a strong scale effect in collection.

What is our biggest difference from the market? We believe that the impact of changes in the after-sales business of new energy vehicles on the company is manageable, and it is hoped that new business expansion such as battery maintenance will help the company open up incremental space and develop new cooperation models with the NEV industry chain.

Potential catalysts: Product mix and business structure optimization are expected to lead to a continuous increase in gross margin, and net profit margin to rise above expectations.

Profit forecasting and valuation

We expect the company's EPS for 2023-2024 to be 0.41 yuan and 1.16 yuan, respectively. Revenue was $136.3/16.4 billion, respectively, and the current stock price corresponds to 2.0x/1.6x 2023/2024e P/S. For the first time, we covered 2.5x 2024e P/S, with a corresponding target price of HK$53.5, with room for 62.1% growth.

risks

Competition in the industry has intensified, franchise store management risks, single-store operating sales have fallen short of expectations, car maintenance demand has fallen short of expectations, product and service expansion has fallen short of expectations, and supply chain risks.