“Science and Technology Innovation Board Daily”, April 20 (Reporter Chen Mei) Recently, the domestic used car 2B trading platform company Auto Street, which broke through the Hong Kong Stock Exchange for the second time, passed the audience.

The founder of Auto Street is an industry veteran. He previously started his own business in the field of offline 4S physical store sales, and led Baoxin Auto (HK: 1293) to successfully land on the Hong Kong Stock Exchange in 2011. Through listening, Auto Street is also the veteran's second time starting a business.

However, the “Science and Technology Innovation Board Daily” reporter learned that Auto Street once had shareholders' funding flaws, the number of social security payers was only 2, and related transactions. Some people in the industry believe that the used car trading market where Auto Street is located is a market with large price changes, and competition in the industry market is very intense.

122 million “receivable” shareholder capital injections

Auto Street, founded in 2014, is a product of entrepreneurship in the Internet age. Based on the success of Baoxin Auto (01293.HK), Auto Street received strategic investment from Cox Automotive after its establishment. It is an American car dealership that provides full chain operation services including used car auctions.

In 2019, Auto Street attracted the entry of major manufacturers such as Tencent and JD. In the same year, Auto Street completed Series A financing of 15 million US dollars, Tencent invested 10 million US dollars through ImageFrame, and JD invested 5 million US dollars through Dazzling. In 2022, Huaxing New Economy Fund participated in Auto Street's $15 million Series B financing. In this round of financing, Huaxing Capital also acted as a financial advisor.

However, it is an Internet company that has investment in international industrial capital and the support of major shareholders, but has experienced shareholders' capital injections in arrears.

According to the prospectus, Auto Street had a shareholder capital injection of 122 million yuan in “receivables” in 2022. In response, Auto Street explained that this “receivable” was an increase in capital injections that shareholders should have made to the two subsidiaries in the same year. The “Science and Technology Innovation Board Daily” reporter noticed that in 2022, when shareholders' contributions were in arrears, Auto Street's revenue and net profit declined one after another.

According to the prospectus, from 2021 to 2023, Auto Street achieved revenue of 670 million yuan, 467 million yuan, and 492 million yuan respectively; corresponding net profit was 165 million yuan, 68 million yuan, and 9.26 million yuan. This amount of 122 million yuan of shareholder capital receivables accounted for 26% of the year's revenue, and 1.8 times the net profit for the year.

Furthermore, the cash flow from Auto Street's operating activities in recent years has also been quite unstable. From 2021 to 2023, net cash flows from operating activities were $189 million, $953.32 million, and $123 million, respectively. Shareholder capital receivables of $122 million were 1.2 times the net cash flow from operating activities for the year.

However, according to the latest prospectus, Auto Street shareholders have already made up the amount.

The number of people covered by social security is only 2?

In the prospectus, Auto Street quoted data from a third party agency as saying that in terms of used car sales volume in 2022, Auto Street ranked first among used car sales platforms in China, and is the largest used car trading platform in China.

However, the “Science and Technology Innovation Board Daily” reporter discovered that as the “largest used car trading platform,” the number of social security workers in Auto Street is only 2.

According to the National Enterprise Credit Information System, in the disclosed 2022 annual report, the company entity of Auto Street, Shanghai Shuxun E-commerce Co., Ltd., had only 2 people with social security information. In the 2021 annual report, the number of social security personnel was 3.

As of now, Auto Street has not provided an annual report for 2023, so its social security numbers are unknown.

The used car trading market where Auto Street is located is fiercely competitive. According to the disclosure, Auto Street's market share in 2022 was 12.6%, with a trading volume of about 160,000 vehicles; however, the second-largest market share in the industry reached 12.2%, with an annual transaction volume of 154,000 vehicles; the third-place market share was also 11.9%, with an annual transaction volume of 150,000 vehicles. Judging from this, the current market share of the Auto Street industry, which is ranked number one, is not strong.

However, in the used car trading market, Melon Seed, Youxin, Auto Master, and Renren Auto are all well-known. How Auto Street maintains its advantage and wins in the industry in the future is also worth paying attention to.

2B business, close transactions related to Auto Street

Unlike the 2C business of Melon Seed, Youxin, and Renren Auto, Auto Street has always been positioned as a 2B business. As a result, Auto Street also has close relationships with dealers.

The disclosure shows that from 2021 to 2023, Guizhou Tongyuan Group and Guanghui Automobile were two major affiliates among Auto Street's top 5 customers. Among them, Guanghui Automobile once bought Baoxin Auto (01293.HK, now known as Guanghui Baoxin) from founder Yang Aihua, and Guizhou Tongyuan Group also has an equity relationship with Auto Street.

According to the prospectus, Guizhou Tongyuan Investment holds 33% of the shares in Guizhou Xintong Used Car Auction Co., Ltd. (“Guizhou Xintong”), a non-wholly-owned subsidiary of Auto Street.

It is both a relevant shareholder and one of the top five customers. There are clearly related transactions in Auto Street's used car transactions. Moreover, the transactions related to Auto Street also involved other companies such as Bairui International, Feng Zelin Beijing, and Shanghai Longyun.

Among the companies mentioned above, Han Baoshuang, the Beijing actual controller of Bairui International and Feng Zelin, was a director of Auto Street's subsidiary; Shanghai Longyun is a company where founder Yang Aihua indirectly holds 98.3% of the shares.

Auto Street has to pay different service fees to these companies. Among them, for support services for Guizhou Tongyuan Investment, the agreement stipulates that in 2020-2025, Auto Street will have to pay 8.424 million yuan, 12.1 million yuan, 9.57 million yuan, 14.4 million yuan, 14.4 million yuan, and 14.4 million yuan respectively. In addition, Auto Street also paid a dividend of up to 100 million yuan to “Guizhou ICT” in 2022.

A used car dealer interviewed by the “Science and Technology Innovation Board Daily” reporter said that second-hand riders are a market where transaction prices are unstable. Every used car has a different price, and there is no fixed price. “There is also a big difference in the price of a used car. Sometimes the price may change a lot within a few days, and the annual discount rate is high.”

According to the used car dealer, in the current situation of new car prices, used car transaction prices will also fall and will continue to be pressured.

The “Science and Technology Innovation Board Daily” reporter noticed that behind the decline in Auto Street's net profit in 2022 and 2023 is a change in fair value. According to the prospectus, the profit and loss that led to changes in the fair value of net profit for the year was 14.19 million yuan and 75 million yuan, respectively. This further shows that the used car transaction value is uncertain, and the discount rate is high.

Another industry source told the “Science and Technology Innovation Board Daily” reporter that the used car trading market is very scattered, and the share of the top few “bites” is very tight. The so-called “largest used car trading platform” is actually not as large as the market imagines.