The number one brand in the auto service chain, and the profit margin increased rapidly
1) By the end of 2023, the company had 5,909 Tourover factory stores, covering more than 300 cities. 23Q1 customer repurchase rate of 57% reflects customer recognition of products and services.
2) Store expansion drives steady revenue growth. The number of Tourover factory stores expanded from 1,423 to 5909 stores in 2019-2023, with a CAGR of 32.94%; the company's revenue increased from 7 billion yuan in 2019 to 13.6 billion yuan in 2023, with a CAGR of 17.9%.
3) Adjusted net profit was corrected for the first time in 2023, reaching 481 million yuan. We believe that the increase in profit margin is mainly due to product structure optimization and procurement bargaining power under large-scale and standardized development. Gross margin increased from 7.4% in 2019 to 24.7% in 2023.
There is plenty of room for improvement in IAM market share, chain rate, and concentration 1) In 2022, IAM stores only had a market share of 46.6% in automotive services. As the age of vehicles in China gradually grows, the cost performance advantage is expected to drive IAM stores to occupy a larger market share.
2) At the end of 2022, China's IAM market linkage rate was only 7.8%, and the number of company stores accounted for less than 1% of the market. There is great room for improvement compared to the US market, and there is plenty of room for growth.
Traffic, standardization, and scale build competitive barriers, and profitability is expected to continue to improve
1) Traffic advantage: The company's largest shareholder is Tencent. The company cooperates deeply with Tencent, connects to Tencent's “travel services”, and supports huge amounts of traffic. As of 23Q1, the company's online orders contributed more than 70% of revenue, helping new stores get through the climbing period quickly.
2) Standardization: Intelligent and digital tools establish a service standard system to achieve strong empowerment and control of stores. According to the prospectus, as of 2023Q1, franchise stores accounted for nearly 90% of profitable stores, and good profitability is expected to continue to drive store expansion.
3) Scalability: We believe that the company has strong bargaining power in the industrial chain, with outstanding cost performance for exclusive products and its own products. Private brands and exclusive brands generally have higher gross margin levels, and the company's gross margin is expected to continue to improve.
Profit forecasting and investment advice
We expect the company's revenue for 2024-2026 to be
157.4/176.0/19.38 billion yuan, up 16%, 12%, and 10% year-on-year, achieving net profit of 8.1/13.4/1.93 billion yuan, compared to -87.98% (change in fair value of convertible and redeemable preferred shares of 6.5 billion yuan in 2023), 66% and 44%, respectively. The corresponding EPS was 0.98/1.63/2.35 yuan/share, respectively. Based on the closing price of HK$25.05 per share (HK$1 = RMB 0.93) on May 24, 2024, the corresponding PE in 24-26 was 24, 14, and 10 times, respectively, covered for the first time, and gave it an “gain” rating.
Risk warning
Competition in the industry intensified, store expansion fell short of expectations, and sales of own products and exclusive products fell short of expectations.