In May, as the Hong Kong stock market emerged from a strong recovery, a less-popular stock also quietly surged, and its stock price repeatedly reached record highs. This is a long-term stock (06959), which started by pledging vehicle monitoring services. Since February, the company's stock price has risen from HK$6 to over HK$60, achieving an astonishing “tenfold increase” of shares.

According to the news, Changjiu Co., Ltd. was recently included as a component of the MSCI China All Stock Small Cap Index, which will take effect after the market closes on May 31, 2024.

Recently, as the concept of “new quality productivity” heats up, individual stocks related to topics such as data elements and technological innovation in the secondary market have also attracted the attention of many investors. Under these circumstances, there are claims that Changjiu Co., Ltd. owns digital products, and as an established leader with many years of data accumulation, it is not only an automobile industry chain stock, but also a technology company with data element attributes.

Behind the sharp rise in stock prices, how much gold does Changjiu's new quality productivity concept have? This must be sought at its specific business level.

Revenue has increased year after year, main business revenue is nearly 90%

According to the Zhitong Finance App, Changjiu Co., Ltd. provides pledged vehicle monitoring services and car dealer operation management services in China. The company has been dominant in the pledged vehicle monitoring service market for a long time, and began providing operation management services to car dealers seeking better business and financial performance in April 2022, continuously expanding the number of independent third-party customers.

Financial reports show that for the year ended December 31, 2023, the company obtained revenue of 642 million yuan (RMB, same below), an increase of 17.1% over the previous year; profit attributable to the company's equity shareholders was 102 million yuan, an increase of 6.72% over the previous year; and basic profit per share was 0.6762 yuan.

As can be seen, the company's revenue has continued to grow in recent years, but net profit has declined slightly since 2021. As of 2023, the company's net profit has not returned to the level of 2020.

At the business level, Changjiu Co., Ltd. mainly provides two services: financial institutions that provide pledged financing to car dealers, and pledged vehicle monitoring services to car dealers engaged in pledged car business. As far as the 2023 results are concerned, the company's revenue mainly comes from the latter, accounting for 89.6% of the annual revenue.

Earlier, the management of Changjiu Co., Ltd. publicly stated at the performance conference: “The pledge vehicle monitoring service can be described as the company's 'cash cow'. The company supervises 17,000 automobile 4S stores every year, and the number is still growing.”

Since April 2022, the company has been providing car dealer operation guidance, data systems and management solutions to car dealers. As of December 31, 2023, the company managed a total of 96 car dealers, and 10.4% of the company's annual revenue was generated from car dealer operation and management services.

As of December 31, 2023, the company's customers include about 200 branches of 18 commercial banks (including all of China's “big six” state-owned commercial banks and 12 joint-stock commercial banks), 25 auto finance companies, and 17,362 car dealers.

According to information, Changjiu Co., Ltd. has begun to deploy automobile dealer operation services and “overseas going+supply chain” services for new energy vehicles. In March 2024, the company signed a strategic cooperation agreement with Metrobank (China), one of the largest commercial banks in the Philippines, to develop in-depth cooperation in the field of pledged vehicle monitoring services. As domestic cars go overseas at an accelerated pace, overseas demand for automobile supply chain services is expected to grow rapidly, becoming one of the driving forces for long-term stock performance growth.

The leading position in segmented tracks is stable

According to the Zhitong Finance App, Changjiu Co., Ltd. is in the automobile distribution chain in the middle of the automobile industry chain. In the automobile distribution and sales model, with the exception of a few 4S stores that use pure cash flow to purchase goods, most 4S stores will ease financial pressure by mortgaging vehicles to financial institutions. At this time, third-party service providers, represented by Changjiu Co., Ltd., will help financial institution risk control departments to monitor the situation of mortgaged vehicles to reduce the risk of loss of collateral value.

According to Insight Consulting, in terms of revenue, the market size of pledged vehicle monitoring services by Chinese car dealers grew from 883 million yuan in 2018 to 1,054 billion yuan in 2022, with a compound annual growth rate of about 4.8%, and is expected to reach 1,452 billion yuan in 2027. In 2022, Changjiu Co., Ltd. had a market share of 47.9%. Whether in terms of revenue scale or number of car dealer users, it ranked first, and its leading position was stable.

According to the prospectus and performance announcement, in 2020-2022, the sales expense ratio of Changjiu Co., Ltd. remained low at around 1.1%, and fell further to 0.95% in 2023. While performance increased, the sales expense ratio remained stable, indicating that the company has stable customer resources and high customer stickiness.

Over the past year, car terminal transaction prices have continued to drop, and price pressure from car manufacturers has spread to the supply chain. Many 4S stores have faced difficulties such as suspending business and suspending delivery of new cars. According to the 2023 National Auto Dealer Survival Survey Report issued by the China Automobile Dealers Association, only 27.3% of dealers achieved their annual sales targets, and the proportion of dealers' losses in 2023 was 43.5%.

On the one hand, new car prices are seriously inverted in 2023. The price-for-volume strategy led to a decline in the overall gross margin of dealers' new car business, and an increase in after-sales financial insurance and derivative business profit contributions; on the other hand, sales of new energy vehicles are growing rapidly, and most traditional dealers mainly sell fuel vehicles, and the decline in fuel vehicle demand has also dragged down dealership performance.

Facing many challenges, digital transformation has become an attempt by some car dealers to “break the game”.

Changjiu Shares: Auto Stocks or Technology Stocks?

According to reports, in recent years, in pledged vehicle monitoring services, Changjiu Co., Ltd. has applied VFS systems and Jiuchetong mobile applications, RFID tags, PDA, OBD devices and safe deposit boxes, and data analysis to optimize business quality; in the car dealer operation guidance, data systems and management solutions sector, Changjiu Co., Ltd. has successively deployed products such as the dealer management software “Zhike Star” and the automobile supply chain platform “Jiuche GO”.

Among them, the car dealer operation management system “Zhike Star” provides a one-stop solution for car dealers, covering various aspects such as marketing, sales, maintenance, insurance and annual inspection. The system enables car dealers to classify, process, and visualize their operating data, including important information such as inventory levels, sales, and number of customers.

The company's innovative “Jiuche GO” automobile distribution supply chain service platform was officially launched in March 2024. The “Jiuche GO” online platform provides car dealers with one-stop services such as new car and used car transaction matching, parts supply, logistics, finance, and delivery. The offline business side collaborates with various OEMs to jointly build the Changjiu NEV supermarket project, and pioneered the construction of the first 5,000 square meter offline NEV supermarket in Nanning, Guangxi. At present, the “Jiuche GO” platform has brought together tens of thousands of resource vendors, and the number of vehicles has exceeded one million.

At the technical level, the company has also developed its own Polaris digital warehouse that can update data t+0 in real time. Using the automobile circulation data and index system accumulated over many years, it collaborates with strong digital warehouse modeling capabilities to empower the automobile distribution chain.

In the latest annual report, Changjiu Co., Ltd. indicated that it plans to expand overseas business and intelligent business, deepen data products and services, use the accumulated large amount of service-related data in the automobile distribution field to establish predictive models to handle targeted risk avoidance and cost control for automobile manufacturers and car dealers, such as improving their potential customer evaluation models and dimensions, increasing their conversion rate, and reducing their operating costs.

As can be seen, the current business of Changjiu Co., Ltd. is indeed linked to big data technology and the digital transformation of the industry, but based on existing data, can Changjiu Co., Ltd. be considered a technology company?

According to the Zhitong Finance App, generally speaking, measuring a company's technological attributes needs to be viewed from various aspects such as the industry sector, main business, and R&D investment.

In terms of revenue composition, currently over 90% of Changjiu's revenue still comes from pledged vehicle monitoring services, while revenue from car dealer operation guidance, data systems and management solutions will only account for 10% in 2023;

In terms of R&D investment, the Securities Regulatory Commission's “Science and Innovation Evaluation Guidelines (Trial)” clearly stipulates the R&D investment ratio of science and innovation companies, that is, “R&D investment in the last three years accounts for more than 5% of operating income, or the cumulative R&D investment amount in the last three years is more than 60 million yuan”. Currently, there are many leading technology companies with R&D investment ratios greater than 10% or even 30%. However, according to the annual report, in 2023, Changjiu Co., Ltd.'s investment in R&D increased by 50% year-on-year to 13.5 million yuan, accounting for only about 2.1% of the total revenue of 640 million yuan. Neither the investment amount nor the investment ratio reached the threshold for evaluating science and innovation attributes.

In summary, it is too early to say that today's Changjiu shares are technology stocks. Despite the positive growth in the company's performance, if you want to compare it with the current relatively low valuation of the Hong Kong stock auto sector, the company's current stock price has reached a relatively high position, and long-term liquidity is not high, so the market still needs to be wary of the risk of a phased correction in the future.