Leading Internet auto service company with nearly 6,000 stores: Tourover Auto Maintenance was founded in 2011, mainly using stores as front-end to provide customers with authentic, standardized and cost-effective products and services. As of 23, the company had 5,909 Tourover workshops (152 direct-run stores and 5757 franchised stores), adding 1,256 stores over 22. The number of Tourover stores ranked first among all car service providers in China. In addition, the company cooperated with 19,000 stores (23Q1). The company's revenue for 23 years was 13.6 billion yuan, and according to the prospectus, it ranked first in auto service revenue for IAM stores in China. The main business revenue comes from supplying customers with tires, chassis parts (40%), and automobile maintenance (mainly engine oil, batteries, etc., accounting for 36%) by diverting customers to direct-operated/franchised stores. Since its establishment, the company has gone through 16 rounds of financing, of which Tencent has a high shareholding ratio.
China's auto service market surpassed 1.2 trillion and maintained 10% CAGR in 18-22.
Demand side: Key factors affecting China's auto service market: number of cars owned, average vehicle age, and average vehicle maintenance expenses; 1) China has nearly 300 million passenger cars, and there is still room for improvement in the number of passenger cars per 1,000 people in cities compared to overseas China's. 2) The average car age in China is 6.2 years. The average car age in the US and Japan during the same period is only 1/2. As the car ages, the average maintenance consumption for long vehicles will increase. 3) Annual consumption continues to increase, with an average vehicle consumption of 4,300 yuan, mainly for repair and maintenance services (70%) and car cleaning and beauty (20%); the average maintenance cost for NEVs is higher than that of fuel vehicles. Currently, NEVs have a penetration rate of 4.6% of total vehicle ownership, accounting for 39% of new vehicle ownership, which is expected to drive per capita consumption. 4) The proportion of young car owners has increased, driving diversification of demand and omnichannel.
Supply side: The specialization of IAM stores is higher than that of traditional or authorized dealers, and the increase in the chain rate drives an increase in share. Marginal changes in the auto services market: 1) The volume growth in the sinking market in recent years is far higher than the high line, and the supply of standardized IAM is limited. Tourover relies on brand and standardization, and product price advantages to have a rapid showroom advantage in the low tier; 2) New energy penetration rate increases car beauty and battery maintenance needs. Tourover has a layout for customized services, accessories innovation, and official after-sales maintenance of new energy vehicle batteries.
Tourover's three major competitive advantages of “goods, markets, and people”: 1. Goods: Self-controlled products drive a large margin increase: store and sales scale advantages help increase front-end gross margin; reverse supply chain management drives an increase in the share of high-margin self-controlled products. Currently, it accounts for 26%, and is expected to increase to more than 50% against overseas benchmarks.
2. Market: Store expansion has obvious advantages: 1) Store standardization is high, and systematic operation improves profitability. The proportion of profitable stores accounts for 93%. Franchise stores have a climbing period of 6 months, which can channel 65% of online customers to the store; 2) Understand the sinking market demand and accelerate the expansion of the franchise model. 3) There are many auto service parts SKUs. Tourover laid out supply chain fulfillment infrastructure earlier to improve inventory turnover efficiency and effectively reduce franchisee outsourcing ratio; 3. People: User penetration rate is low and retention rate is high: Currently, Tourover's penetration rate among motor vehicle users nationwide is only 24%, but 23Q1 repurchase rate has reached 57%, and repurchase customers contribute 50% of revenue.
Investment advice: We are optimistic about the continuation of demand in the automotive aftermarket, and the increase in market share of professional online and offline IAM. We expect the company's net profit to be 6.87/10.83/1,474 billion yuan in 2024-2026, respectively, and adjusted net profit of 8.84/12.79/1.67 billion yuan. Referring to overseas ORLY and AZO valuations, the revenue growth rate has slowed to single digits, but the valuation is still 17-23X, considering that the company is still expanding its stores and growing rapidly We gave a 24-year profit of 30XPE, corresponding to a target market value of HK$22.6 billion (0.91 at the exchange rate), corresponding to a target price of HK$28, covered for the first time, and gave it a “recommended” rating.
Risk warning: The risks of expanding the new energy business, falling short of expectations in opening stores, intensifying competition, etc.