Revenue for the second quarter of 2024 is expected to increase 1.1% year-on-year to 1.85 billion yuan. We expect Auto Home's revenue for the second quarter of 2024 to increase 1.1% year-on-year to 1.853 billion yuan, slightly lower than our previous expectations, mainly due to a larger decline in the media advertising business than expected; the estimated net profit from non-general standards is 0.538 billion yuan, which is lower than our expectations, mainly due to revenue falling short of expectations.

Key points of interest

Traditional businesses are under pressure. According to data from the Passenger Federation, passenger car sales in the narrow sense of the word in China from April to April 2024 were -5.5%/-1.8%/-6.8%, and continued negative growth was mainly due to the slump in fuel vehicles exceeding expectations. In terms of prices, fuel vehicle promotions increased sharply in June, and new energy price promotions declined somewhat due to new products and price cuts. According to monitoring data from the Auto Home Research Institute, the average monthly price reduction of 168 major sales models reached 15.9% in June. Affected by the early start of the price war in the car market at the beginning of this year and the long span, we expect that OEMs' media advertising budgets may continue to tighten, and that the company's advertising business will bottom out or be slower than expected; we expect media advertising revenue to record a 15% year-on-year decline in the second quarter, and the revenue decline or further increase in the third quarter. We expect lead business revenue to increase by 5% year on year in the second quarter; with the current structural adjustment pressure in the car market passing faster from OEMs to the channel side, we initially expect lead business revenue to record a year-on-year decline in the third quarter.

Emerging businesses remain steady. Affected by the wave of new car price cuts, we expect the used car business to face continued year-on-year downward pressure on revenue in the second quarter; despite this, we expect online marketing and other business revenue to record 12% year-on-year growth during the same period, mainly due to the steady contribution of data products and new energy related businesses. In terms of data products, we expect revenue growth of more than 15% year-on-year for the quarter, mainly driven by the good performance of dealer data products. In terms of new energy, after a year of pioneering and experimenting with the franchise model, the Auto Home New Energy Space Station has formed a direct management and franchise sales network covering dozens of cities in East China, South China, Southwest China, and North China. On May 18, the Auto Home Space Station franchise business announced the launch of a “satellite program”, which aims to use the core city space station as a node to radiate surrounding regions and low-tier cities through “satellite stores” (that is, second-level sales outlets). We expect that the “satellite plan” will help the company respond to national policies to promote the popularization and trade-in of new energy vehicles; at the same time, the “satellite plan” will also help OEMs fill the shortage of sales channels, reduce operating costs, and open up the last kilometer closer to the sinking market.

Profit forecasting and valuation

Taking into account the continuing pressure on the media advertising business, the 2024 and 2025 revenue forecasts were lowered by 3% and 5% to 718 billion yuan and 7.32 billion yuan; considering the operating deleveraging brought about by the reduction in revenue, the net profit attributable to non-common standards in 2024 and 2025 was lowered by 7% and 8% to 2.01 billion yuan and 2.12 billion yuan. Maintain a neutral rating; reduce the target price by 6% to $29 (based on 12 times the 2024 non-generic price-earnings ratio), considering that traditional business performance pressure is greater than expected. The company is currently trading at 11 times the 2024 non-standard price-earnings ratio, which corresponds to an upward margin of 15%.

risks

Auto market performance weakened; new business development fell short of expectations.