Key points of investment:

F6 Big Data Research Institute: The output value of the aftermarket fell 2% in the second quarter, and demand for engine oil and tires both declined. The 24Q2 output value of China's automotive aftermarket and number of entrances fell 2%/1% year on year, respectively, and have been declining for 4 consecutive months.

In June, the post-market output value was -3%/-3% month-on-month; the number of units entered the factory was -1%/-1% month-on-month;? In May, the post-market output value was -3%/-4% month-on-month; the number of units entered the factory was -1%/-2% month-on-month;? In April, the post-market output value was -1%/-5% month-on-month; the number of units entered the factory was -1%/-4% month-on-month.

The production value of 24H1 engine oil and passenger car tires fell slightly by 2% year on year; while the production value of gear oil and automatic transmission oil all fell by more than 10% year on year. However, domestic brand engine oil, passenger car tires, and batteries have all reached their highest point in sales in the past 2 years, and market share performance continues to improve. In 24Q2, in addition to the 2% increase in output value of the maintenance business, the tire and maintenance business all declined by about -5% compared to the same period last year. The year-on-year decline in beauty and boutique production values reached -10%/-17%, respectively. The statistical sample came from 10,000 stores, covering 31 provinces and 297 cities across the country.

Meanwhile, according to a report by Cheyuan Auto Network, prices in the East China market fell slightly by 7-12 yuan/piece in July; some of the best-selling products of Magis lowered their shipping prices, and the final market price dropped by 40-69 yuan/bar.

Considering the downside risk of total market demand and insufficient spending intentions, we slightly lowered Tourover's performance expectations. First, we adjusted our original expectation of a slow increase in customer unit prices every year to around -6% year-on-year in 2024 for the tire, chassis, and car maintenance business. There was still a slight year-on-year decline in 25, and continued to rise 26 years later. However, considering the increase in the share of owned goods, which significantly increased the gross profit margin of the overall business, the 24-26 gross margin was revised from 26.03%/27.64%/28.97% to 26.59%/28.20%/29.36% to hedge against some downward pressure on profits. We have also noticed the company's effective control over personnel expansion. The number of employees is expected to be reduced from 4,931/5,280/5,585 to 4,118/4,231/4,332 in 24-26, so the cost rate was also controlled to a certain extent during this period.

The company's 24-26 revenue and profit forecast was downgraded and the buying rating was maintained. Overall, the company's 24-26 revenue forecast was lowered from 15.83/18.6/21.77 billion to 14.67/16.22/18.03 billion yuan, and the net profit forecast to mother was lowered from 0.718/1.365/2.087 billion to 0.57/1.01/1.44 billion yuan, corresponding PE 21/12/8 times. Noticing that the company's equity payment fees have a significant impact on current profits, with payments of nearly 0.2 billion yuan in 2023, we expect this fee to remain in the 0.15 billion yuan range from 24-26. Therefore, if the impact of reducing this cost is taken into account, the adjusted profit for 24-26 is 0.72/1.16/1.59 billion yuan, which corresponds to PE 16/10/7 times. Considering that the company is the core target of the Chinese automobile aftermarket, and also has the ability to steadily accelerate profits and revenue, the benchmark company O'Reilly/Autozone/GPC/AAP unanimously expects PE to be 18 times higher in 2025. Currently, Tourover's valuation is still highly cost-effective, so it maintains a buying rating.

Core risks: Economic recovery falls short of expectations, raw material prices fluctuate sharply, and market competition worsens.