Incident: On August 23, 2024, Tourover-W (9690.HK) announced the results for the first half of 2024. Revenue for the first half of 2024 was 7.13 billion yuan, up 9.3% year on year; gross margin was 25.9%, up 1.70 pct year on year, up 0.74 pct month on month; net profit was 0.29 billion yuan, net interest rate was 4.0%; adjusted net profit was 0.36 billion yuan, up 1.75 pcts year on year, up 1.75 pct year on month 1.24pct

Revenue growth slowed in the first half of the year, and customer unit prices showed a downward trend. Breaking down the main business components of revenue contributed by individual consumers. 24H1 Tourover individual consumers contributed 5.97 billion yuan in automotive product and service revenue, yoy +10.4%, accounting for 93% of revenue. Among them, 1) the revenue from the tire and chassis parts business was 2.97 billion yuan, yoy +11.0%; 2) the revenue from the car maintenance business was 2.62 billion yuan, yoy +10.7%. As of 24H1, the number of users trading on the Tourover platform in the past 12 months was 21.4 million, and the customer unit price for individual users contributing revenue was about 247.52 yuan, YOY -6%, and QoQ -18%.

Consumption of self-controlled products has increased, driving further growth in gross margin. The decline in customer unit prices corresponds to an increase in cost performance compared to product consumption. Breaking down the customer unit price and gross margin situation of individual customer consumption categories, the gross margin of automobile products and services contributed by 24H1 individual consumers was 24.3%, yoy+0.87pct, and qoq+0.20pct. Among them, 1) the average customer unit price for the tire and chassis parts business was 138.91 yuan, yoy -6.6%, qoq -6.8%; gross margin was 17.5%, yoy+1.54pct, qoq-1.19pct; 2) the average customer unit price for the car maintenance business was 122.32 yuan, yoy -6.9%, qoq -8.1%; gross margin was 32.9%, yoy-0.65pct, qoq+1.44pct, accounting for 59% of the gross profit contribution of individual users; 3) the average customer unit price of other personal users 17.75 yuan, yoy -12.2%, qoq -17.7%; gross margin was 18.89%, yoy+5.61pct, qoq+2.33pct.

The number of stores continued to expand, with 402 new stores added in the first half of the year. As of 24H1, Tourover had 6,311 factory stores, an increase of 402 in the first half of the year. Of the new stores, 63% were opened in second-tier cities. By store type, the number of Tourover participating factories was 6162, with 405 new ones; by store distribution, there were 954 first-tier cities, accounting for 15%; 1,684 new first-tier cities, accounting for 27%; 1,298 second-tier cities, accounting for 21%; and 2,375 in other cities and counties, accounting for 37%.

Cash reserves are sufficient, and the buy-back program is used for employee incentives. 24H1 Tourover's free cash flow was $0.26 billion, yoy +42%; as of 24H1, the company had cash and cash equivalents, financial investments, and restricted cash of RMB 7.06 billion. From March 15 to June 30, the company spent a total of HK$0.204 billion to repurchase and cancel 12.29 million shares; on June 25, the company restarted the 1 billion HKD repurchase program (remaining HK$0.8 billion), which plans to repurchase and grant employees a total of 33 million shares.

Investment advice: We believe that in a low-priced consumer environment in the aftermarket, Tourover's own automated control products are expected to drive continued growth in gross margin; as stores expand, operating efficiency can be further improved. We expect Tourover's adjusted net profit for 2024-2026 to be 0.76/1.19/1.59 billion yuan, respectively; adjusted EPS will be 0.94/1.46/1.96 yuan, respectively. The current stock price corresponds to PE 17/11/8 times, respectively, maintaining the “recommended” rating.

Risk warning: the risk of unstable cooperation between franchise factories and stores; the risk that the penetration rate of third-party maintenance platforms for new energy vehicles falls short of expectations; the risk of second- and third-tier cities falling short of expectations; the risk of reducing holdings.