1H24 results are in line with our expectations

The company announced 1H24 results: achieved revenue of 7.126 billion yuan, +9.3% year over month, +0.7% month on month; net profit to mother of 0.284 billion yuan, +378.0% year on month, -95.7% month on month; adjusted net profit of 0.358 billion yuan, +67.3% year over year, +34.0% month on month, 1H24 performance was in line with our expectations.

Development trends

The number of store and transaction users increased year-on-year, and weak consumption dragged down customer unit prices. The company's 1H24 revenue achieved a 9.3% year-on-year growth rate. Among them, single-store revenue fell 18.2% month-on-month to 1.13 million yuan, mainly due to weak consumption dragging down customer unit prices, but franchise stores continued to expand as scheduled. As of June 30, 2024, the number of Tourover factory stores had grown to 6,311, an increase of 402 stores compared to the end of 2023. Among them, the number of stores in low-tier cities increased 74% year on year, fulfilling the promise of a continued decline in the store structure. Furthermore, Tourover's trading users have increased by 18.8% to over 21.4 million since the end of 2023, and the number of registered users has reached 0.126 billion. We believe that due to weak macro consumption or pressure on single store revenue, the company's business scale is expected to continue to increase due to the sinking market expansion of factory stores and the rapid growth in the number of trading users.

The structure and fee control continued to be optimized, and the net interest rate increased dramatically. 1H24 gross margin was 25.9%, +1.7ppt year on year; 1H24 net margin was 4%, year on year +3.1 ppt. The improvement in profitability was mainly due to the company's increased ability to bargain upstream, superimposed sales structure optimization, and an increase in the share of revenue from exclusive and proprietary automatic control products and car maintenance businesses. The total operating expenses ratio of 1H24 was 23.6%, -0.9ppt year on year, and various expenses continued to be diluted year over year. Tourover's “online+offline” integrated business model has accumulated deep, and continues to promote measures to improve quality and efficiency. 1H24 sales and management expenses fell to 12.7% and 2.6% year-on-year. We believe that the proportion of the company's exclusive and self-controlled products is expected to continue to increase, superposition management continues to improve quality and efficiency, and there is still plenty of room for improvement in profitability.

The company has sufficient cash, and the repurchase plan shows confidence in long-term development. As of June 30, 2024, the company had close to 7.1 billion yuan in cash accounts, and financial security is high. In March 2024, the company announced plans to repurchase shares to cope with share price fluctuations. According to the company's interim report, 1H24 has repurchased approximately 12.29 million Class A shares, with a total repurchase amount of HK$0.204 billion, and cancelled the repurchased shares in early June. In June 2024, the company announced the second repurchase plan to improve the flexibility of the remuneration system and avoid dilution of existing share capital by the equity incentive plan, which shows that the company pays great attention to shareholders' interests. We believe that the company has sufficient cash support for subsequent repurchases, focusing on the interests of shareholders and employees to lay the foundation for healthy development.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to 19.2x/12.2x P/E for 2024/2025. We maintain our outperforming industry rating and target price of HK$24.50, corresponding to 27.0 times/17.2 times P/E in 2024/2025, with 41.1% upside compared to the current stock price.

risks

Profit recovery fell short of expectations, and store expansion fell short of expectations.