Incident: 24H1 achieved operating income of 7.13 billion yuan (yoy +9.3%), which was basically in line with Bloomberg's agreed expectations; net profit was 0.28 billion yuan (yoy +378.0%), and net profit margin was 4.0% (yoy+3.1 pct). The adjusted net profit was 0.36 billion yuan (yoy +67.3%), and the adjusted net margin was 5.0% (yoy+1.7pct), better than Bloomberg's agreed expectations.

24H1 trading users are growing at an accelerated pace, and market share continues to increase. As of 2024/6/30, Tourover had 126.40 million registered users, an increase of 11.10 million compared to the beginning of the year; the number of trading users within 12 months was 21.4 million, yoy +18.8%, which is an acceleration of year-on-year growth compared to the full year of 2023.

User growth mainly benefits from: 1) Store expansion. As of 2024/6/30, the number of Tourover factory stores was 6,311, a net increase of 402 compared to the beginning of the year, with the main market below. The number of franchisee applications to open stores increased 22% year over year, and demand for franchise is still strong. The company also made a breakthrough in the Douyin channel. 24H1 transaction volume increased by more than 100% year over year, ranking among the top car service providers. 2) Tourover's price-performance advantage in products/services is becoming more prominent in the current consumer environment. We estimated that the customer acquisition costs (advertising and promotion related expenses and number of new transaction users) for 24H1 Tourover single transaction users all declined year-on-year, reflecting an increase in the company's customer acquisition efficiency. The repurchase rate was further increased to 61.1% (60% in 2023), which also reflects the effectiveness of the company's category operation and user operation strategies.

By business, the tire business is steady, the maintenance business is under pressure in the short term, and the beauty washing business is accelerating. Revenue from 24H1 tires and chassis parts/ car maintenance/ other products and services increased by 11.0%/10.7%/4.3% respectively; accounting for 41.7%/36.7%/5.4% of revenue. Among them, demand for tires is relatively rigid, and the overall growth is steady; the maintenance business is highly optional, and the growth rate is slightly slower than that of tires. Among other products and services, the beauty washing business benefited from the company's launch of such services at more Tourover factory stores and promoted consumption through membership card programs. The number of online payment orders for related businesses increased by 51% year-on-year. New energy companies have further expanded their layout, and their maintenance service capabilities have covered 73 cities; the number of new energy payment users reached 1.85 million in the 12 months up to the end of June, and the penetration rate of new energy users increased to 8.4%.

Cost control is effective, and financial quality is healthier. 1) 24H1 achieved a gross margin of 25.9%, yoy+1.7 pct, better than market expectations. Among them, the gross margin of tires and chassis parts/other products and services/auto parts increased by 1.5 pct/5.6 pct/1.6 pct, respectively. The increase in gross margin is mainly due to the company getting more favorable terms from suppliers; and more customers choose value-for-money products, and the revenue contribution of exclusive and self-controlled products increases. Such products usually have higher profit margins. The two major brands of 24H1 Shuangxing and Shuangqian sold more than 1.5 million self-controlled tires in total. 2) The company further improved overall operating efficiency through multi-faceted strategies, such as optimizing regional warehouses. The warehouse area increased by 5.9% year on year while the average rental cost per square meter decreased by 6.7% year on year; we estimate that the average transportation expenses of a single store also declined year over year. 24H1's operating and support expenses as a share of revenue/R&D expense ratio/ sales expense rate/ management expense ratio decreased by 0.20pct/0.33pct/0.16pct/0.23pct, respectively. 3) The company's overall balance sheet is also healthier. As of June 30, 2024, the company's balance ratio was 60.8%, compared to 62.1% for the same period in '23; the company's inventory was 1.6 billion yuan, down 9.0% from 1.8 billion yuan at the beginning of the year.

Profit forecast and investment rating: Considering that the company's 24H1 profit was better than our expectations, we slightly raised the company's 24-year adjusted net profit forecast from 0.736 billion yuan to 0.753 billion yuan, maintaining the 25-26 adjusted net profit forecast of 1.228/1.777 billion yuan, corresponding to 17/10/7 times PE. The company's long-term growth space is still considerable, and we value shareholder returns (cumulative repurchases of HK$0.204 billion in the first half of the year), we are optimistic about the company's investment opportunities. Maintain a “buy” rating.

Risk warning: demand falls short of expectations, competition intensifies, demand for NEV services falls short of expectations