Event: The company released its 2024 semi-annual report. 2024H1 achieved total revenue of 7.1 billion yuan, +9.3% YoY.

Achieved adjusted net profit of $0.358 billion, +67.30% YoY.

The continuous expansion of the store network combined with the increase in product categories led to the year-on-year increase in revenue: We believe that the reason for the year-on-year increase in the company's revenue is: 1) 2024H1 has further optimized online promotion and the expansion of the Tourover factory store network. The number of factory stores nationwide reached 6311, including 402 new factory stores, expanding the customer base and transaction volume. It drove the revenue of the company's tire and chassis parts division from 5 billion yuan in 2023H1 to 5.6 billion yuan in 2024H1, up 10.9% year on year; 2) The company launched car cleaning and beauty services in more Tourover factory stores and promoted consumption through membership card programs, increasing revenue contribution, and driving the revenue of the company's other products and segments from 0.364 billion yuan in 2023H1 to 0.38 billion yuan in 2024H1, an increase of 4.3% year over year.

Revenue structure optimization led to a continuous increase in gross margin: the company's 2024H1 gross margin was 25.9%, an increase of 1.7 pct over the same period last year. We believe that the company's gross margin continues to rise because: 1) As the business grows, the company obtains more favorable terms from suppliers, leading to cost reduction. 2) The revenue contribution of the company's exclusive and proprietary automatic control products and car maintenance has increased, and the gross margin of such products is relatively high. 3) Low profit margin NEV sales declined, and gross margin of advertising, franchise and other businesses increased. 4) Reduced costs for self-operated factory stores.

Investment proposal: We expect the company to achieve operating income of 14.642/16.198/17.947 billion yuan and net profit to mother of 0.7/1.089/1.557 billion yuan in 2024-2026. The corresponding PE was 19.13/12.29/8.60 times, respectively, maintaining the “gain” rating.

Risk warning: The penetration of stores in second- and third-tier cities falls short of expectations, the development of the NEV business falls short of expectations, and industry competition increases risks.