Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 7.1 billion yuan, an increase of 9.3% over the previous year. The company's gross margin for the first half of 2024 reached 25.9%, an increase of 1.7 percentage points over the same period in 2023. The company's total operating expenses accounted for 23.6% of total revenue in the first half of 2024, down 0.9 percentage points from the same period in the first half of 2023. The company achieved adjusted net profit of 0.358 billion yuan in the first half of 2024, an increase of 67.3% over the same period last year.

By the end of the reporting period, the company had about 7.1 billion yuan in total cash and sufficient capital reserves.

The company's store opening progress is in line with expectations, and the number of users is growing rapidly. The company's 24H1 factory has a total of 6,311 stores, an increase of 1182 compared to the 5129 in 23H1, an increase of 402 compared to the end of 23; the company's applications to open stores increased 22% compared to the same period last year, and the intention to open stores in the northeast and western regions increased 150%. Registered users were 0.126 billion, +20.7% YoY, and trading users were 0.021 billion, +18.8% YoY.

The proportion of returning users continued to grow within 12 months, reaching 61.1%.

The company has accelerated the construction of a supply chain and logistics distribution system, and its own brand is progressing smoothly. The company moved and merged some regional warehouses at the same time as opening new warehouses. As of 1H24, the company's average rental cost per square meter decreased by 6.7% year-on-year. In the first half of this year, the company had self-allotted routes in more than 100 cities across the country, and the proportion of same-day or next-day orders increased to 77.2%. Sales of the company's own products are progressing smoothly. The total sales of self-controlled tires produced by the two major brands, Shuangxing and Shuangqian, exceeded 1.5 million in the first half of the year. It is expected that the company's profit margin will continue to increase as the share of its own brands increases.

Profit forecast and rating: The second half of the year is the peak season for the auto repair industry. We are optimistic about the company's revenue and profit for the second half of the year. The company's revenue for 2024-26 is estimated to be 14.72/16.3/18.06 billion yuan, the company's net profit to mother for 2024-26 is 0.55/0.99/1.45 billion yuan, and the adjusted net profit for 2024-2026 is 0.73/1.18/1.63 billion yuan. The company's current price is 23.5/13.1/8.9 times PE, maintaining a “buy” rating.

Risk warning: The automotive service market is highly fragmented and highly competitive; risk of losing franchisees or cooperative store operators; risk of new energy business development; risk of regulatory risk; risk of automotive technology advancement.