We believe that Tourover, as the leading independent auto service provider in the industry, can benefit from the trend of increasing vehicle age and rationalizing consumer preferences in China. Through self-developed systems, Tourover has achieved strong control over the supply chain and stores. Standardization of products and services maintains industry leadership, more satisfies the consumption habits of young users, and achieves lower customer acquisition costs and higher user stickiness. We believe that the expansion of Tourover's store network will be sufficient to offset potential single-store growth pressure, and that the increase in the share of self-controlled products will positively help the company's profits and profit margins. Tourover is a good defensive target against macroeconomic fluctuations, and we use it as the preferred target for the automotive service sector in this 2025 strategy.

Standardized service+strong store control to establish industry barriers. As the average age of vehicles in the Chinese market grows, we believe that independent automobile after-sales service providers still have a lot of room for market growth. Through self-developed systems, automated supply chain control, and store management capabilities, Tourover has shaped high industry barriers. Through standardized products and services, Tourover has achieved accurate positioning between traditional 4S stores and street husband and wife stores. The method of placing orders online is also more in line with young people's consumption habits, which is conducive to cultivating user stickiness.

The downturn in consumption brings new market opportunities. As the uncertainty of the macro environment increases, users' consumption preferences have become more rational. In the process, we believe Tourover is expected to accept more customers leaving traditional 4S stores. In addition to meeting the needs of middle and high-end customers through branded products, Tourover's own automatic control products can seize more “consumption downgraded” customers with their high cost performance ratio. However, the gross margin of self-controlled products is usually high. Taken together, Tourover may even obtain higher gross profit than branded products, helping the company achieve a virtuous cycle in terms of customer acquisition and profit growth.

Store network expansion resists single-store pressure. Considering economic fluctuations and the gradual expansion of stores to lower-tier cities, we believe that Tourover's average single-store contribution may face growth pressure, and the expansion of the network is expected to drive healthy overall revenue and profit growth. Thanks to the current good profit situation in stores, management said that applications for new stores increased 22% year-on-year in the first half of this year, and there was a further increase in August/September, which is expected to support its opening plans for the second half of the year and next year. We expect the number of Tourover factory stores to grow from around 6,300 in the first half of this year to around 7,000 by the end of this year, and around 7,900 next year.

Profit forecasting and valuation. Considering the recent recovery in consumption, we raised our revenue forecast for this year and next year by 1-2% to RMB 14.9 billion and RMB 171 billion, improving gross margin to 26.0% and 26.8%, respectively, and increasing adjusted net profit by 3-5% to approximately RMB 0.79 billion and RMB 1.15 billion. Reiterating the “buy” rating, considering the recent improvement in investment sentiment, we raised our target price to HK$26, based on 17x (previously 15x) FY25E adjusted P/E, which is still discounted compared to the 20-30x valuation multiples of similar overseas companies (ORLY US (ORLY US, unrated), Auto Zone (AZO US, unrated)). Key risks include lower-than-expected network expansion, revenue and gross profit margins, and declining industry valuations.