China's leading online and offline integrated car service platform
Tourover is a leading online and offline integrated automobile service platform in China. The company provides a wide range of services covering the entire automotive service value chain with a customer-centered model and a streamlined supply chain. We are optimistic that the company will benefit from the medium- to long-term growth trend in automobile service demand in the stock car market, and with its scale and traffic advantages, it will combine its deep cultivation and accumulation in user experience, supply chain management, and offline operation capabilities to continuously strengthen competitive barriers. We expect the company's non-IFRS net profit for 2024/2025/2026 to be RMB 8.2/14.2/2.07 billion, respectively, and the corresponding non-IFRS net interest rate will be 5.2%/7.7%/9.7%, respectively. We used a relative valuation method to give the company a 2024 target other than IFRSPE 25x, which is a premium over the comparable company average of 19.1x. It mainly takes into account the broad domestic market space and the company's leading position in the industry. The corresponding target price is HK$27.23, which is covered for the first time, and “buy”.
Franchise factory stores are expanding rapidly, and main business revenue is growing steadily
With the increase in business volume brought about by the rapid expansion of stores, we expect the company's revenue in 2024/2025/2026 to be 159.4/185.0/21.28 billion yuan, respectively; of these, revenue from products and services provided to personal terminals is 133.8/156.3/18.13 billion yuan, and the CAGR is 17.2%, mainly due to the increase in demand for aftermarket services brought about by the increase in average vehicle age and the increase in market share brought about by the company's active increase in store density in low-tier cities; auto parts Dragon's revenue is 14.4/15.7/1.66 billion, and CAGR is 6.3%, respectively. We expect this business revenue to grow accordingly with store expansion and business volume; revenue from advertising, franchise and other services is 11.2/13.0/1.49 billion yuan, respectively, and CAGR is 16.0%, mainly driven by increased franchise fees due to store expansion.
The scale of automotive aftermarket services is expanding steadily, and the company is expected to continue to benefit. We believe that independent aftermarket service providers (IAM) represented by Tourover are expected to benefit from increased service demand driven by growth in car ownership and average vehicle age. According to Insight Consulting, the average age of vehicles in China will rise from 6.2 in 2022 to 8.0 in 2027, and car ownership will also maintain high single-digit annual growth during the same period. The car service market is expected to increase from 1.2 trillion yuan in 2022 to 1.9 trillion yuan in 2027. Compared to 4S stores, IAM has a higher cost performance ratio and coverage, and may gain a higher market share in the future. Furthermore, the company ranked first in revenue in IAM in 2022, providing one-stop services through integrated channels and service networks. By the end of 2023, the number of factory stores reached 5,909 (2019:
1,423), which is expected to support its long-term growth with the rapid expansion of the store network and stable service quality.
With strong platform control and high support, the franchise model can be expected to continue to develop. We believe that the company's systematic management control of franchise stores, cost-effective parts supply, and reasonable sharing model are the main reasons for the sustainable development of this model. According to the company's prospectus, more than 80% of the company's revenue in 2022 came from franchise factory stores. As far as the company is concerned, it has full control over store management and information systems, payment settlement and financial systems, supply chain and logistics capabilities, technician management and service quality, etc., which guarantees the stability of its model; for franchise stores, the company's large-scale procurement of spare parts reduces the cost and financial pressure of franchisees, and also brings higher price appeal compared to peers, and the company's reasonable model of sharing 10% of operating profit after deducting the store's own operating costs also lays a certain foundation for long-term mutual benefit and win-win for both parties.
Risk warning: Competition in the industry intensifies, store expansion falls short of expectations, and new business expansion such as maintenance falls short of expectations.