On June 12th post-market trading, auto service platform Cango (CANG.US) released Q1 2024 earnings.

Visually speaking,Cango's quarterly operating indicators have not fully recovered to their best state in the past, but the positive trend has actually given investors quite sufficient confidence.This can be verified from the capital market performance; Cango's stock price has risen over 80% this year.

It's worth noting that since last year, the industry has generally been impacted by the overall environment of the auto market, so Cango's improved performance is truly remarkable. Although it can be seen optimistically that the domestic passenger car sales in Q1 2024 increased by 10.7% YoY, dealership performance is under pressure and has entered a situation where they cannot increase revenue without increasing profits. Even the sales of traditional luxury brands are difficult to escape from this objective reality, and the automotive circulation link faces enormous pressure.

Looking back at Cango's latest report card, what positive signals does it release?

Performance confirms high-quality growth trend once again.

In Q1 2024, Cango's revenue was 64.42 million yuan, which is far from good compared to the revenue scale in the same period last year, and the secured revenue was 30.26 million yuan.

Looking at profitability, Cango's operating profit in Q1 was 74.15 million yuan, a 43.1% YoY increase compared to 51.83 million yuan in the same period last year. Net income in the first quarter was 90.03 million yuan, a 14.3% YoY increase compared to 78.77 million yuan in the same period last year.

It can be seen that combined with the trend of quarterly performance changes from 2023 to now, Cango has once again achieved net profit and high-quality growth in its current operation, rather than simply pursuing a large scale.In the Q1 2024 conference call, Cango CEO pointed out: "Faced with the situation of oversupply in the new car market, we took the initiative to reduce the scale of new car self-purchase, streamline procurement and optimize inventory management. Although this resulted in a YoY decline in company revenue in the short term, it effectively avoided the risk of downward new car prices.".

This means that Cango is able to make dynamic adjustments according to the current market environment, which is an important reason why it can achieve the above performance.

Cango is able to make dynamic adjustments according to the current market environment, which is an important reason why it can achieve the above performance.Looking at the big picture of development strategy, the above performance is due to the positive impact of Cango's one-stop service. After completing the transformation, Cango focused on car trading service business and after integrating with the "Cango Youche" platform in Q1, Cango has continued to provide high-quality vehicle sources through one-stop service platform, optimized the car dealer's service experience and supply chain management, and further improved their comprehensive competitiveness.

As of March 31, 2024, the "Cango Youche" APP has accumulated 8,459 registered car dealer users, with cumulative PV exceeding 130,000, and registered car dealers covering 251 cities in 31 provinces. In the first quarter, 124 auction transactions were completed and 204 matching transactions were completed.Supported by the car trading service business and one-stop service platform, Cango's de-financialization is also accelerating. As of March 31, 2024, Cango's outstanding balance was 7.6 billion yuan, falling below 10 billion yuan and continuing to decline.

From the trend of changes in the outstanding loan balance, it is expected that the outstanding loan balance will be fully cleared within this year or early next year at the latest, and the platform development will usher in a new journey. In terms of product structure, the operating income of 10-30 billion yuan products is 401/1288/60 million yuan, respectively.At the same time, Cango still maintains a relatively healthy risk exposure, with current M1+ overdue rate of 2.87% and M3+ overdue rate of 1.51%, both at a reasonable level.

Overall, facing the digital era of industrialization, Cango has created a business model with a digital platform at its core based on its mature digital capabilities.By empowering all participants in the automobile circulation value chain and helping car dealers overcome difficulties, Cango's own operations have become more efficient.Whether in terms of business model development or changes in operating indicators, Cango is following the trend of digitalization and technological transformation of China's automobile industry.

There is a broad space for the development of the second-hand car market both at home and abroad.

Judging from the current situation of the automobile industry, Cango's business still has broad development space. There are at least two aspects of value points waiting to be tapped.

First of all, in the domestic market, under the stimulus of the policy of exchanging old cars for new ones, coupled with the more diversified consumption concepts of consumers, the prosperity of the second-hand car market has rebounded and will bring new opportunities to Cango in the new era.Data shows that in March this year, the national second-hand car consumption achieved 'double growth', with a trading volume of 1.7103 million vehicles, an increase of 42.33% MoM and 9.12% YoY, and the transaction amount reached 118.037 billion yuan. Specifically, new energy and low-age second-hand cars are flowing into the market and are becoming increasingly popular.

Under this development trend, the scrapping and renewal process of automobiles and the complete circulation of automobiles' full life cycle need to be more effective, which will be conducive to the entire circulation of new cars and second-hand car sales. For Cango, which is in the automobile circulation link, it can truly realize the matching of car source and car condition and eliminate the problem of information asymmetry in second-hand car transactions in down-market.

In the long run, Cango's business growth is expected to benefit from the development trend of the second-hand car market and to continue to be driven by the second-hand car consumer market.In addition, this year marks the beginning of a new round of new energy vehicle promotion. Unlike previous years, the focus this year is on improving the public acceptance and convenience of supplementary energy, which will greatly stimulate the consumption potential of new energy vehicles in the down-market..

Based on Cango's strong accumulation in the down-market and its continuous expansion of its national channel network, facing the broad consumer market, it can be foreseen that the vehicle trading service business income for Cango will increase significantly.It is understood that after launching the service of 'worry-free purchase' in April, Cango will continue to deepen user participation and enrich platform content in the second quarter, continuously improving the number and quality of members and vehicle sources. This will also help to enhance Cango's competitiveness in the down-market and stimulate revenue growth..

Looking to the overseas market, since 2023, China has rapidly risen in the second-hand car export market, targeting dozens of countries in the Middle East, Eastern Europe, and Africa. In terms of future development trends, policies are also actively promoting the gradual standardization of relevant businesses. The second-hand car export business is moving from barbaric growth to high-quality development.

Under this background, in March of this year, Cango established a second-hand car information interaction and export service platform for emerging market countries' automobile dealers, and it can be foreseen that Cango's revenue growth rate related to the second-hand car export business will be quite fast. With the high-quality development of the second-hand car export market, the advantages Cango has in automobile circulation services, digitalization, and platform construction that it has grasped in the domestic market may be reused overseas, thus continuing to consolidate its industry-leading position.Currently, the automobile industry is facing problems such as the price war of car companies and the difficulty of dealers' profits. Although Cango cannot completely avoid these risks, based on its own accumulation in the automobile circulation and digital capabilities, Cango's business operations fully demonstrate resilience.

Cango has made ample preparations for the arrival of spring after the industry's winter and has maintained its competitiveness in the automobile circulation service business.

Summary

This is conducive to the more effective circulation of new and used cars throughout the industry, which will drive Cango's growth in both business and revenue.

At the same time,.

On the business side, domestic electric vehicles and used car exports will bring new growth to Cango. It is worth mentioning that Cango started repurchasing in April this year and will repurchase 50 million US dollars of American Depositary Shares (ADS) on the open market within the next 12 months. This indicates that the company has enough confidence in long-term operation and brings confidence to investors.

Currently, Cango's cash and cash equivalents amount to 1.156 billion yuan, with sufficient reserves, providing solid support for business expansion. The scale expansion when the industry enters an upward cycle is almost not a problem. Therefore, in the future, attention can be paid to further verification of Cango's profitability, and the stock price is expected to receive more boost at that time.