Zhongtai Securities released a research report and initiated a "buy" rating for Tu Hu-W (09690). The report stated that the company has been deeply cultivating the automotive after-market for more than ten years, is a leading player in the IAM market, and its main business includes tires and chassis parts, automotive maintenance, other automotive parts & beauty & repair. With comprehensive advantages such as brand, management, and capital, the company has created a core barrier with an online and offline integrated model, and its subsequent growth relies on city development and business structure optimization to promote increased profits.

Zhongtai Securities analysis is as follows:

Company profile: a leading player in the automotive after-market IAM market, with more than ten years of deep cultivation. Its main business includes 1) tires and chassis parts; 2) automotive maintenance; 3) automobile parts; 4) other automotive parts & beauty & maintenance, etc. With comprehensive advantages such as brand, management, and capital, the company has created a core barrier with an online and offline integrated model, and its subsequent growth relies on city development and business structure optimization to promote increased profits.

Industry analysis: trillion-level automotive after-market scale, with a scattered pattern and continuously increasing concentration. 1) Industry scale: a trillion-level market, dominated by dealers in the past (sales-after-sales stickiness, dealers have a high degree of standard and good service experience advantages), and third-party shares are low. 2) Pattern changes: ① IAM share gradually increasing: with the rise of independent brands, a large number of 4S shops have gradually withdrawn, and the advantages of IAM have been highlighted, and IAM share is expected to increase rapidly; ② The IAM pattern tends to be concentrated: the current IAM CR5 is only 3%. With continuous precipitation of brands and establishment of customer stickiness under the O2O model, it is expected to gradually clear the traditional third-party at the lower end. ③ Under the trend of concentration of patterns, manufacturers with the three capabilities of brand + capital + management are more competitive.

Overall understanding: Strong comprehensive advantages of brand, management, and capital, and the integration of online and offline modes to build a moat; ①Advantage 1 - Brand: With more than ten years of deep cultivation in the automotive after-market, the company's brand foundation is deep, and its brand strength is continuously consolidated through perfect channel layout and expansion of new energy supply chain. ② Advantage 2 - Management: The company has self-built warehousing logistics and a full-process digital management system, with strong supply chain management capabilities and operating efficiency significantly higher than the industry. ③ Advantage 3 - Capital: Benefiting from Tencent's endorsement and strong bargaining power, the company has strong financial strength, which is conducive to ensuring sufficient cash flow.

Growth logic: The expansion of second-tier cities and the optimization of business structure promote the trend of increasing quantity and increasing profits; 1) Growth logic - Quantity: The number of registered users and transaction conversion rates are core factors. With the accelerated expansion of the company's second-tier cities and the driving force of online order conversion, the increase in the number of registered users and trading conversion rates is expected to promote the company's continued revenue growth. 2) Growth logic - Profits: ① Brand and business structure optimization: With the company's high-profit business structure improvement (self-owned brands & automotive maintenance business accounted for a continuously increasing proportion), the company's gross profit margin is expected to steadily increase. ②Under scale effects and refined management, the company's cost reduction and efficiency improvement achievements are significant, and are expected to further promote the improvement of profitability.