We predict a year-on-year increase of more than 50% in 1H24 adjusted net profit

Judging from the current trend in automobile maintenance demand, we expect that Tourover 1H24 is expected to achieve a 10% year-on-year increase in revenue to about 7.17 billion yuan, and adjusted net profit is expected to increase 54% year-on-year to about 0.33 billion yuan.

Key points of interest

Revenue growth is slowing down due to declining market demand and a decline in store structure. Total retail sales of 1H24 social consumer goods increased 3.7% year on year. Compared with 1H23's year-on-year growth rate of 8.2%, we believe that the automotive aftermarket consumption was also under pressure in the first half of the year, putting pressure on Tourover's revenue side. According to the company's 2023 annual report, as of the end of 2023, out of the company's 5,909 Tourover factory stores, the number of second-tier cities reached 3,420, accounting for more than 57%. We believe that the decline in the store structure may have led to a decline in single-store platform service contributions. The company's store network will continue to expand in 2024. We expect 1H24 to open more than 400 new stores and expect to add more than 1,000 new stores throughout the year.

The proportion of self-controlled products continues to increase, and cost control and digital tools save money. We expect that the results of the company's 1H24 private brand promotion may continue to show, and the proportion of its own automatic control products will continue to increase due to cost performance advantages. We believe that product structure optimization will drive continuous improvement in the company's gross profit performance. At the same time, the company has strong digital endowments, a deep accumulation of “online+offline” integrated business models, and a high level of management. We expect that with the continuous support of digital tools, the company's cost side is expected to continue to be optimized, and the net interest rate is expected to increase as scheduled.

The buyback continues, demonstrating management's confidence. On March 15, 2024, the company issued an announcement announcing that it will sequentially repurchase the company's shares in the open market for no more than HK$1 billion; on June 25, the company issued an announcement announcing that between March 18 and April 22, the company had used more than HK$0.2 billion for share repurchases. In addition, the company announced that it would enhance the flexibility of the company's remuneration incentive system by repurchasing shares in accordance with the second phase of the public sale share plan. The plan's authorization limit is no more than 33 million shares, of which the advisory segment limit is 8.219 million shares. We believe that the company's share buyback shows confidence in long-term development, and binding the interests of core employees is expected to lay a solid foundation for the company's growth.

Profit forecasting and valuation

Due to strong downward pressure on market demand, we lowered our 2024/2025 profit forecast by 22.7%/33.6% to 0.663/1.039 billion yuan. The current stock price corresponds to 2024/2025 19.7x/12.5xP/E. We maintained our outperforming industry rating and simultaneously lowered our target price by 23.0% to HK$24.50, corresponding to 27.0x/17.2x P/E in 2024/2025, with an upward range of 37.3% compared to the current stock price.

risks

Competition in the industry intensified, store expansion fell short of expectations, and profit recovery fell short of expectations.