Short-term rational consumption trends do not hinder the company's long-term expansion path
Despite the impact of acceptable consumption trends, the year-on-year decline in customer unit prices or the revenue performance of Tourover 1H24 was slightly lower than our previous expectations, but the company's cost-effective supply of its own products supported it to show more resilient revenue growth compared to the industry and profit improvements that were faster than revenue growth. We believe that the company's long-term expansion path and growth space have not changed. With steady progress in store development, we expect Tourover to continue to strengthen user mentality and brand attributes under a rational consumer sentiment, and better benefit from future consumer demand recovery. Considering the impact of rational consumption trends on customer unit prices, we adjusted the 2024/2025/2026 non-IFRS net profit forecast to 0.75/1.12/1.52 billion yuan (previous value: 0.82/1.42/2.07 billion yuan). We maintain the 2024 25x target non-IFRS PE valuation ratio unchanged, with a premium of 18.7x compared to the comparable company valuation. The target price is HK$24.96 (previous value: HK$27.23). The new target price corresponds to 17x/12x 2025/2026 non-IFRS PE. Maintain a “buy” rating.
Increased share of private brand sales to ensure steady release of profits
We expect the company's 1H24 revenue to increase 10.0% year over year to 7.17 billion yuan. Among them, the revenue from the tire/maintenance business is expected to increase by 12.0%/11.3% year on year, respectively, mainly due to the constant year-on-year increase in same-store entry volume and the increase in new store contributions. We expect the company's 1H24 gross margin to be 25.3%, an improvement of 1.1 pct over the previous year, supported by the increase in the share of sales of our own brands (1H24 is expected to increase to about 30%) and the increase in the bargaining power of upstream supply brands. Combined with the release of superimposed operating leverage and continued cost reduction and efficiency, we expect the operating expense ratio to continue to narrow year-on-year. In summary, we expect 1H24 non-IFRS net profit of 0.34 billion yuan and non-IFRS net margin of 4.8%, an improvement of 1.5 pct over the previous year.
Continued improvement of business-side data
Tourover 1H24 operational-side data growth is steady. 1) According to QuestMobile data, in June 2024, the number of monthly active users of the Tourover app was 12.95 million, an increase of 13.7%; 2) Based on the Tourover app, as of July 1, we counted a total of about 6,392 Tourover factory stores+pure laundry stores (including suspended stores). If we consider that some suspended stores will close later and need to be removed, it is expected that 1H24 will actually effectively add about 400+ stores (end of 2023:5,909), which is in line with 1,000 for the whole year The expected pace of store opening (due to the influence of the Spring Festival, the 1H opening process is usually weaker than 2H).
The trend of leading concentration in the industry will not change. I am optimistic that Tourover will continue to achieve an increase in market share, and that Tourover 1H24 will perform better than the industry level, and that the trend of increasing market share will not change. According to F6 Automotive Technology, 1H24 automotive aftermarket output value/number of units increased by 1% year on year, while tire/maintenance output value increased by 0%/-3%, respectively. Compared with Tourover's tire/maintenance business revenue, they are all expected to maintain double-digit growth. Furthermore, F6 Auto Technology data shows that the number of 1H24 units of medium and large chains increased 5% year over year, while small chains/single stores were -4%/+1%, respectively. The trend of the industry concentrating on leaders with strong standardization capabilities continues. As a leader in the automotive aftermarket, we are optimistic that Tourover will continue to implement the logic of increasing market share.
Risk warning: Customer unit prices fell wider than expected, store expansion fell short of expectations, and industry competition intensified.