Source of this article: Times Weekly Author: Lu Hai
Source丨Times Investment Research
Author丨Lu Hai
Editor丨Chen Jiaxin
The IPO in Hong Kong was oversubscribed by 400 times for just over a month, and Auto Street (02443. HK) stock price has broken nearly 40%.
According to the announcement, on May 31, Auto Street officially landed on the main board of the Hong Kong stock market, with an issue price of HK$10.2 per share, and the global offering raised a net of about HK$90.88 million, of which the public offering in Hong Kong was subscribed 433.34 times.
According to Wind data, as of July 23, the share price of Auto Street closed at HK$6.2 per share, down 39.2% from the issue price, which was among the top in the first half of the Hong Kong stock listed companies.
In 2023, the profit of Auto Street will turn from positive to negative, is this the reason for its breakdown? In fact, after excluding the impact of factors such as the rise in the valuation of preferred stocks, the profits of Auto Street have improved in 2023, is there another hidden reason behind its rapid breakdown?
Recently, Times Investment Research sent a letter to Auto Street asking about issues such as profitability, market competitiveness, and the impact of the new car price war, but the other party has not responded as of press time.
The main business performance has actually improved
According to the prospectus and official website of Auto Street, Auto Street, as a trading medium connecting second-hand car buyers and sellers, mainly provides buyers and sellers with a second-hand car trading platform through the auction model. Among them, the sellers are mainly 4S stores, and the buyers are mainly professional buyers (referring to customers who have purchased second-hand cars many times).
According to the prospectus, from 2021 to 2023 (hereinafter referred to as the "reporting period"), the revenue of Auto Street will be 678 million yuan, 468 million yuan, and 492 million yuan respectively, and the net profit attributable to the parent company will be 47.968 million yuan, 45.237 million yuan, and -15.509 million yuan respectively. Among them, the revenue and net profit attributable to the parent company in 2023 will increase by 5.13% and -134.28% year-on-year respectively.
Auto Street's net profit in 2023 has changed significantly, but the prospectus shows that this is mainly due to the change in the fair value of financial liabilities (including preferred shares and warrants) due to its rising valuation.
In other words, the "change of face" of its net profit is only a paper loss caused by accounting policies, and once it is successfully listed, this part of the adverse impact will be eliminated.
In fact, in each period of the reporting period, the adjusted net profit of Auto Street (excluding the impact of listing expenses and changes in the fair value of financial liabilities) was 192 million yuan, 70.407 million yuan and 107 million yuan respectively, of which a year-on-year increase of 51.79% in 2023.
In fact, Auto Street's revenue and adjusted net profit have improved in 2023. So, what are investors worried about behind the stock price break?
The used car industry is under pressure
Compared with the book turning from profit to loss, the poor future performance expectation of Auto Street may be the real reason for its stock price break.
According to the official website of the China Automobile Dealers Association, at the beginning of July this year, at the 2024 China Used Car Conference, Luo Lei, assistant to the president of the association, said that from the perspective of operators, ten years ago, there were 15.9% of car dealers with a gross profit margin of more than 10%, and in 2022, there will be only 1% of car dealers with a gross profit margin of more than 10%, and I am afraid that the situation will be even worse this year; Ten years ago, the loss of second-hand car dealers was only 1%, and by 2022, it will reach 82%, and the business situation of car dealers this year may be even more unoptimistic.
As for the reasons for the pressure on the industry, Luo Lei mentioned in his analysis the squeeze of the price reduction of new cars on the price of used cars. Li Jia, vice president of CAR, said bluntly at the conference: "If the entire automobile circulation industry is compared to a two-story building, the second-hand car is on the first floor, the new car is on the second floor, and the new car is smashing the price, smashing through the floor of the second floor, and smashing the second-hand car into the basement." ”
The price reduction of new cars has obviously also had an impact on the performance of Auto Street.
According to the prospectus, in 2021, the revenue of the second-hand car collection and sales arrangement of Auto Street will be 154 million yuan, accounting for 22.7% of Auto Street's revenue, second only to the commission and service fee of second-hand car auctions, and is its second largest source of income. However, in 2023, the revenue of this business will drop to 63.567 million yuan, a cumulative decrease of 58.75% during this period. In this regard, Autojie said that this is mainly due to the stronger uncertainty of the profitability of the second-hand car business under the price reduction of new cars, which has led to a decline in the demand for second-hand car collection and sales arrangement services of dealer groups.
In addition, the cross-border entry of car companies is also promoting the reshuffle of the second-hand car trading industry.
At present, in addition to the old second-hand car platforms such as Guazi, Uxin, and Renrenche, new players also continue to pour into the market, including car companies. In December 2023, BYD officially launched the official second-hand car mall, providing consumers with BYD second-hand cars that have been officially screened and certified. In addition to BYD, NIO and XPeng also have similar services.
If more and more car companies join the second-hand car trading industry, with the advantage of official brand trust, the living space of second-hand car trading platforms such as Auto Street will inevitably be squeezed.
A 30% break may be just the beginning
The automobile industry is facing a comprehensive reshuffle, and dealers and 4S stores, as the upstream of the second-hand car platform, have taken the lead in being impacted.
Following the explosion of Guangdong Yongao Investment Group Co., Ltd., a well-known automobile dealer in Jiangsu, Senfeng Group Co., Ltd., a well-known automobile dealer in Jiangsu, has also been reported to have financial difficulties, and 4S stores are also facing a wave of closure.
According to a report released by the China Automobile Dealers Association in April this year, the addition and exit of 4S networks in 2023 will be basically the same, with 3,458 new outlets, mainly due to the contribution of independent brands; There are 3,273 outlets withdrawn from the network, and independent brands account for a large proportion. At the same time, the market share of joint venture brands has shrunk across the board, and mainstream joint venture brands such as FAW-Volkswagen, Beijing Hyundai, and SAIC-GM have adjusted their strategies.
Today's dealers and 4S stores may be the tomorrow of the second-hand car platform.
In the face of increasing competitive pressure, many second-hand car platforms are actively taking action to save themselves, among them, second-hand car dealers, including melon seeds, have long given up the simple pursuit of quantity, and began to pay attention to the "word-of-mouth effect" of consumers.
In contrast, Auto Street chose to buck the trend and raise the commission rate. According to the prospectus, from February 2023, the commission of the automobile street will be raised from 2.5%~3.5% of the auction price of used cars to about 3.5%, and the lower limit of the total commission per transaction will be raised from 100 yuan to 500 yuan. This may be the reason for the company's upturn in 2023.
However, Times Investment Research and Development has now seen a significant decline in the market share of the auto street after the commission rate was raised. In each period of the reporting period, the trading volume of second-hand cars in the automobile street was 261,000, 160,000 and 176,000 respectively, while the trading volume of used cars in China in the same period was 13.6 million, 12.5 million and 14.4 million respectively, according to this calculation, its market share in each period of the reporting period was 1.92%, 1.28% and 1.22% respectively, showing a continuous downward trend.
In the short term, the increase in the commission rate of Auto Street has indeed helped to improve performance. However, in the long run, how to be invincible in the case of the industry reshuffle is also a big test for the automobile street.
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