22Jan2025
CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate
TuhuCar(9690HK)
FY25toregaintractionafter2H24slowdown
MaintainBUY.WeprojectTuhu’s2H24Eadjustednetprofittofall9%YoYand
32%HoHtoaboutRMB243mn,assalesin3Q24couldbeweakerthanmarket
expectation.Thathasprobablydelayedsomenewstoreopenings.Ontheother
hand,weexpectTuhu’sFY25ErevenuetogrowfasterthanFY24E,aidedby
newstoresopenedin4Q24andmoresupporttostorestolureconsumersand
newfranchisedstores.Thepricecutin2H24hasmadeTuhumorecautiousin
procurementnegotiationfor2025,whichcouldhelpitliftGPMinFY25,inour
view.WebelieveTuhuisstillmoreresilientthanmostautoafter-marketservice
providersamideconomicuncertainties.
2H24EnetprofittofallamidlowerGPM.WeexpectTuhu’s2H24E
revenuetorise8%YoYand7%HoHtoaboutRMB7.6bn,astotalstore
revenuetorise8%YoYand7%HoHtoaboutRMB7.6bn,astotalstore
numbermayrisemorethan900inFY24toalmost6,900attheendof2024.
Weproject2H24Egrossmargintofall1.5pptsHoHand0.7pptsYoYto
24.4%duetotireproducts’pricecutstowithstandweakconsumptionin
3Q24.Meanwhile,weestimatesellingexpenseratio(as%ofrevenue)to
rise1.1pptsHoHto13.8%in2H24Etoincreasecustomerflow.Yet,westill
expecttotaloperatingexpenseratioinFY24Etonarrowby0.4pptsYoY.
Accordingly,weexpectTuhu’s2H24adjustednetprofit(excludingshare-
basedpayment)tofall9%YoYtoaboutRMB243mn,orFY24Eadjustednet
profitofRMB601mn(+25%YoY).
MarginstorecoverinFY25E.WeexpectTuhu’srevenuegrowthto
accelerateagainat13%YoYinFY25E,especiallywithnewstoresopened
4Q24andmoresupporttostores.Weprojectgrossmargintoimprovefrom
25.1%inFY24Eto25.7%inFY25E,givenlowerprocurementcostsand
highersalesportionsfromthehigh-marginexclusiveandprivate-label
products.WeareoftheviewthatTuhumaystillneedtomaintainahigh
sellingexpenseratioinFY25E,asthecompanymayneedtoinvestmorein
newmediaadvertisingtoattractcustomersinlower-tiercities.Therefore,we
projectTuhu’sadjustednetprofittorise27%YoYtoRMB763mninFY25E,
withanetmarginof4.6%(+0.5pptsYoY).
Valuation.WemaintainourBUYratingbutcuttargetpricefromHK$26.00
toHK$20.00,basedon20x(prior17x)ourrevisedadjustedFY25EEPS.We
believeahigherP/Emultiplecouldbejustifiedgivenitsprovencapabilities
toachievemoreresilientearningsthanpeersamidconsumptiondowngrade.
ThereisstilladiscountagainstthevaluationmultiplesforitsUSpeers
O’Reilly(ORLYUS,NR)andAdvanceAutoParts(AAPUS,NR)ofabout
30x.Keyrisksincludeslowernetworkexpansion,lowerrevenueand/or
marginsthanweexpect,aswellasasectorde-rating.