TUHU-W released its 2023 earnings report: achieving its first annual profit of 480 million RMB, with economies of scale helping to achieve a record high gross profit margin.

On March 15, TuHu Car Maintenance (09690), a leading online and offline integrated car service platform in China, released a highlight-filled 2023 full-year performance announcement. In 2023, TuHu Car Maintenance not only achieved full-year profitability for the first time, but also saw multiple core data reaching historical highs.

According to the financial report, TuHu Car Maintenance achieved operating income of 13.6 billion yuan in 2023, a year-on-year increase of 17.8% compared to 2022. Among them, the maintenance core business showed strong growth, with car maintenance, tire, and chassis parts sectors increasing by 22.5% and 20.9% respectively.

In terms of profitability, the adjusted EBITDA in 2023 was 760 million yuan, with an adjusted EBITDA profit margin of 5.6%. The adjusted net profit reached 480 million yuan, with a net profit margin of 3.5%. The gross profit margin increased significantly, with an annual gross profit of 3.4 billion yuan, reaching a historical high.

Through product structure optimization and operational strategic adjustments, TuHu Car Maintenance achieved significant cost reduction effects in 2023, with operating expenses continuously diluted. The total operating expenses accounted for 24.4% of total revenue, a decrease of 3.2 percentage points from the previous year. By the end of 2023, TuHu Car Maintenance's free cash flow reached 400 million yuan, with a total cash reserve (including cash and cash equivalents, restricted cash, financial investments) of 68.3 billion yuan, providing ample financial reserves for the company's future development.

Trillion-dollar track steadily expanding, independent market leader with high-quality growth

According to Zhitong App, the logic behind TuHu Car Maintenance's "double-profit growth" in 2023 is very clear. CFO Zhang Zhisong stated at the performance release conference, "With strong growth momentum and tremendous development potential, TuHu Car Maintenance has successfully transitioned from scale expansion to profit growth. This transformation not only validates our business model effectively but also further solidifies our leading position in the competitive industry."

Based on this, TuHu Car Maintenance achieved high-quality growth in performance in 2023, summarized in two key points: first, the demand side of the automotive aftermarket has essential attributes and has formed a large and stable growing market; second, TuHu Car Maintenance's advantages in the business model have built unique competitive barriers, helping the company stand out in the competition.

According to the Zhaoshi Consulting report, as of 2022, China has consecutively ranked as the global leader in new car sales for over 10 years. In 2022, China's car ownership reached 274 million vehicles, also the world's largest car market. However, China's passenger car ownership per thousand people is only 194 vehicles, lower than developed countries such as the United States (769 vehicles per thousand people) and EU member states (563 vehicles per thousand people), showing significant growth potential. Zhaoshi Consulting predicts that China's passenger car ownership is expected to reach 374 million vehicles by 2027.

With the steady growth of China's total passenger car ownership, the age structure of passenger cars is gradually changing. The average age of passenger cars in China increased from 4.9 years in 2018 to 6.2 years in 2022, and is expected to reach 8 years by 2027. Compared to new cars, older vehicles generally require more automotive services, especially maintenance and upkeep services. The massive automotive aftermarket emerged as a result. According to Citic Securities' calculations, the overall scale of China's automotive aftermarket is expected to reach 1.42 trillion yuan in 2023, and it is projected to reach 1.71 trillion yuan by 2027, with a compound annual growth rate of 4.7% over the next four years.

It is worth noting that as a leading chain maintenance brand, Tuhu Car Care not only benefits from the "aging of vehicles" but also from "consumer equality." As vehicle age increases and the "residual value" of vehicles decreases, owners tend to seek lower-priced repair and maintenance services. Influenced by economic cycles, people generally focus on balancing and unifying quality assurance and price rationality in consumption activities. "Consumer equality" has replaced "consumer upgrading" as the mainstream trend.

Compared to authorized 4S stores, independent maintenance shops in the unauthorized system have a price advantage. However, the independent aftermarket maintenance industry is characterized by a dispersed landscape, with long-standing pain points such as "difficult quality control" and "opaque pricing systems." Leading large-scale chain aftermarket brands like Tuhu Car Care provide consumers with high-quality and affordable choices through transparent pricing and comprehensive service systems.

Data shows that Tuhu Car Care currently has 5,909 workshop stores, with 1,256 new stores added in 2023, a year-on-year increase of 27%. According to a report by Zhishi Consulting, based on the full-year revenue scale in 2023 and the number of automotive service stores operated by the end of December 2023, Tuhu Car Care is the largest independent automotive service platform in China. Its store quantity, growth rate, and revenue consistently rank first among independent third-party players in the aftermarket. This means that Tuhu Car Care, as an independent aftermarket leader with internet genes, is further enhancing its ability to address the industry's pain points of being "big and chaotic," leading to a reinforcing flywheel effect.

The reinforcing flywheel effect enhances future growth certainty

Chen Min, CEO of Tuhu Car Care, stated at the performance release conference, "In 2023, Tuhu Car Care delivered satisfactory results, thanks to keen market insights and precise grasp. Tuhu Car Care will continue to maintain its innovative spirit and market acumen, continuously introducing new products and services that meet user needs, and enhancing user experience and satisfaction."

In addition to pioneering an integrated online and offline innovative service model to greatly improve user experience by addressing industry pain points, Tuhu Car Care's "innovative spirit and market acumen" also actively respond to trends in the automotive market by providing new products and services. For example, in new businesses, Tuhu is exploring fast repair and collision repair services in addition to mature businesses such as tires, maintenance, and car wash and beauty. Through store upgrades and technician training, it offers a wider range of service categories. At the same time, Tuhu is actively expanding into new energy vehicle maintenance services and has already launched six new energy vehicle repair projects, including power battery specialization, charging pile maintenance, and beauty services.

As a result, Tuhu Car Care has become the preferred choice for more users. Data shows that Tuhu Car Care has surpassed 115 million registered users, with a total of 19.3 million transaction users in 2023, reaching a historical high. On one hand, attracting more traffic can bring in more franchisees, leading to more stores. As the number of stores increases, TuHu Car Care's offline fulfillment capabilities strengthen, enhancing user experience and bringing in more traffic. On the other hand, the increase in sales brought by more traffic also enhances the company's bargaining power in upstream procurement, strengthening its price advantage and attracting potential customers, thus generating more traffic.

With the flywheel effect continuing to take effect, TuHu Car Care has successfully validated its business model, creating an automotive service ecosystem that includes car owners, suppliers, service stores, and other participants. This has made the company's leading position in the industry more prominent, establishing formidable competitive barriers that are difficult to replicate.

According to the CITIC Securities research report, the difficulty in replicating TuHu Car Care's business model mainly lies in the company's self-supply of products combined with unified logistics distribution, giving the company the ability of "strong control" over its stores. In terms of goods, over 90% of the products sold by franchise stores are provided by TuHu, while this proportion is only about 40% for other e-commerce platforms in the industry. In terms of the store environment, TuHu's workshop stores must meet standard requirements in terms of area and location, with equipment specified by TuHu Car Care. In terms of personnel, the company also provides online training and real-time guidance to ensure service quality.

Furthermore, TuHu Car Care has built a comprehensive and efficient supply chain system. By the end of 2023, TuHu's national regional distribution centers (RDC) and front-end distribution centers (FDC) can replenish high-frequency SKUs within 0.5-1 hour; the Auto Parts Dragon platform brings together numerous suppliers to meet a wider range of dispersed demands.

The more standardized system of TuHu Car Care brings stronger control over personnel, goods, and the store environment, effectively enhancing user experience, increasing user traffic, and becoming a key element in the "flywheel." By replicating its own business model, TuHu Car Care can efficiently cover a broader market.

According to Zhitong App, TuHu Car Care is accelerating its expansion into lower-tier markets, with new store openings focusing on these markets. In 2023, 70% of the company's new stores are located in second-tier and lower-tier cities, covering 221 counties and county-level cities, gradually forming economies of scale. In addition, TuHu Car Care has also announced a franchise discount policy for 2024, planning to reduce the initial operating pressure of new workshop stores in target cities through management fee reductions, franchise fee waivers, and refunds, in order to achieve faster market coverage.

Taking a long-term perspective, bolstered by a clear development logic and innovative business model, TuHu Car Care has established unique competitive barriers and core competitiveness, generating a strong "siphon effect" in the automotive aftermarket. With the company's first annual report after going public showing remarkable performance, it is evident that TuHu Car Care is relentlessly pursuing the enhancement of its sustainable development capabilities. It can be foreseen that the intrinsic value of TuHu Car Care will continue to rise, maintaining the law of the survival of the fittest in the business world over a longer time horizon.