New Stock Outlook | It is hard to escape profit difficulties even with a market share of over 31%. What is Autoboca, the "number one" in accident car auctions, relying on for its IPO?

As the largest automobile market in the world, by the end of 2023, the number of automobiles in China exceeded 330 million. With such a huge automobile market, it naturally leads to an increase in the number of accident vehicles, and whenever a traffic accident occurs, insurance companies, vehicle owners, and other parties urgently need to efficiently process accident vehicles in order to reduce repair or parking costs. The urgent need for disposal has made accident vehicle auctions an important channel for circulation. In the past few years, the number of accident vehicle auctions in China has increased from about 206,000 vehicles in 2019 to 345,000 vehicles in 2023, with a compound annual growth rate of 13.8%. As the industry rapidly expands at a double-digit growth rate, leading companies have started to focus on the capital market to seek opportunities to further expand their business through equity financing. Recently, Boche Holding Limited (Cayman) (hereinafter referred to as "Boche Net") submitted an application for listing on the main board of the Hong Kong Stock Exchange. It is reported that Boche Net's history can be traced back to 2014, and after many years of development, the company has now become the largest accident vehicle auction platform in China. According to Zhaoshi Consultation, Boche Net ranks first in China's accident vehicle auction industry, with a market share of 31.3%. However, it is worth mentioning that although Boche Net's annual revenue exceeded 500 million yuan by 2023, the company's profit performance is still somewhat disappointing. From 2022 to September 2024, Boche Net's net profits were -180 million yuan, -121 million yuan, and 142.5 thousand yuan respectively. Although the company achieved a turnaround in the first three quarters of last year, the profit amount was quite modest. Moreover, as of September 2024, Boche Net's comprehensive gross profit margin was about 47.3%, a decrease of 3.8 percentage points from the same period of the previous year. Looking ahead, whether Boche Net can optimize its financial performance while maintaining its industry position will likely have a significant impact on the capital market's long-term judgment of the company's growth potential. Declining revenue from the primary business raises profit challenges Since its establishment, Boche Net has been engaged in accident vehicle auction business. As the company's scale continues to grow, Boche Net has timely extended its business to more areas. In 2022, Boche Net acquired the used car auction and ancillary services provider Chewing Wins; the following year, Boche Net launched the Boche Logistics App, providing vehicle logistics services to source parties and buyers. In 2024, Boche Net launched an intelligent used car valuation system to assist insurance companies in decision-making during underwriting and claims processing. As Boche Net's business footprint continues to expand, its revenue increased from 388 million yuan in 2022 to 518 million yuan in the following year, reaching 404 million yuan in the first three quarters of 2024, an increase of only 3.3% compared to 391 million yuan in the same period of 2023. Breaking down the revenue structure, Boche Net's revenue is mainly contributed by vehicle service business. The revenue from this segment was 3.18 billion yuan, 4.56 billion yuan, and 3.21 billion yuan in 2022, 2023, and the first nine months of 2024 respectively, accounting for 81.9%, 87.9%, and 79.4% of the total revenue. Furthermore, Boche Net's vehicle service business includes accident vehicle auction and ancillary services, used car auction and ancillary services, and other services. Among them, revenue from accident vehicle auction and ancillary services has always been the main business of Boche Net, with revenues of 241 million yuan, 333 million yuan, and 218 million yuan in the reporting period, accounting for 62.1%, 64.2%, and 54% of total revenue respectively. It is worth noting that in the first nine months of 2024, revenue from accident vehicle auction and ancillary services did not continue the growth trend, instead shrinking by 15.9% year-on-year. During the period, revenue from used car auction and ancillary services accounted for 17%, 21.7%, and 22.9% respectively, with both the scale and proportion increasing. Meanwhile, a small portion of revenue in Boche Net's vehicle service business also came from other services. Apart from vehicle services, vehicle distribution is another major business focus of Boche Net. Revenue from vehicle distribution was 70.26 million yuan, 62.772 million yuan, and 83.274 million yuan in the reporting periods, accounting for 18.1%, 12.1%, and 20.6% respectively, with significant fluctuations. Compared to revenue indicators, there may be greater room for optimization in Boche Net's profit performance. As mentioned earlier, in recent years Boche Net has been struggling with losses, only managing to turn a profit in the first three quarters of 2024. However, in terms of gross profit margin, Boche Net has maintained a high level, with gross profit margins of 44.4%, 49.9%, and 47.3% from 2022 to September 2024. In the first nine months of 2024, the company's gross profit margin was 47.3%, unable to continue its upward trend and decreasing by 3.8 percentage points from the same period of last year. Market growth accelerates to support Boche Net's IPO? In the past few years, the market size of China's accident vehicle auction industry, calculated by the number of vehicles, has been rapidly expanding at a double-digit growth rate. However, compared to the US market, the Chinese accident vehicle auction industry still has huge growth potential. Data shows that in 2023, the number of vehicles in the US was about 290 million, lower than the Chinese market, but the number of accident vehicles auctioned in the US that year was close to 7 million, about 20 times that of China. According to forecasts, by 2028, the number of accident vehicles auctioned in China will reach 867,000, with a compound annual growth rate of 20.2% from 2023 to 2028. In terms of the competitive landscape of the accident vehicle auction industry, Boche Net facilitated transactions of 108,000 accident vehicles in 2023, with a market share of over 30%, exceeding the combined total of the second and fifth companies in the industry. Linear extrapolation based on industry influence suggests that as the accident vehicle auction market expands, the business scale of leading companies in the industry is expected to rise. For Boche Net, in this historical process, the company's revenue is expected to increase further, and the increasingly prominent economies of scale may help spread fixed costs and reduce the handling costs per vehicle.Even to increase the company's profitability.But it is no secret that in recent years, the Chinese automotive market is accelerating its shift from a blue ocean market to a red ocean market. At the same time, the competition in the accident car auction and the second-hand car auction market is also intensifying. In addition, the fluctuation of new car pricing in recent years has also brought challenges to the stable development of the accident car and second-hand car auction market to a certain extent. Being in a market that is far from being able to see the endgame, Bo Che Net, which already has a first-mover advantage, can be said to have "gotten a piece of the pie" in a sense. But it must be acknowledged that the future success of Bo Che Net in turning accident car auctions into a big business remains uncertain. At the same time, it is difficult to determine what financial performance the company can achieve after expanding its business operations. In the future, with the first major business facing pressure from declining revenue and the company's overall profit being very thin, when will Bo Che Net be able to knock on the door of the Hong Kong Stock Exchange? GMTEight will continue to monitor this.