BOCOM International has given an initial "buy" rating to TUHU-W (09690) with a target price of HK$43.

BOCOM INTL released a research report stating its initial "buy" rating for TUHU-W (09690) with a target price of HKD 43. The report is optimistic about the long-term industry consolidation space, the company's continuous expansion of market share, and its ability to improve profitability. It also predicts a compound annual growth rate of 19% for its revenue for the period of 2022-2025, driven by the expansion of workshop stores (expected to reach 8,800 by 2025) and SKU. It is expected that the company will achieve breakeven adjusted net profit in 2023 and a net profit margin of 9.1% by 2025 (an increase of 14 percentage points compared to 2022), benefiting from product mix optimization (high-margin proprietary brands, contributions from automobile maintenance) and efficiency improvement. The report stated that the independent aftermarket (IAM) market for automobiles has significant growth potential, and TUHU is expected to continue to gain market share. AZOTH Consulting predicts a compound annual growth rate of 9% for the Chinese automobile service market from 2022 to 2027, benefiting from increased vehicle age and mileage. Given the convenience of IAM channels and cost-effective services, its growth rate will exceed that of authorized dealers. As the leading IAM provider in China (with the largest number of stores as of the end of 2022 and the highest automotive service revenue in 2022), TUHU has established high barriers in customer experience and supply chain management. The bank mentioned that although it is still in the early stage, new energy vehicles are a key factor for the company's long-term competitiveness. The growth of the Chinese automotive service market will still be mainly driven by non-new energy vehicles, while the opportunity in the pure electric vehicle service market lies in tires and batteries. By cooperating with new energy vehicle brands and battery manufacturers, TUHU is accumulating industry experience for its long-term strategy. The bank believes that TUHU has the potential to replicate its leading position in the automotive aftermarket for traditional fuel vehicles in the new energy vehicle segment, thanks to its brand awareness and supply chain capabilities.