Special topic: motor Street Hong Kong stocks IPO: second presentation of HKEx net profit has declined for two years in a row

Auto Street, a used car trading service provider, plans to list in Hong Kong.

April eighteenthOnlinegamingcryptoThe HKEx disclosed that Motor Street Development Limited (Motor Street) was heard through a listing hearing.

Auto Street said that the company is the largest used car trading service provider in the country in terms of transaction volume in 2022. In 2022, about 160000 used cars were traded through the company's trading platform, accounting for 12% of the market share of China's used car trading service providers.Onlinegamingcrypto.6%.

According to the prospectus, the company is an one-stop solution provider for used car buyers and sellers. Through its online and offline auction model, it provides end-to-end used car trading solutions for sellers such as 4S stores and professional buyers to help buyers and sellers optimize the used car trading process and improve the efficiency and profitability of their used car business. At present, the company is mainly engaged in used car auction, used car value-added services, used car sales arrangements and exhibition services.

Unlike Guazi, Youxin used cars and other major consumer markets, the company's business model tends to B2B, sellers are mainly 4S stores, and buyers are mainly professional buyers.

Last year, the revenue was 492 million yuan and the net profit was 9.269 million yuan.

In terms of business, the prospectus shows that the company's trading volume was about 261000 vehicles in 2021, 160000 vehicles in 2022 and 176000 vehicles in 2023. Auctions on the company's trading platform rose from about 359000 in 2021 to about 384000 in 2023, a compound annual growth rate of 3.4 per cent.

In terms of transaction volume, the total transaction volume of used cars traded on the company's trading platform in 2021, 2022 and 2023 was 13.72 billion yuan, 6.747 billion yuan and 7.398 billion yuan respectively. The average bicycle income of the used car auction business rose from 1280 yuan in 2021 to 1636 yuan in 2023, with a compound annual growth rate of 13.1%. The gross profit margins from 2021 to 2023 were 62.8%, 60.9% and 63.5%, respectively.

According to the prospectus, the company is also the used car trading service provider with the largest number of offline auction venues and the widest geographical coverage of offline services. As of December 31, 2023, 79 studios have been set up in 74 cities in China, while offline services are provided in 317 cities across the country.

It should be noted that in the past three years, the company's net profit has seriously shrunk, with revenue increasing by 5% in 2023 and net profit falling by 86.6%.

Financially, from 2021 to 2023, the income of Automobile Street will be 678 million yuan, 468 million yuan and 492 million yuan respectively, and the net profit will be 165 million yuan, 68.98 million yuan and 9.269 million yuan respectively.

In response, the company said that the main reasons for the decline include the increase in labor costs caused by the hiring of more auctioneers and evaluation testers, and significant changes in the fair value of financial liabilities in which fair value is measured and its changes are included in the current profit and loss.

The three founder brothers hold 22.62%, and Tencent and JD.com are all shareholders.

Since its establishment, Auto Street has won the support of Tencent, JD.com and other leading Internet enterprises, as well as well-known dealer groups.

According to the prospectus, the company was founded by Yang Aihua in 2014 and has gone through two rounds of financing, round An and round B.

In 2019, the company completed $15 million in round A financing, of which Tencent Holdings contributed $10 million through its subsidiary Image Frame Investment (HK) Limited, JD.com Group contributed $5 million through its Dazzling Calcite Limited, and in 2022, the company received $15 million in round B financing from CR Matrix Limited, a subsidiary of Huaxing New Economic Fund.

According to the prospectus, founder Yang Aihua holds 12.23% of the shares through Changguang Investment Co., Ltd. and is a major shareholder of the company; Yang Hansong holds 6.11% through World Key Investment Trading; and Yang Zehua holds 4.28% through Jumbo Create Investment Development. Yang Aihua, Yang Hansong and Yang Zehua are brothers with a combined stake of 22.62%.

In addition, its second-largest shareholder, Manheim Investments, owns 11.01%. The company is controlled by the voting trust of the COX family, a well-known American family. The COX family started as a media company and runs a huge media group and a global automotive business. Car dealer Guanghui Motor owns 5.08% through its wholly-owned subsidiary Baoxin Auto Finance I; Tencent 3.11%; China Renaissance Capital Investment 2.14%; and JD.com 1.56%.

In terms of future trends, the company's used car market still has great potential for growth.

The trading volume of used cars in China increased from 11.1 million in 2019 to 13.6 million in 2021, falling to 12.5 million in 2022 as a result of the epidemic, according to the prospectus. Driven by policies and regulations, increased cross-regional transactions, the development of social media channels and technological progress, the total transaction volume of used cars in China has returned to 14.4 million in 2023 and is expected to reach 27.3 million in 2028, with a compound annual growth rate of 13.7%.

At the same time, compared with mature markets such as the United States, the sales ratio of used cars to new cars in China is still low, and the penetration rate of used cars is lower. In the American auto market, for many years, sales of used cars have been larger than those of new cars, and the sales ratio of old and new cars has been maintained at around 2:1 for a long time.

According to data, used car transactions in China accounted for only 35.3% of total passenger car sales in 2023. In addition, the penetration rate of used cars in China was only 4.9% in the same period. The company believes that with continued supportive government policies and growing market demand, China's used car market is expected to continue to grow and show similar characteristics to mature markets such as the United States.