An unloved Chinese online car-sales site deserves a test drive. Shares in $12 billion Autohome rose a modest 2% in their Hong Kong trading debut, raising $688 million, 30% less than planned earlier. Yet an asset-light model and a chunky net profit margin suggest it has room to run as consumer demand recovers.
China’s largest internet dealer makes money through advertisements and sales of both new and used vehicles in the world’s largest automotive market. That hasn’t excited investors much. Its New York stock lags those of U.S.-listed peers like TrueCar and CarMax, as well as local rival Yixin. The trio’s shares have almost doubled in value over the past 12 months, while Autohome’s are up just 27%.
It has been a tough couple of years in the People’s Republic. A policy-induced slowdown in car sales driven by changes to subsidies and emissions standards battered the top line, and that was before the pandemic showed up. Autohome’s revenue growth shrank to less than 3% last year, compared with 16% in 2019. Its plans to expand overseas to the UK and Germany would be better put on hold.
But a look under the bonnet is encouraging. The company has kept its net profit margin at around 40% for the past three years, far higher than Chinese and American peers. In 2020, managers protected profitability with tight cost controls while rivals started losing money. Yet the enterprise trades at just 22 times EBITDA. Yixin fetches 31 times and CarMax is valued at 47 times, according to Refinitiv. Autohome is similarly cheaper on a price-to-earnings basis.
The company may never garner the kind of giddy valuations applied to other Chinese stocks that marry automotive and technology themes, in particular electric-vehicle makers Nio and Xpeng. That doesn’t mean it couldn’t figure out a way to generate more buzz. A smaller car seller, Kaixin Auto, saw its shares rally by some 2,300% over a period of two months last year after it said it planned to expand into new energy vehicles. Autohome is also exploring ways to do more with clean cars, according to its Hong Kong prospectus. In the long run, reliable and dull models are safer to drive.