We provide pledged vehicle monitoring services and automobile dealership operation management services in China. According to CIC, we were the largest pledged vehicle monitoring service provider in China’s automobile sales and distribution industry both in terms of revenue in 2022, with a market share of 47.9%, and in terms of the number of automobile dealership users as of December 31, 2022. We achieved such dominant position in the pledged vehicle monitoring service market and outcompeted our peers primarily through (i) our 17 years of operation history and proven track record; (ii) nationwide presence; (iii) VFS system that collects, processes and analyzes data from pledged vehicles; and (iv) R&D capabilities that allow us to continuously improve and iterate our VFS system to meet evolving market demands.
We offer pledged vehicle monitoring services primarily to (i) financial institutions that provide secured financing to automobile dealerships for their purchase of vehicles; and (ii) automobile dealerships with pledged vehicles. As of June 30, 2023, we provided pledged vehicle monitoring services to (i) approximately 200 branches of 18 commercial banks, including all of China’s “Big Six” national state-owned commercial banks and 12 joint-stock commercial banks; (ii) 27 automobile finance companies; and (iii) 11,152 automobile dealerships.
Through our provision of pledged vehicle monitoring services over the years, we have accumulated insights regarding China’s automobile sales and distribution industry. As a natural extension, we endeavored to expand our business in China’s automobile sales and distribution industry and began offering operation management services to automobile dealerships that seek more optimal business and financial performance in April 2022. In order to optimize our services before expanding our offering to the wider market and in light of our strategic business relationship with Changjiu Group, we have initially focused on providing operation management services to automobile dealerships owned by Changjiu Group. Through this arrangement with Changjiu Group, we are able to get feedbacks and enhance our service quality. Given that we commenced this business line relatively recently and additional time is required for us to promote our operation management services to broader industry participants, automobile dealerships owned by Changjiu Group have accounted for substantially all of our customers for this business line. As of June 30, 2023, we managed a total of 75 automobile dealerships, among which 74 were owned by Changjiu Group and one was owned by an Independent Third Party.
Our Value Propositions
We believe our success is based on the value that we provide to our users:
‧ Financial institutions. We provide efficient pledged vehicle monitoring services to financial institutions and enable them to better safeguard the vehicles pledged to them.
‧ Automobile dealerships. By facilitating more effective and cost-efficient monitoring of pledged vehicles and reducing counterparty risks for financial institutions, our pledged vehicle monitoring services may enhance chances for automobile dealerships to obtain loans from financial institutions. Through our automobile dealership operation management services, we recommend and select experienced staff to automobile dealerships and provide operational support, data system and managerial services that aim to enhance their business and financial performance.
Our Performance
We achieved stable growth during the Track Record Period. In 2020, 2021 and 2022, our revenue amounted to RMB430.6 million, RMB477.7 million and RMB547.9 million, respectively, representing a CAGR of 12.8%. Our revenue also increased from RMB258.7 million in the six months ended June 30, 2022 to RMB309.4 million in the six months ended June 30, 2023. The number of automobile dealerships that were using our pledged vehicle monitoring services increased from 8,316 as of December 31, 2020 to 9,205 as of December 31, 2021, then to 10,684 as of December 31, 2022, and further to 11,152 as of June 30, 2023.
OUR BUSINESS LINES
We operate two business lines: (i) pledged vehicle monitoring services and (ii) automobile dealership operation management services.
Pledged Vehicle Monitoring Services
We offer pledged vehicle monitoring services primarily to (i) financial institutions, mainly including commercial banks and automobile finance companies, that provide secured financing to automobile dealerships for their purchase of vehicles; and (ii) automobile dealerships with pledged vehicles. Although automobile dealerships pledge their vehicles to obtain secured financing from financial institutions and generally have a contractual obligation to provide storage places to safeguard the pledged vehicles, the automobile dealerships retain possession of such pledged vehicles. Therefore, it is essential for financial institutions to monitor the pledged vehicles to prevent them from theft, damage or automobile dealerships’ embezzlement from a risk management perspective. An effective way to mitigate against such risk is for the financial institutions to enter into tripartite agreements with automobile dealerships and third-party service providers, under which the third-party service providers monitor the pledged vehicles on behalf of the financial institutions.
According to CIC, financial institutions tend to rely on third-party service providers rather than their in-house personnel to provide pledged vehicle monitoring services, primarily because of third-party service providers’ cost-efficiency and service quality. According to CIC, as of December 31, 2022, approximately 80% of the financial institutions in China that provided secured financing to automobile dealerships engaged third-party service providers to monitor pledged vehicles. Third-party service providers generally have a team of professional service personnel who are equipped with specialized digital monitoring systems, which enable them to reduce reliance on manpower and identify and report potential risk events in a more comprehensive and cost-effective manner as compared to financial institutions’ in-house personnel. A financial institution typically entering into a tripartite agreement with automobile dealership and third-party pledged vehicle monitoring service provider for such services, under which the financial institution engages the service provider to monitor the dealership’s pledged vehicles. Under a typical tripartite agreement, the automobile dealership is primarily responsible for purchasing insurance for and providing a safe place for the storage of the pledged vehicles, and the pledged vehicle monitoring service provider is primarily responsible for monitoring the pledged vehicles, managing the vehicle conformity certificates as well as car keys and notifying the financial institution of risk events in a timely manner.
We cater for this business need from financial institutions by offering our professional pledged vehicle monitoring services supported by our digital monitoring systems and complementary hardware. We provide our users with any one or any combination of the following services: (i) pledged vehicle monitoring and lockbox services, under which we hold and keep vehicle conformity certificates and car keys of pledged vehicles in our traditional and electronic lockboxes placed on automobile dealerships’ sites or in the locations mutually agreed upon by the financial institutions and automobile dealerships; (ii) collective management of vehicle conformity certificates; (iii) counting of pledged vehicles, vehicle conformity certificates and car keys; and (iv) other ancillary services. Financial institutions and automobile dealerships can choose the service(s) that best suit their needs. For our pledged vehicle monitoring services, we primarily use a cost-plus pricing model: (i) costs of our pledged vehicle monitoring services may vary depending on the average local salary and the manpower required; and (ii) markup on the costs may vary depending on the city tier of the automobile dealerships and their pledged vehicles, and the scope of our services. Either financial institution or automobile dealership may pay for our services under the tripartite service agreement, depending on the negotiation between them. See “Business—Pledged Vehicle Monitoring Services—Scope of Services.” We provide our pledged vehicle monitoring services through our pledged vehicle monitoring system that consists of the VFS system and Vehicle Connect mobile application, and the integrated complementary hardware that include the RFID labels, PDAs, OBD devices and lockboxes. Our VFS system is a multifunctional IT solution with online operation, automatic alert and pledged vehicle monitoring modules and a pool of over 20,000 preset commands, which allows users to readily choose the settings that best suit their risk management needs without having to create the commands from scratch. Our Vehicle Connect is a mobile application that allows financial institutions and automobile dealerships to access the information collected by our VFS system on mobile devices. See “Business—Pledged Vehicle Services—Pledged Vehicle Monitoring System—VFS System and Vehicle Connect” for more details. Our customers’ confidence in us and our technological advantages were manifested by our market share in terms of revenue of 47.9% in 2022, which was significantly higher than that of the other market participant with an information system, being 25.2%.
Considering the information system that we use to facilitate real-time pledged vehicle monitoring for our customers, and our expertise and in-depth knowledge of the automobile sales and distribution industry as well as the practicable difficulties faced by financial institutions in pledged vehicle monitoring, we believe we have distinguished ourselves from our competitors.
Automobile Dealership Operation Management Services
According to CIC, medium- and small-sized automobile dealerships in China generally lack managerial expertise, technological capabilities and sophisticated human resources system. In light of the fierce competition in the industry, these medium- and small-sized automobile dealerships are driven to improve their operational efficiency by adjusting their business plans and upgrading their technologies to cope with the constantly evolving business environment. However, as the competition for each dealership’s performance intensifies and medium- and small-sized automobile dealerships lack the necessary managerial expertise or technological capacities, the need for specialized and professional management arises. To cater to such need, we offer management services to medium- and small-sized automobile dealerships that seek more optimal business and financial performance. Our automobile dealership operation management services consist of automobile dealerships operational support, data system and managerial services. We grant automobile dealerships access to our automobile dealership operation management system, namely Smart Star (“智科星”), allowing them to categorize, process and visualize their operational data, such as inventory level, sales and number of customers. Leveraging our insights in the automobile sales and distribution industry and automobile dealership operations, we also (i) formulate development plans for automobile dealerships; (ii) review and supervise the implementation of automobile dealerships’ annual business plan; (iii) provide guidance to automobile dealerships to improve their operation and management capabilities, including consultation based on our interpretation of the operational data collected and processed by Smart Star, and guidance relating to systematic improvement on automobile dealerships’ management capabilities and operational efficiency; and (iv) assist automobile dealerships to integrate their internal and external corporate resources.
We strive to help automobile dealerships that procure our operation management services, improve their operational as well as financial performance through operational support, data system and managerial services, and become more competitive in the market, ultimately contributing to the healthy and sustainable development of the automobile sales and distribution industry.
We typically charge automobile dealerships an annual management fee according to the following schedule: (i) 0.1% of the automobile dealership’s expected annual revenue payable within 15 days following the signing date of the automobile dealership operation management service agreement; and (ii) 0.4% of the actual quarterly revenue payable within seven days following the end of each of the subsequent quarters. We may also raise our fees subject to market price fluctuations and the scope of services we provide after negotiations with our customers.
During the Track Record Period, we primarily generated revenue from pledged vehicle monitoring services. In April 2022, we started to provide operation management services to automobile dealerships. In 2022 and the six months ended June 30, 2023 the majority of our revenue from our operation management services was derived from automobile dealerships owned by Changjiu Group.
Source: Changjiu Holdings (06959) Prospectus (IPO Date : 2023/12/29) |