Intelligent network connection service refers to connecting cars and the Internet to provide comprehensive hardware products, software services and value-added services for customers such as 4S stores, car insurance companies, auto finance leasing companies, and second-hand car dealers in the automotive aftermarket industry. Specifically, intelligent connected services in the automotive aftermarket industry mainly include digital link solutions and digital marketing and management solutions. In addition, they can also be applied to scenarios such as vehicle rescue, vehicle remote fault diagnosis, and customer subscription services.
With the continuous advancement and application of science and technology, people's needs and expectations for transportation continue to increase. In addition, the government has provided strong support for the development of intelligent networked vehicles. Therefore, the future of intelligent and interconnected vehicles is an inevitable trend. According to the China Insights Consulting report, the total revenue of intelligent network services in the automotive aftermarket industry is expected to reach 28.3 billion yuan (RMB, the same below) in 2027, with a compound annual growth rate of 21.1% from 2022 to 2027.
Zhitong Financial App noted that in the fast-growing Chinese automotive aftermarket industry, intelligent network service provider Guanglian Technology International Holdings Co., Ltd. (hereinafter referred to as "Guanglian Technology") has occupied a leading position and is moving towards the capital market. According to the disclosure of the Hong Kong Stock Exchange on June 6, Guanglian Technology has submitted a listing application, with CCB International as the sole sponsor.
It has been in the automotive aftermarket for 12 years, and its business scale has expanded rapidly
According to the prospectus, Guanglian Technology is a leading intelligent network service provider in China's automotive aftermarket industry, focusing on providing digital link solutions to industry participants in the industry value chain; and digital marketing and management solutions, covering SaaS subscription services and SaaS + value-added services.
Since its establishment in 2012, the company aims to empower customers in the automotive aftermarket industry to better connect with customers through the company's digital link solutions and digital marketing and management solutions to achieve digital transformation. The company has developed a comprehensive set of industry-specific solutions for industry players in the automotive aftermarket industry, such as 4S stores, to improve their marketing and operational efficiency.
The services provided by Guanglian Technology include: (i) digital link solutions, including (a) intelligent IoV hardware solutions, providing IoV hardware such as in-vehicle entertainment systems and in-vehicle security systems through direct sales or through channel partner sales, and (b) intelligent core board solutions, providing intelligent core boards to IoV device OBM customers through direct sales; and (ii) digital marketing and management solutions, in which the company provides (a) Dijia SaaS to 4S store customers through direct sales or channel partner sales, and Huge e-shield SaaS, which provides auto financial leasing companies through direct sales, and (b) SaaS + value-added services to provide car users with auto light modification and accessories products and services and online and offline integrated marketing services to 4S store customers.
In terms of performance, in 2020, 2021 and 2022, the company's revenue was approximately $352 million, $327 million and $414 million, gross profit for the same period was approximately $110 million, $94.681 million and $173 million, and net profit was approximately $48 million, $35 million and $49 million, respectively.
It should be noted that in 2022, the revenue scale of Guanglian Technology expanded rapidly year-on-year, but the company's profitability did not increase significantly. In 2022, the company's gross profit margin reached 41.8%, a year-on-year increase of 12.8 percentage points, a new high in nearly three years, but the company's net profit margin in 2022 only increased by 0.8 percentage points year-on-year to 11.5%.
High distribution and selling expenses weighed on profits
According to the prospectus, in 2022, the main reason why the increase in the net profit margin of Guanglian Technology is far less than the increase in gross profit margin is that the company's distribution and sales expenses reached 91.28 million yuan, a significant increase of 187% year-on-year.
The significant increase in distribution and sales expenses was mainly due to an increase of approximately $52.5 million in advertising expenditure arising from the expansion of the Company's SaaS+ value-added services business in FY2022. According to Guanglian Technology, advertising expenses mainly include user traffic acquisition expenses, marketing service expenses and sales expenses. User traffic acquisition expenses mainly refer to the company's expenses for purchasing user traffic from 4S store customers. The company's user traffic acquisition expenses may vary depending on a number of factors, including the location of the 4S store, the expected sales volume of the 4S store customers, the expected traffic of the car user customer at the 4S store, and the type of target customer. The Company's user traffic acquisition expenses accounted for a large portion of advertising spending during the track record period, as the Company generally acquired user traffic from 4S stores, consistent with market practice.
According to Zhitong Financial App observation, the increase in the purchase of traffic fees from 4S stores by Guanglian Technology can be regarded as a "leading indicator" for the expansion of the company's SaaS + value-added service revenue to a certain extent.
Guanglian Technology said in the prospectus that relying on the company to provide SaaS subscription services to 4S store customers, the company began to provide SaaS + value-added services for 4S store customers in 2021.
Through customer feedback, the company found that car users have many vehicle life cycle needs that have not been met under the traditional business format of 4S stores, such as car users' needs for light modification and accessories, and the loss of 4S stores, customers' demand for car insurance renewal.
In view of this, Guanglian Technology provided car users with car light modification and accessories products and services through user traffic provided by 4S store customers during the track record period. At the same time, through Dijia SaaS, the company provides online and offline integrated marketing services for 4S store customers through user insights with customer feedback, business scenario discovery and product selection services that meet the personalized needs of car users. The company helps 4S store customers accurately match user tags, provide online content planting, live event operation and other confirmation of intended car users, and import online leads into transaction offline conversion services.
Therefore, the SaaS + value-added business not only meets the needs of car users, but also helps 4S store customers generate new transactions, increases the additional revenue of 4S store customers, helps achieve high user stickiness through SaaS subscription services, and succeeds in SaaS + value-added business. In this process, Guanglian Technology collects fees from car users by providing automobile light modification and accessories products and services, and the company then pays user traffic acquisition fees to 4S store customers to obtain their private domain user traffic.
The "ceiling" of the subdivision track is low, focusing on the evolution of the competitive landscape
It can be seen that the stronger the traffic acquisition ability of Guanglian Technology, the more momentum the company's subsequent development momentum will be.
From the perspective of industry development, as an important link in the middle and lower reaches of the value chain of the intelligent networked automotive industry, the intelligent connected services of the automotive aftermarket industry are developing rapidly under the continuous improvement and development of the intelligent networked automobile industry.
As a result, the total revenue of intelligent network services in China's automotive aftermarket industry increased from 6.6 billion yuan in 2018 to 10.9 billion yuan in 2022, with a compound annual growth rate of 13.1%. With the popularity of intelligent and connected vehicles, customers' demand for intelligent and connected services continues to increase. Therefore, the intelligent network service in the automotive aftermarket industry will have a wider and deeper application scenario, especially maintenance, NEV purchase/upgrade, used car sales service and UBI renewal. Therefore, the total revenue of intelligent connected services in the automotive aftermarket industry is expected to reach 28.3 billion yuan in 2027, with a compound annual growth rate of 21.1% from 2022 to 2027.
China's automotive aftermarket industry intelligent network service market is growing rapidly, but facing the problem of low "ceiling" in the industry, in this market, the evolution of the competitive landscape is the focus of attention.
According to the China Insights Consulting Report, Guanglian Technology ranked first in the digital marketing and management solutions market in China's automotive aftermarket industry in terms of revenue in 2022, with a market share of 5.6%. In terms of revenue in 2022, the company ranks second in the intelligent network service market of China's automotive aftermarket industry, with a market share of 3.8%.
In the track entered by Guanglian Technology, there has not yet been an absolute leading enterprise, and the market share of the company is similar to that of its main competitors, which requires the company to continue to build differentiated competitiveness.
According to China Insights Consulting, the emergence of innovative technologies has revolutionized the operating model of the automotive aftermarket industry. Therefore, Guanglian Technology must innovate and develop the products and services required by customers to maintain our competitiveness in the industry without being surpassed by competitors.
Therefore, Guanglian Technology intends to invest funds in the next five years to enhance and further strengthen its R&D capabilities through the development of technology and functional improvements, so as to enhance its competitiveness. These include: developing innovative capabilities for digital marketing and management solutions; Enhance AI capabilities; Upgrading existing digital linking solutions; Enhance cloud-native technologies in your solution; Increase investment in cloud infrastructure.
Zhitong Financial App noted that from 2020 to 2022, the R&D expenditure of Guanglian Technology was 19.043 million yuan, 16.803 million yuan and 16.999 million yuan respectively, which was not superior in the expenses during the period. In the future, if the company strengthens the purchase of traffic on the one hand, and significantly increases R&D expenditure on the other hand, the company may face pressure on net profit margin performance in the short term. Therefore, if Guanglian Technology is successfully listed, whether investors should buy the company's shares in the early stage of listing needs to be carefully considered according to the inclusion of more reference indicators.