Core Viewpoint - Tuhu's 1H25 earnings were solid despite industry challenges, with strong management capabilities likely to help it gain market share and mitigate short-term volatility [1]. Financial Performance - Tuhu's 1H25 revenue increased by 11% YoY to RMB7.9 billion, driven by a 14% YoY increase in the number of stores [2]. - The trailing 12-month number of transacting users rose by 24% YoY to 24 million as of June 30, 2025, indicating substantial market share growth [2]. - Gross margin for 1H25 was 25.2%, a 0.3 percentage point increase HoH, but 0.2 percentage points lower than forecasted due to lower margins in tires and chassis parts [2]. - Net profit for 1H25 rose by 8% YoY to RMB307 million, which was 3% lower than forecasted due to higher share-based payments [2]. - Adjusted net profit (excluding share-based payments) increased by 15% YoY to RMB410 million, exceeding forecasts by 11% [2]. Store Expansion and Operational Efficiency - Tuhu's store count increased by 331 to 7,205 as of June 30, 2025, on track to meet its full-year goal of 900 new stores [2]. - Approximately 90% of stores were profitable, with nearly all achieving positive cash flow in 1H25 [2]. - Positive free cash flow in 1H25 positions Tuhu favorably against peers amid industry headwinds [3]. Future Projections - FY25E revenue forecast was cut by 1%, and gross margin projection was reduced by 0.9 percentage points due to macro uncertainties and a focus on store expansion over short-term margin improvement [3]. - FY25E adjusted net profit forecasts were reduced by 8% to RMB761 million, reflecting a 22% YoY growth expectation [4]. - Revenue is projected to rise by 9% YoY in FY26E, supported by ongoing store expansion and customer acquisition efforts [4]. - Gross margin is expected to widen slightly to 25.9% in FY26E, with adjusted net profit projected to grow by 15% YoY to RMB876 million [4]. Valuation - The target price for Tuhu was raised from HK$21.50 to HK$23.00, based on a 20x adjusted FY26E P/E ratio [4].