UXIN: Uxin reports strong year over year growth in vehicle units sold.
NASDAQ:UXIN
READ THE FULL UXIN RESEARCH REPORT
On August 14th, 2023, Uxin (NASDAQ:UXIN) reported fiscal 4th quarter and fiscal year 2023 operating and financial results for the period ending March 31, 2023. Total revenues in the 4th quarter were $50.1 million, which was a 32.0% decrease from the prior year period and a decrease of 26.9% from the fiscal 3rd quarter. The quarter-over-quarter decrease was primarily due to the seasonal slowdown in the used car market and volatility in China's new car market. The year-over-year decrease was mainly due to the decline in wholesale transaction volume.
Transaction unit volume was 3,607 vehicles in the quarter, a decrease of 26.3% from 4,897 units in the last quarter and a decrease of 14.7% from 4,231 units in the same period last year.
In the higher margin Retail segment, revenue was $38.4 million in 4th quarter, which was a decrease of 19.8% from the last quarter and a decrease of 17.4% from the same period last year. Retail transaction volume was 2,259 units, a decrease of 22.8% from 2,928 units last quarter and an increase of 22.2% from 1,848 units in the prior year period. The quarter-over-quarter decrease was mainly due to seasonality and market factors. The Chinese New Year was on January 22nd, which is the traditional used car off-season. In addition, in March 2023, certain automobile manufacturers implemented policies of decreasing prices to boost new car sales, resulting in less interest from consumers to buy used cars.
Although retail transaction volume increased significantly on a year over year basis, the decreases in average selling prices driven by optimizing inventory structure, caused the decline of year-over-year retail vehicle sales revenue.
In the Wholesale vehicle sales segment, revenues were $10.7 million in the 4th quarter, which was a 44% decrease from the last quarter and a 59% decrease from the prior year period. Wholesale transaction volume was 1,348 units, which was a decrease of 31.5% from 1,969 units last quarter and a decrease of 43.4% from 2,383 units in the prior year period. Wholesale vehicle sales are vehicles purchased by the company from individuals that do not meet the company's retail standards and are subsequently sold through online and offline channels. As Uxin continued to improve its inventory capacity and reconditioning capabilities, an increasing number of acquired vehicles are reconditioned to meet the Company's Retail standards, rather than being sold through wholesale channels. Transaction volume will gradually represent a lower portion of the Company's total transaction volume.
The gross margin in the quarter was 2.3% compared with 0.6% in the last quarter and 0.2% in the same period last year. Over the past several quarters, the company has implemented pricing strategies to accelerate the turnover of high-priced vehicles and optimize its inventory structure. By shifting focus towards mid-range priced vehicles and improving sales efficiency, the gross margin improved despite the traditional off-season period for used cars and new car market volatility in China. The company expects further improvements in gross margin which may reach 6.0% in the 1st fiscal quarter ending June 30, 2023. Net loss from operations was $11.6 million for the 4th quarter and non-GAAP net loss was $10.1 million.
As of June 30, 2023, the company had $13.5 million in unrestricted cash and cash equivalents with total debt and borrowings of $107.1 million.
The company has ongoing plans and strategies to improve cash flows from operations and to obtain additional capital from external investors and other parties. These plans include:
Improvement in cash flows from operations:
➢ An increase in the gross margin on automobile sales, which management believes should improve after increasing demand following the lifting of COVID restrictions in mainland China.
➢ Optimizing the cost structure of the company to reduce expenses, and to reduce cash outflows including those related to future lease payments through ongoing negotiations with the lessor of the Hefei IRC.
2024 Strategic Outlook
For the 2024 fiscal year ending March 2024, the company is focused on three strategic pillars:
1) The company indicated that the construction of the flagship Hefei superstore, which is jointly invested by Uxin and the Hefei government, has entered the final stage of equipment and system calibration after a one-and-a-half-year construction period. Plans are to commence trial operations in August of this year and have the grand opening at some point in 2023. The new superstore has a total area of 450,000 square meters and consists of the world's most advanced used car reconditioning factory and the largest used car sales area, which can accommodate up to 10,000 vehicles for display and sale when reaching full capacity. The Hefei flagship superstore serves as Uxin's central hub for expansion plans in the used car industry, anchoring in Hefei but extending its reach across the Anhui province and facilitating sales nationwide.
2) After over a year of consistent development, Uxin's superstores have continuously improved sales efficiency, increased gross profit margin, and substantially improved the overall cost structure. As a result, the gross profit margin is expected to exceed 6.0% for the first quarter of fiscal year 2024. The mid-term gross margin target will be above 10%. In the past few months, due to disturbances in the new car market, Uxin has maintained a prudent purchasing strategy and has not significantly increased inventory. Starting in August, the company will accelerate the increase in vehicle inventory to generate higher levels of sales conversions. Positive EBITDA is expected by the end of the year for the company’s two IRCs in Xi'an and Hefei stores.
3) The company is also planning to open 2 or 3 new superstores over time. Based on the proven success of Uxin's offline superstore model, the company is actively strategizing for expansion into new regions. These efforts will lay a solid foundation for the growth of the business in coming years.
Forecast
For the 1st fiscal quarter ending June 30, 2023, the company expects its retail transaction volume to be approximately 1,600 units and the average selling price (ASP) for retail cars to be around RMB111,000. The company also expects its wholesale transaction volume to be around 1,600 units with an expected ASP of around RMB61,000. The low level of current vehicle inventory is the primary driver for the unit sales to be below expectations. The company estimates that its total revenues including retail vehicle sales revenue, wholesale vehicle sales revenue and other revenue to be within the range of RMB270 million to RMB290 million ($37 to $40 million). The Company expects its gross profit margin to be greater than 6.0%.
Summary
CEO and Founder Kun Dai stated: “China's flourishing used car market is a force to be reckoned with, already at a staggering trillion-RMB level. With a whopping 320 million vehicles, China boasts the world's largest car ownership. Each year, a significant number of vehicles enter the circulation stage, fueling the swift growth of the used car industry. In the first half of 2023, the nation witnessed a remarkable surge in used car transactions, reaching approximately 9 million units, showing a notable 15% increase compared to the previous year. Drawing from the mature market experience in the automotive industry, China is progressively pivoting towards a trajectory dominated by stock car transactions. We project that used car transactions in China will soon exceed 20 million units per year, with still a remarkable growth potential of 3 to 4 times”.
Despite the temporary setback from Covid-19 operational disruptions in the fall of 2022, we believe Uxin is poised for rapid profitable growth over the next 3-5 years and potentially beyond that as the used car market continues to develop and expand over time in China. As the world’s most populous country, the evolution of China’s expansion in the world’s largest used car market represents enormous opportunities for Uxin. The company expects the used car market in coming years will expand from 20 million transactions per year currently to roughly the same level as in the U.S. at about 45 million transactions per year.
The company now has much stronger control and management over the entire value chain with the improved ability to provide high-quality used car products and premium services. The company’s omni-channel model, which includes online and in-person purchases of used vehicles gives them a competitive advantage over smaller competitors. Uxin’s proprietary advanced technology platform that provides inspection, reconditioning, pricing and logistics also gives them a leg up on competitors and improves the customer experience. In addition, the company is led by a seasoned management team with multiple areas of expertise.
Valuation and Estimates
We adjust our estimates and target price based on 4th quarter financial and operating results. Our fiscal 2024 revenue estimate is lowered to $200.1 million, and our EPS is adjusted to $0.24 due to new gross margin guidance.
We are optimistic the company will show strong improved gross margins in the fiscal year 2024 ending March 2024, and we maintain our target value for Uxin stock of $4.50.
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