Boche Holding Limited targets growth through IPO amidst niche market challenges.
Overview of Boche’s Financials
- Boche achieved a net profit of 1.53 million yuan during the first nine months of 2024.
- Revenue growth stagnated at 3.3%, impacted by declines in active members and repeat transactions.
China experiences over 250,000 traffic accidents annually, leading to a significant number of wrecked vehicles. These cars provide an opportunity for automotive recycling, enabling the sale of salvaged parts or fully repaired vehicles.
Boche Holding Limited (Cayman) is a leader in the vehicle salvage market and has recently filed for an IPO on the Hong Kong Stock Exchange. The aim is to attract investors as the Chinese government implements policies to support the used car market and related repurposing efforts.
Historically, the scrappage and salvage sector in China lacked standardized practices, making it challenging for sellers to connect with buyers of parts or repairable vehicles. Since its launch in 2014, Boche has developed an online auction platform that facilitates this process, primarily catering to insurance companies, rental agencies, and auto finance firms who need to dispose of vehicles. Their platform has introduced efficiency and transparency to the market.
The anticipated proceeds from the IPO, organized by CITIC Securities and Fosun International Capital, will be used to expand the business and establish regional centers to increase handling capacity. This is crucial as car ownership levels in China continue to rise.
In addition to salvage operations, Boche also trades in used cars and provides services like valuation, vehicle transportation, refurbishment, and claims processing. In the first three quarters of the previous year, auctions of salvaged vehicles accounted for 54% of operating revenue, with vehicle trading contributing approximately 23%.
Slowdown in Growth
Boche stands out as the only Chinese provider that manages the complete auction process for salvaged cars, according to market insights from China Insights Industry Consulting (CIC). In 2023, the firm facilitated transactions for 108,000 salvaged vehicles, giving it a 31% market share in volume terms.
The company has participated in five financing rounds, achieving a valuation of approximately 3.17 billion yuan ($440 million) after raising 100 million yuan in 2022. Notable investors include Fosun International and Ping An.
Boche’s revenues totaled 390 million yuan in 2022 and rose to 520 million yuan in 2023. However, annual net losses were significant at 180 million yuan and 120 million yuan during these years, respectively.
In the first three quarters of 2024, turnover increased modestly by 3.3% to 400 million yuan. This shift allowed Boche to record a net profit of 1.53 million yuan, contrasting with a loss of 39.43 million yuan in the same period the previous year.
The company attributes its prior red ink to declines in the fair value of financial instruments issued to investors, facing impairment losses of 170 million yuan in 2022, 150 million in 2023, and 40.29 million in the first three quarters of 2024. Despite these challenges, Boche has maintained strong gross margins of 44.4%, 49.9%, and 47.3% during the same periods.
However, Boche has seen a decrease in key performance indicators, such as its user base and the rate of repeat business. The number of active platform users fell by 10.6% to 77,000 in the first three quarters of 2024, while the repurchase rate dropped from 71.9% to 70.7%. This decline impacted deal volume on the platform, causing revenue growth to plummet from 33.6% in 2023 to just 3.3% in 2024.
Market Challenges and Prospects
The slowdown in Boche’s growth may be attributed to the limited market size. Although China has the world’s largest auto market, with over 330 million vehicles, only 345,000 salvaged vehicles were auctioned in 2023. Despite Boche’s substantial market share, it only managed around 100,000 salvage deals. In contrast, the United States, with lower ownership rates, has a significantly larger retrieval market, selling over 7 million salvaged vehicles annually.
A price war in China’s auto industry may affect demand for used or wrecked cars and their parts, given the introduction of cheaper new models. Alternatively, if repair costs exceed the values of these economical models, it may lead to increased salvage supply, as insurance companies opt to write off heavily damaged vehicles. Nevertheless, the number of salvaged vehicles is projected to reach only 807,000 by 2028, indicating that the market remains niche.
As competition heats up, other platforms like Guazi, Renrenche, and Autohome are gaining traction. Insurance firms and vehicle consignors may even launch their own auction platforms, challenging Boche’s market position.
At present, the limited size of the salvage market is constraining competition. The salvage sector generates only a fraction of the 20 million annual transactions in the used car market. However, as salvage volume increases, it could attract new entrants and challenge Boche’s leadership.
Boche is well-positioned to leverage its IPO funding to enhance its market standing as China advances policies supporting the used car sector. However, ongoing competition looms on the horizon.
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