Uxin Limited Stock Forecast: Millennials make up more than 25 percent of China’s population, and as a group, Chinese millennials outnumber the entire population of the United States.
They were born during the country’s one-child policy, making them the focus of family attention and resources. Many enjoyed high-quality educations, and they didn’t incur student loan debt in the process.
According to Chinese tradition, family members gave millennials a solid financial start, and most were able to avoid mortgages and other large debts. New cars were easily affordable, and new car sales took off nationwide – along with just about everything else.
Chinese millennials are driving the nation’s increased consumption. Spending from this group can be directly connected to at least 65 percent of China’s total consumption growth, and that figure is projected to increase 11 percent each year through 2021.
Chinese millennials travel more than previous generations, and they are technologically-savvy. Nearly all own smartphones, and they buy more than half of the luxury goods sold in China.
There was never a need for Chinese millennials to consider the purchase of a used car, thanks to the combination of financial security and government subsidies for certain types of vehicles. When Uxin Limited came on the scene with its used car e-commerce platform, many wondered whether it could succeed in this market.
The Decline of New Car Sales in China
The auto industry has benefitted from millennials’ spending habits, and the purchase of new cars surged in China for a time. However, a combination of factors is driving those numbers down. By the end of July 2019, new car sales had dropped for the 13th consecutive month – with no end in sight.
Stricter emissions standards are contributing to the issue, coupled with a sudden and dramatic reduction in government subsidies for electric and alternative fuel vehicles. With the trade war between the US and China dragging on, things are looking grim for new car manufacturers and distributors.
Until recently, millennials showed a determined lack of interest in buying used or second-hand cars. There was a cultural sense that taking someone else’s cast-off vehicle was embarrassing. However, the global pressures driving new car costs up have persuaded Chinese millennials to rethink their position. Uxin Limited pounced on this growing market, rapidly becoming the country’s number one online used car dealer.
For investors, the question is whether Uxin’s success will translate into value for shareholders. And if so, will the potential rewards outweigh the risks inherent in this type of investment?
What Does Uxin Limited Do?
Whether measured by gross merchandise volume or number of transactions, Uxin Limited is by far the largest used e-commerce platform in China. The company is committed to making it fast and easy for people across China’s vast geography to connect with sellers, so they can get the exact vehicle they want.
Uxin features an advanced platform that integrates online and offline sales, allowing dealers and buyers to connect and complete the sale from start to finish.
Through the Uxin software, buyers are easily able to browse options or search for specific makes and models. Once they have made a selection, Uxin coordinates car inspections, title transfers, warranties, financing, and insurance.
The company’s proprietary technology solves the main problems faced by used car buyers: limited local selection, incorrect, incomplete, and unreliable information about specific vehicles, and a highly complicated transaction process.
Uxin collects comprehensive information on buyers, sellers, and the vehicles themselves, then connects all three through its online platform and offline network of 670-plus service centers located in more than 270 cities nationwide.
The second hand car marketplace offers one-stop shopping for used car buyers, and it has transformed the dealer experience. Through Uxin’s dealer platform, Uxin Auction, businesses gain unique tools that simplify the process of sourcing vehicles, optimizing turnover, and conducting transactions across large regions of the country.
There is no question that Uxin Used Car and Uxin Auction lead the industry in China – and market share is growing. In 2016, Uxin Used Car held 32 percent of the market share, and Uxin Auction owned 40 percent of the market share. In 2017, those figures increased to 41 percent and 42 percent respectively.
The used car market grew by 11.5 percent year over year in 2018, with more than 13.8 million used vehicles sold. The jump from 2016 to 2017 was even higher, at 19.3 percent. Nearly a third of the consumers who buy through Uxin are under the age of 29, and total sales from this critical group increased by 18 percent from 2017 to 2018.
These increases barely scratch the surface of China’s used car market potential. At current figures, there are still roughly two new cars sold for every used car in China. On the other hand, in the United States, 2.4 used cars are purchased for every new car sold. By some estimates, used car sales in China will more than double by 2022, coming in at around 29.6 million. That means big potential for Uxin.
In June 2018, the company held its IPO, opening trading on the Nasdaq. It raised $225 million in its first day. But will the company’s market share continue to rise, and if so, will Uxin profit? Those are the questions new investors want answered before making the decision to buy.
Is Uxin Stock a Buy?
Uxin Limited announced its unaudited second quarter financial results in September 2019.
Uxin Used Cars increased transaction volume 500.4 percent compared to the same period in 2018, while Uxin Auction went down by 57.1 percent year over year.
Uxin explained that many dealers are moving their business over to the Used Car platform to improve their profits.
The company’s total revenues increased 58.3 percent year over year, totaling $63.9 million. Most came from the Used Car side of the business – $46.9 million – with a contribution of $9.9 million from the Auction division.
Gross profit was up by 101.2 percent over the same period in 2018, coming in at $34.1 million, and gross margin increased to 53.4 percent – an improvement over second quarter 2018’s 42 percent.
Uxin Stock Forecast
Going forward, Uxin will divest its loan facilitation business, which relieves the company of $4.8 billion in liabilities. This transaction will close by the end of 2019. This will change the calculation of year over year comparisons of revenue and profit, as the loan facilitation business had a significant impact on total figures.
Instead, Uxin will realize revenues from commissions on used car sales and the value-added services provided to consumers, such as financing and insurance referrals.
Overall, analysts have been impressed with Uxin’s penetration in China’s used car market, and they are confident this market has plenty of room for growth. The consensus is that Uxin shares could increase substantially over the next year, making this stock a strong buy candidate.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.