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Carsome revs up for IPO with an eye on 2H profitability

Felicia Tan
Felicia Tan • 6 min read
Carsome revs up for IPO with an eye on 2H profitability
Carsome's Certified Lab in Thailand. Photo: Carsome
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Carsome, Southeast Asia’s leading car e-commerce platform, is poised to capitalise on the rapid expansion of the used car market in the region. By 2025, the industry is projected to reach US$158.7 billion ($209.8 billion), growing at a CAGR of 10.4% from the estimated US$131.3 billion in 2023.

Several growth drivers are propelling the market growth within the region. According to Carsome’s executives, this includes a high and growing used-to-new car ratio, which is expected to increase from 1.95 times in 2023 to 2.04 times in 2025, a rising middle-class population with more disposable income, and a shift towards a preference for personal transport post-pandemic.

In 2015, Eric Cheng and Teoh Jiun Ee co-founded Carsome to bring “trust, choice, and transparency” to the traditionally opaque used car industry. They aimed to eliminate intermediaries and provide a reliable database for customers.

Even from the beginning, it was clear that the group intended to expand beyond its native Malaysia, where its headquarters are currently. The group expanded its operations to Singapore in 2016, where most notably, it acquired a majority stake in used car dealer CarTimes Automobile last year. Carsome has already expanded into Thailand and Indonesia, continuously building its presence.

In 2021, Carsome became Malaysia’s first unicorn, surpassing a valuation of US$1 billion after successful funding rounds. In the following year, its valuation increased to US$1.7 billion, and it expanded into the Philippines, marking its entry into another Asean market.

Carsome has experienced remarkable growth, from selling around 1,000 cars in 2016 to becoming a market leader in key regions like Malaysia, Singapore, Indonesia, and Thailand. Currently, the company achieves a monthly sales volume of approximately 18,000 cars.

See also: Malaysia-listed LYC Healthcare drops plan to list Singapore subsidiary on SGX

Expansion prospects

Within the Carsome umbrella, the Carsome Certified Lab stands out as Southeast Asia’s largest state-of-the-art car refurbishment facility, spanning 185,856 sq ft. This facility can refurbish up to 2,000 cars monthly, catering to 30 car brands, including Japanese, Korean and continental manufacturers. The lab’s services go beyond mechanical and general repairs, enhancing the cars’ appearance and giving them a fresh and new look.

Besides its core operations, Carsome offers additional services through Carsome Capital, providing customised financial solutions like loans and car insurance to car buyers. Another venture, the Carsome Academy, is an accredited technical institute that imparts technical automotive knowledge and hands-on experience. Under the guidance of Carsome’s co-founder and Carsome Academy CEO Teoh Jiun Ee, the Academy offers certifications in motor vehicle inspection, automotive body and paint, and automotive management, giving students valuable expertise in the automotive industry.

See also: Cheap European stock valuations are getting in the way of IPOs

As the group’s CEO, Cheng is determined to expand Carsome’s range of ancillary services, particularly considering the company’s already established market leadership regarding transaction numbers. Carsome Capital, established in 2018 to provide financing solutions to customers and dealers, currently contributes approximately 15% to the group’s retail transactions. The company has disbursed US$240 million with a financing book of US$90 million as of May this year.

Cheng asserts that the group’s non-performing loans (NPL) are impressively low, at 0% for wholesale customers and under 1% for retail customers. This rate is notably among the region’s lowest overall compared to banks. The credit goes to the valuable data the company has acquired, empowering them to provide customised solutions.

Carsome has also set its sights on a share of the aftersales service market. CEO Cheng emphasises that aftersales have become a growing concern, particularly for used cars that require more attention in terms of aftersales services. Speaking to visiting journalists and analysts at the company’s Kuala Lumpur offices, Cheng highlighted the group’s interest in expanding beyond their current focus on financing and insurance.

Aftersale services

Seeing the fragmented market for workshops in Southeast Asia, the group recognises an opportunity to offer aftersales services to its customers. This move strengthens the group’s relationship with existing customers and opens up possibilities for future car purchases. Currently, Carsome’s aftersales service operates in Malaysia, but the company has plans to expand this service to Indonesia and Thailand in the coming quarters.

The car ancillary services market is a “rapidly developing one”, with a 10% CAGR between 2023’s US$93.4 billion market size to the estimated market size of US$113.1 billion in 2025.

Carsome attributes its growth to several key factors. Firstly, the rise of used car e-commerce platforms has played a significant role. Additionally, customers now favour personalised products and services, leading to increased demand. Streamlined financing channels have also made it easier for used car customers to access financing, further supporting the company’s expansion.

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In addition to its core business of buying and selling used cars, Carsome is now considering venturing into selling new electric vehicles (EVs) on its platform. CEO Cheng sees this move as an opportunity for further growth while solidifying the company’s market leadership in Southeast Asia. Embracing the EV market aligns with Carsome’s strategy to capture more opportunities and expand its regional reach.

Over the past year, Cheng says the company has focused on sustaining its business. This involved three key approaches: Optimising trade margins, enhancing operational efficiency, and improving capital efficiency and liquidity. With these strategies in place, the group aims to achieve profitability by the second half of FY2023.

Eyeing an IPO

As for going public, Cheng says the group has been preparing for its IPO. In June 2022, Carsome postponed its dual listing in Singapore and the US.

According to Cheng, the group has already established the procedures and practices as if it is a publicly-listed company. For example, Carsome is audited by one of the Big Four accounting firms, and its board has an audit committee and a remunerating committee. These measures demonstrate the company’s readiness and commitment to meeting the standards and requirements expected of a publicly-listed entity.

On July 11, it appointed its first independent director, Yeoh Oon Jin, and his appointment was effective on June 30. The former chairman of Pricewaterhouse-Coopers Singapore is on the Singapore Exchange board. Yeoh is also the chairman of the Singapore Land Authority, as well as the vice-chairman and audit committee chair at the Singapore Business Federation.

Meanwhile, the plan for the group is to see when the market is ready for an IPO, says Cheng, without directly referencing the general lacklustre global IPO market over the past year or so. He adds: “The most crucial thing for us is to ensure that the group looks attractive [in terms of operating and financial metrics] to the market. The preparations we’ve done means we can go quickly whenever an opportunity permits.”

On June 19, Carsome announced that it had concluded its latest funding round and bolstered its liquidity with approximately US$200 million. The funding round garnered interest from various investors, including new and existing stakeholders. Notable participants included 65 Equity Partners, Seatown Private Capital Master Fund, Qatar Investment Authority, Gobi Partners, Asia Partners, and EvolutionX Debt Capital.

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