Hello, investors, analysts, and friends from the capital market. Thank you for joining us online for the 2026 interim result announcement of TUHU. I'm Chen Zhe, company secretary and head of investor relations. The result briefing is being held virtually. You may join via phone or online access. Now, let me introduce the management team present today. Joining us today are Mr. Chen Min, Chairman of the Board and Chief Executive Officer of TUHU, and Mr. Zhisong Zhang, Chief Financial Officer of TUHU. Before we begin, please carefully review the disclaimer displayed on your screen. By attending this briefing, which includes this presentation, or by reviewing these presentation materials, all participants are deemed to have agreed to be bound by the limitations set forth in the disclaimer. English simultaneous interpretation is provided for this meeting.
Participants requiring English audio should register and join via the English interpretation channel included in the meeting invitation. Today's agenda consists of four parts. First, Mr. Chen Min will provide an overview of the company's overall operational performance and key business developments in the first half of 2026. Following that, Mr. Zhisong Zhang will review company's financial results from the same period. Finally, we will open the floor for a Q&A session, during which management will address questions from online participants. If you wish to ask a question, please click the Raise Hand button in the meeting system. Participants dialing in via phone may press the star key, followed by the number one to raise their hand. First of all, welcome Mr. Chen Min, Chairman of the Board and Chief Executive Officer, to walk us through the company's operational performance and business progress in the first half of 2026.
Mr. Chen Min, please go ahead.
Hello, investor, analysts, and friends from the capital market. I'm Chen Min. Thank you for joining TUHU's 2026 interim result announcement today. China's automotive aftermarket service industry has remained in a pressure-filled adjustment phase for several consecutive years. In the first half of 2026, end-user demand remained relatively soft. Geopolitical tension drove up oil price, while cyclical fluctuation in upstream raw material cost further intensified operational headwinds across the industry. The ongoing trend of the marginal supply exiting the market and the market share bifurcation continues to shape the industry landscape. China's vehicle park and average vehicle age continue to grow steadily, underpinning solid long-term demand fundamentals. Meanwhile, policymakers have issued clearer and more supportive long-term guidance. Facing these structural shifts, TUHU has seized the emerging opportunities while adhering to our long-term strategy.
We have maintained steady fast investments in user experience, product and service, our store network, and new technology applications. Financially, in the first half of 2026, the company generated revenue of RMB 8.78 billion, representing a year-on-year increase of 11.4% and sustaining our double-digit growth. Adjusted net profit reached RMB 240 million, with adjusted net margin of 2.7%. As of the end of June, our total cash balance stood at RMB 7.65 billion, reflecting a robust liquidity position. As of the end of June, our total number of registered user on TUHU platform reached 175 million, up 24.7 million year- on- year. The number of omnichannel transacting user over the past 12 months climbed to 31 million, marking yet another new milestone. Notably, new energy vehicle user and emerging consumer segment industry accounted for 17.2% of our user base, up 4.3 percentage point year on year.
As of the end of June, our total number of TUHU Workshop stores globally reached 8,825, representing a net increase of 1,620 stores year-on-year, hitting a new record recent years. TUHU's capability of rapid business replication and scalable expansion has entered into a new phase. In terms of the geographic distribution within China, stores in lower-tier cities accounted for 60% of the total, reflecting more comprehensive nationwide network layout. Amid widespread operational headwinds across the industry, the overall profitability ratio of franchise stores opened for more than six months within the TUHU Workshop system remained approximately 90%, underscoring the sustainability of our network expansion. The automotive aftermarket service sector remained in a phase of deep adjustment and structural transformation in the first half. On the demand side, consumer demanding remained sluggish in the first half.
According to data released by the National Bureau of Statistics of China, total network retail sales of consumer goods grew by only 1% year-on-year in the first half, with this pressure being even more pronounced in the automotive service market. The average number of vehicle visits per independent repair shop declined by approximately 5% year-on-year in the first half. Black swan events such as sharp oil price volatility further dampened public travel demand. On the cost side, affected by geopolitical tension and other factors, international crude oil price surged in the first half, peaking at nearly double the level of the beginning of the year. Prices of key raw materials such as styrene-butadiene rubber also saw notable spikes at one point. On the other hand, China's passenger vehicle park and national average vehicle age continued to grow steadily, anchoring solid long-term demand fundamentals.
In the first half of this year, 9 ministries and commissions, including Ministry of Commerce of the People's Republic of China, jointly issued a notice on measures to cultivate and expand automotive aftermarket consumption. This policy further elevates the strategic importance of aftermarket spending and explicitly encourages repair enterprises to pursue intensive, specialized, and branded chain operations. We remain firmly convinced that the fundamental logic underpinning the long-term growth of the automotive service market remains intact. Periods of industry headwinds and structural reshaping represent a critical window of opportunities for leading enterprises. I will elaborate on the company's key business developments across major fronts in the first half. In terms of user operations and brand building, we've maintained our investment across building a professional brand image and executing refined platform operations. In March this year, TUHU officially became the official partner of the 2026 Formula One Chinese Grand Prix.
This marks the first-ever partnership between a global motorsport series and an automotive aftermarket service brand. This really increased our awareness and professional image. We also host the TUHU Tire Festival for the 11th consecutive years, collaborating with premium domestic and international brands manufacturers. We also proactively leverage our role as industry leader, actively participating in setting industry standards. In the first half of this year, we collaborated with an industry association's research institutions and leading universities to jointly release China's first passenger vehicle air conditioning maintenance and air quality standards. On a platform operation front, we continuously optimize the entire user journey from touchpoint to engagement to conversion and repurchase, driving sustained improvements in traffic conversion efficiency and user retention. Our refined operational initiative on our proprietary platform, including homepage revamps, enhanced research functionalities, and optimized demographic-based recommendations.
The combined average monthly active users of the TUHU app and WeChat Mini Program grew by 10% year-on-year to 23.3 million, while the payment conversion rate improved by 1.6 percentage point. On the third-party channel, we deepened our platform partnership with Douyin and Meituan, achieving a year-on-year increase of over 200% in payment users from these channels in the first half. Our professional brand building and refined platform operation collectively drove sustained growth in both user scale and retention quality. In the past 12 months, TUHU's omni-channel transacting user reached 31 million, up 17.2% year-on-year, while the annual repurchase rate rose to 65.2%, marking a 0.7 percentage point increase. Regarding the store expansion, our network growth momentum accelerated further in the first half.
As of the end of June 2026, the total number of TUHU Workshop stores globally reached 8,825, with a net addition of 817 stores in the first half, setting a new historic record. This underscores sustained payoff from our comprehensive overhaul of the franchise recruitment system, systemic upgrades, and enhanced expansion capabilities initiated since last year. TUHU Workshop system not only ranked first globally in terms of managed store count, but also achieved an organic net increase of 1,620 stores over the past 12 months through non-acquisition growth, making us the world's fastest expanding automotive service chain by new store addition during the same period. Behind this rapid network growth lies the effective execution of a series of operational initiatives.
We established a regularized nationwide road show and a franchise partner conference mechanism, broadening our reach to prospective candidates, optimizing lead tracking and conversion, and precisely addressing the differentiated needs of franchises. We also boosted the expansion appetite of quality partners in key markets. Additionally, as a growing number of mid to large-scale industry players expressed their interest in joining TUHU Workshop system, we established a KA recruitment team to facilitate targeted engagement, helping partners rapidly integrating to our management framework. Operationally, the volume of our new franchise inquiries from prospective partners surged by over 100% year-on-year in the first half of 2026, while the renewal rate for existing franchise stores remained above 90%. Strong operational performance has encouraged existing franchisees to open additional stores.
Our franchise partner ecosystem also continued to expand, with new collaborations launched in the first half with regional automotive service and retail groups such as Henan Guohe Kuai Che and Xi'an He Tan Group. The ongoing influx of both new and existing franchisees alongside industry partners continues to reinforce and unleash TUHU's network expansion momentum. Alongside rapid store count growth, depth and regional balance of our network continued to improve. As of the end of June, TUHU Workshop stores in mainland China totaled 8,804, covering all 31 provincial-level administrative regions, 325 prefectural-level divisions, and 1,998 county-level divisions, representing a 70% coverage rate of county-level administrative areas nationwide. Currently, each store covers approximately 37,000 passenger vehicles on average. This leaves nearly 100% headroom to reach our interim target of one store per 20,000 vehicles in the national park. We continue to deepen penetration in mature markets.
In the first half of 2026, store counts in Guangdong, Jiangsu, and Zhejiang surpassed 1,200, 800, and 700 respectively. Concurrently, low penetration regions saw accelerated growth. Store counts in Northeast China increased over 40% year-over-year, doubled in Xizang, grew by approximately 40% in Yunnan, and surpassed 100 stores for the first time in Xinjiang province. Our exploration of overseas markets also deepened. Buoyed by positive industry and customer feedback from the solid operations of our initial stores, our overseas footprint continued to expand. As of the end of June, we were operating 14 TUHU Workshop stores in Malaysia and 7 in Hong Kong, China. TUHU's overseas business remains in its early stages.
At this phase, we will continue to prioritize store operational quality, steadily expand our network, refine our local operational capabilities, and iteratively optimize our development strategy based on market feedback, thereby accumulating experience for further expansion into broader markets. The quality of store remains the ballast of our network expansion. Even as we accelerate the growth of our store system, we continue to prioritize strengthening store management and enhancing empowerment initiative, thereby steadily reinforcing our operational foundation. On the store management front, we actively leverage new technology to enhance offline operational efficiency. We deploy algorithm model to help identify high-risk scenarios such as fire hazard, power outage, emissions, and aggressive upselling. We developed AI-powered tools to enable automated cross-verification between in-store work orders and quotations, pre-review of quotes, and video-based quality inspection of repair processes.
Regarding technician proficiency, we adopted a blended online and offline approach to comprehensively elevate the standardized repair capabilities of our store. Our targeted offline in-store training program has demonstrated positive results in controlling repairs for category 2 services, and we are systemically rolling out this training to additional service categories and cities. For orders involving specific vehicle models or specialized projects, we proactively distribute exclusive repair process videos alongside individual work orders to further standardize the execution of repair protocols. For tiered operations for franchisees and stores, we marked the third consecutive year of our high-reputation store awards. We rolled out targeted incentives for top-performing stores and franchisees. To address the segmented demands in higher-tier cities, we launched our Workshop premium store initiative.
By the end of June, 20 standard workshops have been selectively upgraded to premium stores, where the share of high-end vehicles served exceeded the city-wide average by approximately 10 percentage points. Regarding store support, we invested a total of RMB 190 million in the first half, including time-based incentive bonus. For new store openings, we progressively rolled out comprehensive support covering online traffic allocation, offline marketing campaigns, exclusive promotional events. Through management and empowerment, TUHU Workshop stores maintained a higher user satisfaction rate of 95% in the first half of 2026. On the product and service front, we continue to leverage our robust supply chain advantages to optimize our offerings and operations, catering to users' diverse needs and demands for value-for-money solutions. In our tire business, we focused our deep dive strategy on 3 vectors: value for money, plus sizing, and NEVs.
Through the tiered operation of both distributed third-party brands and our proprietary private label brands, we continue to optimize the pricing mix and enhance product competitiveness. For plus-sized tires, we bolstered the supply of original equipment specification while expanding replacement product operation. This drove the share of 18-inch and larger tires within our sales mix from 27% to 33% during the reporting period. We also conducted targeted analysis of diverse NEV user needs by proactively matching specific products into the distinct requirements of ride-hailing fleets, premium vehicle owners, and performance-driving enthusiasts. We effectively boosted transaction conversion rates. Consecutively, the share of tire sales to NEV users increased from 10% to 15%. This really help us to achieve an 18% year-on-year increase in total platform tire sales, even as the broader industry saw a volume decline of approximately 2%.
Within our maintenance business, we executed a differentiated operational strategy across various subcategories. Despite significant industry headwinds, our engine oil business achieved a 12% year-on-year sales increase compared to 7% industry-wide decline. By iterating our product line-up to enhance price competitiveness and deepening our operation tailored to specific vehicle line-up, our automotive battery business delivered over 40% year-on-year sales growth in the first half, driven by initiative to expand model compatibility coverage and extend the geographic reach. We also expanded our online supply coverage while optimizing in-store recommendations, algorithms, and assortment selection strategies to drive sales of other maintenance parts. We have gradually cultivated independent consumer awareness for categories such as brake system and air conditioner service. In the first half of the year, we navigated upstream supply shortage and price hikes triggered by geopolitical tensions, coupled with dampened consumer travel demand resulting from rising oil prices.
Leveraging proactive procurement and inventory strategy alongside an assertive market approach, we ensured stable supply and contained procurement cost. Within our beauty and care business, we constantly enrich our premium supply pool and iterated our product and service offering. The dual focus not only strengthened the business line itself, but also further unlock the long-term value. In terms of light duty segment, by the end of June, over 7,500 TUHU Workshop stores nationwide offer light duty service, representing a year-on-year increase of more than 1,500 stores. Our rewash if not satisfied service guarantee now covers all relevant stores, driving a comprehensive uplift in user experience. To address segmented user needs, we rolled out a premium upgrade service such as deluxe waxing and interior detailing to capture high-end demand, driving 120% year-on-year increase in related orders.
We promoted high value-for-money products such as the car wash multi-visit passes to boost our user retention with the sales of related prepaid vouchers reaching 3 million units in the first half. Driven by this synergistic supply and service enhancement, online payment orders for light beauty service grew by 46% year-on-year in the first half of 2026, with the daily peak orders exceeding 170,000. Light beauty services serve as a vital entry point for efficient user acquisition and cross-selling. In the first half, 35.5% of TUHU's new transacting user originated from this segment, and 12-month cross-category repurchase rate from light beauty new user remained steady at approximately 40%. We also see the initiative drove growth of over 60% in users of our mid to high-end proprietary deep beauty brands, while users with vehicles older than seven years increased by more than 30%, with expanded service coverage of deep beauty offerings.
By the end of June 2026, over 1,500 TUHU Workshop stores nationwide provided these services. From this pool, we selectively upgraded more than 70 benchmark stores with enhanced fulfillment capabilities. Moving forward, we continue to double down on enhancing both our service capabilities and supply offerings. In quick repair segment, we achieved a sustained high-speed growth by continuously upgrading our supply chain and repair capabilities by synergistic our online/offline operations. For the supply chain front, we expanded horizontally across categories to broaden quick repair service categories while vertically enriching our product portfolio across diverse brands. By the end of June, SKU count for self-operated and POP products in the quick repair category reached 170,000, marking an 89% year-on-year increase.
Regarding the repair capabilities, we adopted a blended online/offline approach to elevate store-level technical proficiency by refining our technical assessment and project certification system, which facilitated a comprehensive upgrade across the store, shifting from merely being able to repair to expertly diagnosing and resolving issues. Now, we have the store listing rate for the top 10 core quick repair category reach 99.5%. In Beijing and Shanghai, we have already seen a 25% year-on-year growth in average daily fulfillment orders for these categories in Beijing. We plan to extend these programs to more cities going forward. We also launched an exclusive certification for high voltage system repairs. Technical certification badges are now displayed on store profiles across our platform and integrated into our traffic allocation algorithms.
In terms of operational capability building, our online optimizations focusing on targeted traffic diversion for aging vehicles, adaptive product recommendations, and the refined marketing strategy drove over 30% year-on-year increase in unique visitors to key quick repair pages. Offline, we optimize associated inspection protocols during vehicle check-ins and developed AI-assisted tools to more accurately and efficiently identify user needs. Coupled with enriched product supply and algorithmically optimized assortment strategies, our product fulfillment rate continued to rise, driving a year-on-year increase of over 20% in store quick repair for field users in the first half. While the coverage rate of our proprietary supply chain improved by 5 percentage point. Propelled by these effective initiatives, our quick repair business recorded a 38% year-on-year increase in online revenue and a 68% rise in offline revenue in the first half. The NEV owners have emerged as a key driver of our user growth.
As of the end of June 2026, TUHU's NEV transacting users over the past 12 months reached 5.3 million, accounting for 17.2% of total transacting users. This penetration rate constantly exceeded the national NEV park share and continues to widen our competitive leads. NEV users' consumption patterns are also upgrading, shifting from relatively lower-ticket services such as beauty treatment and tire repairs to higher value services including tire replacement maintenance and other repairs. In general service categories, we continuously refine our offerings and around NEV-specific usage scenarios. We developed targeted products and services for key segments including car washing, waxing, window film, paint protection films, quiet and high wear-resistant tires, hybrid-specific engine oil, gear oil, air conditioning maintenance, and brake systems to capture more demand conversions. In the NEV specialized repair segment, we continue to bolster our capabilities.
By the end of June, over 162 workshop stores offered NEV-specific repair services. Nearly 1,500 technicians within our network held low-voltage electrical work certifications. On the partnership front, we expanded collaboration with battery manufacturers, OEMs, and charging pile operators to extend our service scope beyond passenger vehicles to include autonomous delivery vehicles and commercial vehicles tapping into new market. Out of the warranty service, we established a multi-channel supply chain system encompassing OEM parts, aftermarket branded parts, and remanufactured components by progressively expanding coverage across specific models and service lines. We drove a 250% year-on-year increase in EV specialized repair revenue from out of warranty CNY users. We have already seen a strong growth momentum of NEV business. We will continue to refine our service fulfillment and supply chain capabilities, advancing TUHU's brand positioning into NEV mind share, and steadily convert our first-mover advantage into NEV after-marketing to long-term value.
Distribution network is fundamental to securing product supply and optimizing user fulfillment experience. We operate 31 regional central warehouses nationwide. In the first half of through warehouse and ranking optimization, our total storage capability increased by over 10% year-on-year. We also see operational advantage for nearly a year now can handle approximately 20% of national tire outbound volume. These facilities have delivered comprehensive improvements in operational efficiency. By the end of June, we operated 844 warehouses with approximately 180 new facilities added over the past 12 months, and network expanded in tandem with our rapidly growing store systems. By the end of the reporting period, forward warehouses coverage of workshop stores improved by 4 percentage point year-on-year, while in-store inventory fulfillment rate for walk-in users increased by 2 percentage point. Our proprietary delivery routes expanded to 268 by the end of June.
By increasing penetration of our self-distribution network and actively leveraging the new technology tools such as AI, we continue to optimize route management to boost operational efficiency. In the first half 2026, the share of original warehouse outbound orders handled by our self-distribution network rose by 2 percentage point. The continuous enhancement of our warehouse network operations further optimize user fulfillment experience. In first half 2026, the same-day and next-day delivery rate for online orders on TUHU platform rose to 83.7%, up 0.6 percentage point year-on-year. For offline orders, our online delivery rate for 5 kilometers, 30 minute, and 10 kilometer, 60-minute service windows reached 98.3%, marking a 0.7 percentage point improvement year-on-year. Regarding new technology, we adhere to principle for usability, scalability, and cost reduction, actively driving the deep integration and practical application of AI and other emerging technologies. AI coding has been fully integrated into our R&D workflow.
Over 90% of front-end back-end development requirements now generated and adopted with AI assistance. We have built an internal agent platform to encourage various business units to autonomously develop applications tailored to their operational needs. Currently, the platform hosts over 140 daily active agents, widely deployed across scenarios such as assortment selection, pricing, promotion strategy, operational data analytics, and process automation. AIGC is now extensively utilized. In user interaction, TUHU's AI-powered smart customer service has continuously enhanced its capabilities by strengthening contextual understanding, human-like interaction, and tool calling functionalities. In the first half, the rate of smart-to-human transfer dropped by 8.9 percentage point, while the smart resolution rate increased by 8.4 percentage point. AI car assistance has continuously iterated its diagnostic function and iterative interfaces. TUHU has been selected as one of the first batch of internal testers for WeChat's AI age initiative.
We are actively collaborating on cutting-edge product co-development within the car maintenance scenarios. In terms of the supply chain, AI-assisted sales forecasting, inventory replenishment, and assortment logic are continuously improving inventory turnover efficiency and product availability rate. While our fully automated tire warehouses remain stably operational, we are now using pilot explorations into automated operations for certain processes. Autonomous delivery vehicles are undergoing pilot operations as well. In terms of the store management, AI-assisted technician inspection have been implemented for categories such as control arms and are being extended to more service lines. Our remote quality inspection models continue to extend their functional and anomaly detection coverage, enhancing both inspection quality and frequency. AI power safety management has also been deployed for end-of-day power-off inspection, and fire monitoring become integrated into daily operation. We believe new technology will make car maintenance simpler. Look back at TUHU's development journey.
We have constantly stayed at the forefront of technological evolution within the industry. Today, we are actively embracing this new wave of technological transformation, leveraging our accumulated strength in capital scale, data industry expertise and system capability will continue to drive the development and deployment of new technology into automotive service scenario, translating innovation into tangible improvements in personal efficiency and service quality, thereby propelling the entire industry forward. The way that is surprised seems doubt. The way that advances seems to retreat. Periods of an industry adjustments are precisely the windows during which leading enterprises widen their competitive gaps. In the first half 2026, facing demand volatility and cost pressure, we chose not to retrench or wait on the sidelines that we double down on investment in products pricing and service quality, countering an uncertain external environment within the certainty of user growth and market share gains.
We will go forward to drive the high-quality development of the industry. That is the end of my sharing.
Thank you, Mr. Chen Min, for your detailed overview of our operational performance and the business progress in the first half 2026. Now let us welcome Mr. Zhisong Zhang, Chief Financial Officer of TUHU, to walk us through the company's financial results for the period.
Hello investors, analysts, and friends from the capital markets. Hello everyone. I will now present the company's financial performance for the first half 2026. As Chen Min mentioned previously, the automotive aftermarket faced multiple headwinds in the first half, including soft demands and cost volatility. However, we view industry adjustments as a critical window for leading players to expand their competitive edge.
We maintained firm investment in our business to accelerate skills expansion and market share gains through an assertive market strategy, stable and efficient user acquisition, rapid store network expansion, and refined operation across business lines. We offset the majority of the industry's downward pressure. Quantitatively, our transacting user base sustained its rapid growth trajectory recent years, reaching 31 million. This growth we achieved against the backdrop of overall consumer softness and a significant decline in industry-wide store visits, underscoring TUHU's ability to capture user and market share counter-cyclically. In terms of the store count, we recorded a net addition of 817 TUHU Workshop stores in the first half. This figure is net of closures of underperforming stores and a natural attrition with actual gross opening exceeding 900 stores.
Although the first quarter was impacted by seasonally slower recruitment and opening rhythms around the Chinese New Year, the net addition still hit a historical high, demonstrating that our site expansion capabilities have reached an entirely new level. Aligned with this expansion on both the demand and supply side, the company generated revenue of RMB 8.78 billion in the first half, up 11.4% year-on-year. On a reported basis, this growth rate was largely consistent with the data of the full year 2025. However, starting the second half of last year, we gradually introduced the POP model to certain business lines to enrich our supply ecosystem. Consequently, revenue recognition for these segments shifted from a gross base to a net basis platform commission.
Adjusting for this accounting change, our comparable revenue grew by approximately 13% year-on-year, indicating that underlying business growth actually accelerated. By segment, tires and chassis parts were the primary growth driver, with revenue surging 19% year-on-year, despite an industry-wide decline in tire sales and our already significant market share. We achieved rapid growth in both volume and revenue through effective market strategies, enriched product offerings, and network expansion. This demonstrates the ability of a market leader to accelerate share gains during counter-cyclical windows. Revenue from our auto maintenance business grew by 6.4% year-on-year in the first half, reflecting moderation in growth pace. The period was marked by frequent black swan events. International oil price experienced sharp volatility due to geopolitical tension and conflicts. The rapid surge in oil price dampened consumer travel demand, thereby reducing maintenance frequency and willingness to spend.
Concurrently, upstream supply and pricing for raw material, exemplified by engine oil, faced significant fluctuations. In response, we proactively enhanced our product pricing competitiveness to capture market demand, driving a 12% year-on-year increase in engine oil sales volume. However, lower average selling price partially offset the revenue contribution from volume growth. While other non-oil business such as Quick Repair remained in growth mode, overall maintenance revenue growth slowed to a mid-single-digit rate. Other auto products and services maintained double-digit growth, primarily fueled by the rapid expansion of our beauty and care business. Qipeilong was the only segment to report a revenue decline on a statutory basis. This was predominantly due to the aforementioned shift from gross to net revenue recognition under the POP model, which primarily affects this segment.
Adjusting for this change, Qipeilong's comparable revenue grew by 13.8% year-on-year, indicating robust organic growth within the business itself. Franchise advertising and other platform revenue increased by 11% year-on-year. Franchise service revenue rose by 9%, largely driven by the rapid store expansion. However, we implemented a tiered franchise fee structure for new stores in lower tier cities, which reduced the average fee per store and partially offset the revenue gains from network growth. Advertising revenue grew by approximately 20%, consistent with its growth trend over recent years. Regarding gross margin, several key business segments saw year-on-year declines, partially due to a high base effect from the prior year period.
Since the second half of 2025, the company adopted a relatively drastic pricing strategy in response to the broader consumption environment, emphasizing product value for money and price competitiveness strategy, largely maintained through the first half 2026. Consequently, the company's overall gross margin for the first half 2026 was 23.3%, down 1.9 percentage points year-on-year, but showing signs of stabilization and a slight rebound compared to the second half 2025. The tire and chassis parts segment, alongside with auto maintenance, were the primary contributors to this margin contraction amidst softer market demand. We proactively adjusted pricing to capture end-user demand with more attractive offers, accelerating market share gains. Simultaneously, upstream raw material prices rose broadly in the first half, while we secured stable supply and maintained a relatively steady procurement cost through forward buying and product mix optimization.
The upward cost pressure offset some of the benefits from our regular cost-down initiative. These squeezed the margin for certain petroleum-related products. Additionally, changes in business mix exerted some downward pressure on the consolidated gross margin. The fastest-growing segment, tire and chassis parts, carries a relatively low gross margin, while the higher-margin maintenance segment saw slower growth. The divergence between our two core segments weighed on the overall margin performance, partially offset by other business lines. Qipeilong's gross margin improved by 6 percentage points to 27.5% due to business model shifts and accounting changes mentioned earlier, while margins for franchise advertising and other platform services also expanded. Overall, the company's gross margin has stabilized and shown a slight sequential recovery compared to the second half 2025.
As raw material prices and market supply-demand dynamics gradually stabilize, we will continue to drive a recovery in long-term margin performance through procurement synergies, product mix optimization, and refined tiered operations. Turning to operational expenses on an adjusted basis, excluding share-based payment expenses and listing-related fees, the total operating expense ratio was 22.8% in the first half, up approximately 0.4 percentage points year-on-year. This increase was primarily driven by proactive investment in new channel expansion and offline store networks. Specifically, the sales and marketing expense ratio rose by 0.4 percentage points to 13%. This year, we ramped up marketing spend and user acquisition investment on new channels such as Douyin and Meituan. We also increased promotion activities and consumer subsidies to support rapid offline network expansion.
The operational and support expense ratio increased by 0.8 percentage points to 3.8%, mainly due to systemic upgrading of our offline personal support team to sustain network growth, which entailed higher staffing and compensation costs. The R&D expense ratio remained flat year-on-year at 4%, while we onboarded AI specialists and technical talents, and increased investment in cloud services and server infrastructure. Efficiency gains from new technologies are already materializing across certain segments, keeping the R&D ratio stable. General administrative expenses further declined to 1.8%, continuing the trend of improving back-office management efficiency. The aforementioned expense ratios are presented on an adjusted basis.
On a statutory basis, including share-based payment and listing expenses, our overall operating expense ratio actually decreased from 23.7% in the prior year to 23.5% in the first half, reflecting stricter cost discipline across the organization. The combined impact of margin pressure and increased operating expenses resulted in temporary profit headwinds in the first half. The company recorded adjusted EBITDA of RMB 327 million and adjusted net profit of RMB 240 million. The decline in growth margin was the primary driver of profit variation. Investment in user acquisition, store expansion, new channels, and technology capabilities led to a modest increase in the operating expense ratio. This temporary profit pressure reflects both external factors such as demand softness and upstream cost volatility, and our proactive strategic choice to prioritize pricing competitiveness and scale expansion during the industry adjustment period.
These investments have already translated into tangible business growth. We believe that during a phase of accelerating industry consolidation, expanding our user base, store network, and market share is crucial to building stronger long-term competitive advantages. That said, scaling up does not mean relaxing our focus on profitability and efficiency. Moving forward, we will dynamically adjust our pricing strategy and marketing investment based on evolving market conditions. We aim to gradually restore profitability through improved procurement costs, optimized product structures, higher contributions from mature stores, network scale effects, stringent cost control, and the monetization of new technologies, maintaining a dynamic equilibrium between growth and profit. On cash generation front, we see adjusted free cash flow reaching RMB 225 million in the first half and the cash conversion cycle staying at 52 days.
The slight deterioration was primarily attributable to inventory turnover in response to upstream raw material price volatility and periodic supply shortages in the first half. We actively adjusted our procurement and stocking strategies, moderately increasing inventory depths. Nevertheless, we maintained a healthy negative cash conversion cycle, reflecting strong working capital efficiency. While sustaining business investment, we have intensified shareholder returns from the beginning of 2026 through June. The company repurchased and acquired shares via trust arrangements totaling RMB 43.5 million shares, representing approximately 5.3% of issued shares as of the period end, already significantly surpassing the full-year levels of previous years. At the end of June, we announced plans to repurchase no fewer than 50 million shares over the next two years for cancellation, coupled with an increased cap on trustee-based repurchases.
These combined maximum commitment of these two programs amounted to HK$1.5 billion, underscoring our confidence in the company's long-term value and providing greater clarity on our capital return roadmap. As of the end of June, the company's total cash reserves stood at RMB 7.65 billion. Even with increased share repurchase and trust purchases, we maintain ample liquidity to support daily operations, long-term strategic investments, and future shareholder returns. As you may have seen in our announcement in June, we have submitted listing applications to U.S. Securities and Exchange Commission. We intend to pursue a dual primary listing in Hong Kong and the United States. The primary objective of this initiative is to broaden our capital market coverage, enhance stock liquidity, and expand our base of international investors.
The company currently maintains ample cash reserves, and raising significant capital through new share issuance is not a primary goal of this proposed U.S. listing. The matter remains in the preparatory stage, and the subsequent timeline and specific structure will be subject to regulatory approval. That is the end of my sharing. Thank you.