The net profit of the company's main business in fiscal year 23 was about 800 million yuan, which is in line with our expectations. The company announced the rapid results report for fiscal year 23: revenue of 36.3 billion yuan, +16% year over year; net profit to mother of 740 million yuan, +13% year over year. The company confirmed a fair value change loss of 95 million yuan in '23, mainly due to fair value losses for holding shares in the autonomous driving company Inceptio. Excluding the impact of changes in fair value, we estimate the net profit for fiscal year 23 to be about 840 million yuan, +28% over the same period last year. The operating conditions of the main business are in line with our expectations. 23Q4 revenue in a single quarter was 10.8 billion yuan, +26% year-on-month, +11% month-on-month; net profit to mother was 270 million yuan, -15% year-on-year, +20% month-on-month. Excluding the profit and loss effects of changes in fair value, the estimated net profit is 370 million yuan, +15% year over year and +62% month over month.

Key points of interest

Integration with JD Express Network: 2023 is the initial stage of network integration. Looking ahead to 24, we expect the integration to bring deeper quantitative growth to Debon:

1) On the revenue side, the company estimates that revenue from JD related transactions in fiscal year 23 was about 3.64 billion yuan, of which we estimate that about 2.8 billion yuan came from network integration; the company expects revenue from related transactions with JD to be 7.80 billion yuan in 24, an increase of 114% over the previous year, accounting for about 18% of the company's revenue in 24 years.

2) On the business side, the company has 116 self-operated distribution centers, and 83 distribution centers from the JD Express network integration; we expect that as the integrated business matures, distribution hubs are expected to be consolidated and streamlined, thereby straightening routes and improving timeliness; mainline vehicles in integrated projects are also expected to reduce costs through self-commercialization.

3) On the cost side, we expect that as the company's network integration progresses, the scale effect brought about by the increase in cargo volume may accelerate in 24 years. For example, route straightening may effectively reduce transportation costs, and the estimated freight rate as a proportion of revenue may decrease by 0.7 ppt; in addition, the streamlining of distribution hubs is also expected to reduce rent costs.

Express industry outlook: The 24-year government work report indicates: 1) Accelerating the construction of a unified national market. We believe that the guidelines are expected to push the logistics industry to further break through regional barriers, and express freight is expected to accelerate penetration into traditional LTL markets such as regional networks; 2) Implementing logistics cost reduction actions, we expect leading companies with scale and cost advantages to increase their share. Taken together, we expect that the express shipping industry may focus on breaking through market segments and refining products and services in 24 years; direct-operated express shipping may continue to maintain a stable two-tier pattern. It is recommended to focus on Debon's network integration and cost reduction and efficiency process.

Profit forecasting and valuation

The profit forecast for 2023 and 2024 remained unchanged; introduced profit of $1,509 billion for 2025, an increase of 30.5% over the previous year. The current stock price corresponds to the 2024/2025 price-earnings ratio of 12.5x/9.5x. Maintaining an industry rating and a target price of 20.00 yuan, corresponding to 17.8 times/13.6 times the 2024/2025 price-earnings ratio, there is 42.7% upside compared to the current stock price.

risks

Price competition in the industry worsened, the macroeconomic economy declined, and the profit contribution of network integration fell short of expectations.