Incidents:
On March 20, 2024, Zhongtong Express announced its 2023 annual results:
On the financial side, in 2023, Zhongtong Express achieved revenue of 38.419 billion yuan, up 8.60% year on year, of which core express delivery service revenue was 35.488 billion yuan, up 8.94% year on year; the company achieved gross profit of 11.663 billion yuan, up 29.02% year on year, and realized net profit of 8.749 billion yuan, up 28.49% year on year.
2023Q4, Zhongtong Express achieved operating revenue of 10.619 billion yuan, up 7.58% year on year, of which core express delivery service revenue was 9.759 billion yuan, up 6.44% year on year; the company achieved gross profit of 3.128 billion yuan, up 12.83% year on year, and realized net profit of 2.92 billion yuan, up 1.37% year on year.
In terms of business, in 2023, Zhongtong Express completed a business volume of 30.202 billion tickets, an increase of 23.83% over the previous year, and its market share reached 22.87%, an increase of 0.81 pcts over the previous year.
2023Q4, Zhongtong Express completed a business volume of 8.705 billion tickets, an increase of 32.03% over the previous year, and its market share reached 22.35%, an increase of 0.78 pcts over the previous year.
Investment highlights:
The volume of items maintained rapid growth, and the market share continued to increase. The leading scale advantage stabilized the company's express delivery business volume totaling 30.202 billion units in 2023, up 23.83% year on year. The growth rate was higher than the growth rate of 19.43% of the express delivery industry's business volume, and the market share increased by 0.81 pcts to 22.87% year on year. 2023Q4, the company's express delivery business volume totaled 8.705 billion units, up 32.03% year on year. The growth rate was higher than the express delivery industry's business volume growth rate of 27.40%, and the market share increased by 0.78 pcts to 22.35% year on year. Despite weak macroeconomic recovery in 2023 and intense competition in the express delivery industry as a whole, Zhongtong Express focused on its own development and successfully maintained an industry-leading growth rate. Its market share continued to increase, and its leading scale advantage remained stable.
Cost reduction hedged unit price declines, volume and price increases sharply, achieving steady growth in the express delivery industry's single ticket revenue in 2023. Among them, Yuantong Express/Yunda Shares/Shentong Express single ticket revenue fell 6.88%/9.03%/11.33% year on year, respectively. Continued price competition in the industry put pressure on the profit side of express delivery companies. In 2023, China Express's single ticket revenue fell 11.33% year on year to 1.24 yuan, or 0.16 yuan. The year-on-year decline was less than that of the industry. Moreover, the company's solid scale advantage, continuous decline in production capacity, fine management, and stable sales and management fee structure all offset the negative impact of the price drop on single ticket profits. In 2023, the company's single ticket cost fell 17.00% year on year to 0.86 yuan, or 0.18 yuan (of which the single ticket transportation cost fell 11.76% year on year to 0.45 yuan, a decrease of 0.06 yuan; the operating cost of the single ticket center fell 15.63% year on year to 0.27 yuan, a decrease of 0.05 yuan). The cost reduction was greater than the revenue drop, which brought about improvements on the gross profit side. The company's gross profit per ticket increased 4.61% year over year to 0.38 yuan, an increase of 0.02 yuan.
On the cost side, the company's single ticket fee decreased by 5.72% year-on-year to 0.08 yuan in 2023, a decrease of 0.005 yuan. Ultimately, in 2023, the company's net profit from a single ticket rose 3.76% year on year to 0.29 yuan. The company successfully hedged the decline in unit prices through cost reduction and fee reduction, and fully implemented the “volume, price, cost, and profit” balance strategy. Combined with steady growth in business volume, the steady increase in volume and price achieved steady growth in performance.
The dividend ratio and repurchase plan have both increased, steadily increasing investor returns. In 2023, the company plans to pay a cash dividend of 0.62 US dollars per share, an increase of 68% over the previous year. The dividend payment rate is 41.42%, an increase of 10.63 pcts over the previous year. We estimate that the company plans to pay a cash dividend of $4.40 per share this year. Based on the stock price of Zhongtong Express and the Hong Kong dollar exchange rate on March 20, the dividend rate is approximately 2.69%. Furthermore, the company announced that it will implement a semi-annual regular cash dividend policy starting in 2024: from 2024, the company will pay regular cash dividends every six months, and the total amount is not less than 40% of the company's distributable profits for the fiscal year.
In addition, the board of directors of the company has approved the expansion and extension of the share repurchase program. It is planned to expand the share repurchase program by 500 million US dollars to 2 billion US dollars, and extend the effective period of one year until June 30, 2025. Previously, the company's board of directors approved the share repurchase plan in November 2018, increasing the total value of repurchasable shares to US$1.5 billion, and extending the effective period until June 30, 2024.
We believe that this increase in the dividend ratio and repurchase plan shows the determination of Zhongtong Express to increase investor returns. Benefiting from the long-term growth prospects of the Chinese economy and logistics industry, and compounding the company's own competitive advantage and free cash flow accumulation, the company is ready to steadily increase investor returns.
Strong supervision or acceleration of the evolution of the industry pattern. With the implementation and implementation of the newly revised “Express Delivery Market Management Measures” and courier contract social security policies, the express delivery industry is facing further stricter regulations. The industry has moved to a stage of high-quality development with high standards, fast timeliness, and excellent service, which places higher demands on the operation and management of express delivery companies. Currently, pressure on the profit side of some companies is high, and regulatory policies have caused terminal delivery costs to rise or accelerate the evolution of the pattern. Zhongtong Express has always insisted on qualitative growth and sought a balance between scale and efficiency. In 2023, the company competed for reasonable prices within the scope of cost savings. The gross profit per ticket increased by 0.02 yuan over the same period last year, taking the initiative to compete.
We are optimistic that the company will grasp the balance of quantity and profit as the industry continues to compete, and the resulting performance will continue to grow steadily.
In the fourth week of February, the first week of March, and the second week of March 2023, the national postal express delivery volume was 28.17, 31.27, and 3,036 billion pieces, respectively, up 16.19%, 19.76% and 22.17%, respectively. The continued acceleration in sales volume indicates an overall increase in the prosperity of the express delivery industry. As a leading domestic e-commerce express delivery company, it has a clear advantage in the balance of “volume, price, cost, and profit”, and is expected to fully benefit from the recovery of the industry and achieve a sharp rise in volume profit. In 2024, the company expects the annual package volume to be 347.3-35.64 billion pieces, an increase of 15% to 18% over the previous year. Under the strategy of steady volume growth and balance between volume and price, the company is expected to achieve steady growth in performance.
Profit forecast and investment rating Based on the latest disclosed annual results, we adjusted and introduced the 2026 profit forecast. We expect Zhongtong Express's revenue for 2024-2026 to be 42.322 billion yuan, 46.927 billion yuan and 52,926 billion yuan respectively, and net profit to mother of 10.584 billion yuan, 12.519 billion yuan and 14.610 billion yuan, respectively. The corresponding PE for 2024-2026 will be 14.02 times, 11.85 times, and 10.16 times, respectively. The company insists on balanced development of “volume, price, cost and profit”, is optimistic about the leading e-commerce express delivery company Hengqiang, and maintains a “buy” rating.
Risks suggest that the industry's growth rate is falling short of expectations, the price war is restarting, management improvements falling short of expectations, cost control falling short of expectations, franchisees bursting out of positions, and unstable Sino-US relations.