Incident: The company released its 2023 annual report. The annual business volume was 30.20 billion units, up 23.8% year on year, market share increased by 0.8 pct to 22.9% compared to last year, and adjusted net profit for the whole year was 9.01 billion yuan, up 32.3% year on year. In the fourth quarter, the company achieved a business volume of 8.71 billion units, a year-on-year increase of 32.0%. The market share increased by 0.8 pct to 22.3% compared to last year, and adjusted net profit for the single quarter was 2.21 billion yuan, an increase of 4.4% over the previous year.
Fierce price competition led to a decline in single ticket revenue, and direct customer business optimization was basically completed: the industry was in a state of fierce price competition throughout 2023. The company's core single ticket revenue fell by 0.16 yuan, a year-on-year decrease of 11.3%, of which 0.05 yuan was an incremental subsidy. In the fourth quarter, the company's revenue increased 8% year-on-year. Among them, business volume increased by 32.0%, but single ticket revenue fell 18.2%.
In addition to the decline in revenue and the increase in subsidies due to increased competition in the industry, the sharp year-on-year decline in direct passenger revenue is also one of the main factors. Starting in 2023, the company abandoned part of the loss-making direct customer business, and at the same time handed over part of the direct customer business to franchisees. It took half a year to basically complete the optimization of the direct customer business.
Since the delivery costs of the direct customer service are included in other costs of the company's cost project, the company's other single ticket costs quickly dropped from 0.18 yuan/ticket in 22Q4 to 0.10 yuan/ticket in 23Q3. 23Q4 and 23Q3 were basically the same, indicating that the optimization of the direct customer service was basically completed in the second half of the year.
Strong cost control significantly hedged the impact of revenue side decline: benefiting from standardized and digitized management measures, the company's single ticket cost in the fourth quarter was 0.83 yuan, a significant decrease from 1.04 yuan in the same period last year. Among them, single ticket transportation costs decreased by 0.06 yuan to 0.46 yuan/ticket; single ticket sorting costs fell 0.06 yuan to 0.26 yuan/ticket. Furthermore, due to the optimization of the direct service business, other costs of a single ticket decreased by 0.08 yuan to 0.10 yuan/ticket.
Looking at the whole year, the company's transportation cost for a single ticket fell from 0.51 yuan to 0.45 yuan in '23, and the cost of sorting a single ticket fell from 0.32 yuan to 0.27 yuan. The significant reduction in core costs is one of the main reasons why the company was able to achieve profitable growth under intense price competition.
The peak of capital expenditure has passed, and it is worth paying attention to increasing dividends: the company's capital expenditure peaked at around 9 billion dollars in 20-21, and then entered a downward channel. The company's capital expenditure in '23 was 6.67 billion yuan, down about 8% from the same period last year.
As profit increases and capital expenditure falls, the company's cash reserves have become more abundant. The total amount of the company's cash (and equivalent) and long-term and short-term financial management in '23 exceeded $32.6 billion, an increase of 27% over the same period last year, creating conditions for increased dividends. The company's dividend per share in 2023 was 0.62 US dollars, up 68% from the dividend of 0.37 US dollars per share in '22. At the same time, the company promised a dividend payment rate of not less than 40% for 24 years. Additionally, the board approved an additional $500 million buyback program. We believe that the company has a strong desire to increase shareholders' returns, that subsequent dividend expectations are stable, and that the possibility of continuing to increase the dividend ratio is not ruled out.
Profit forecasting and valuation suggestions: Zhongtong has always adhered to the strategy of increasing service quality, business scale, and profit level in a balanced manner. Relying on diversified products and services, first-class operational efficiency, and the most stable franchise network, Zhongtong successfully built high brand awareness and customer satisfaction, thereby obtaining a revenue premium, preventing the company from falling into the plight of industry costs. This is the reason we continue to recommend Zhongtong. We expect the company's net profit to be 10.32, 121.0, and 13.57 billion in 2024 to 2026, respectively, and the corresponding PE is 11.9, 10.2, and 9.1 times, respectively. The company's position as a leader in access is stable. The express delivery price war led to a continuous decline in sector stock prices last year, and the company's valuation had a strong margin of safety. If the price war eases, profits and stock prices will have greater upward elasticity, maintaining a “highly recommended” rating.
Risk warning: There have been major changes in industry policies, the intensity of the price war has exceeded expectations, and the macroeconomic growth rate has declined.