Key points of investment
Incident: Zhongtong Express released its 2023 annual report. In 2023, the company achieved revenue of 38.4 billion yuan, up 8.6% year on year; adjusted net profit of 9.01 billion yuan, up 32.3% year on year. Among them, 2023Q4 achieved revenue of 10.6 billion yuan, up 7.6% year on year; adjusted net profit of 2.21 billion yuan, up 4.4% year on year. The company achieved steady growth in revenue and profit through operations, and the performance was in line with expectations.
23 years of high-quality growth, and performance shows resilience. In 2023, the company achieved a business volume of 32 billion units, an increase of 23.8% over the previous year, exceeding the industry's 4.3pct; the market share reached 22.9%, an increase of 0.8 pct over the previous year, maintaining the first position. In 23 years when the industry resumed rapid growth, the company achieved a steady increase in market share. Price competition in the industry was intense in '23. The company's annual revenue per ticket was 1.27 yuan (excluding delivery fees), a year-on-year decrease of 0.18 yuan/ticket. The company achieved a steady increase in single ticket profits through excellent cost and expense control. In terms of core costs, the transportation cost for a single ticket in '23 was 0.45 yuan/ticket, down 0.06 yuan/ticket; the transit cost for a single ticket was 0.27 yuan/ticket, down 0.05 yuan/ticket from year to year; of these, the 23Q4 core cost was 0.72 yuan/ticket, which was also 0.11 yuan/ticket, which is in line with the year-on-year decline. The total cost for the whole year was 0.86 yuan/ticket, down 0.18 yuan/ticket from the previous year, driving the adjusted net profit of a single ticket to 0.30 yuan/ticket for the whole year, maintaining a high level. 23Q4 net profit after adjustment for a single ticket was 0.25 yuan/ticket, mainly due to factors such as bad debts and taxes. (Data from company announcements and the National Post Office)
Pay attention to shareholder returns, and the industry is optimistic about the return of corporate value as it matures. The company announced a significant increase in the dividend and repurchase ratio: the dividend was 0.62 US dollars per share in 2023, the dividend ratio reached 40%, and the semi-annual regular dividend payment policy was implemented starting in '24, and the dividend ratio was not less than 40% of the profits that can be distributed in that fiscal year; at the same time, the company announced an expansion of the $500 million repurchase plan, which will be extended until June 30, 2025. Capital expenditure in 2023 reached 6.67 billion yuan, down 8% year on year, showing a downward trend. The express delivery industry has experienced many rounds of competition. The industry pattern is becoming more and more clear, and it is gradually entering a mature stage. Zhongtong Express has taken the lead in increasing the dividend and repurchase ratio. On the one hand, it comes from the emphasis on shareholder returns, and on the other hand, from the company's own motivation for business development and industry position. According to Post Office data, the industry volume growth rate reached 28.5% in January-January '24, exceeding expectations. We are optimistic about investment opportunities in the express delivery industry and the return of value after Zhongtong Express is included in Hong Kong Stock Connect. (Data from the National Post Office and company annual reports)
The profit forecast was lowered and the “buy” rating was maintained. The company's performance will guide the annual component volume growth rate of 15-18%. Based on the increase in industry demand over the past 24 years, we predict that the company's business volume will reach 35 billion units in 2024, an increase of 16% over the previous year. Due to cost reduction and scale effects, we expect the company's net profit from a single ticket to increase slightly year-on-year in 2024, but the increase is narrower than the original forecast, and subsequent outbound dividends involving tax expenses were lowered to the 2024-2025 adjusted net profit forecast to 10.887/13.09 billion yuan (the original forecast was 120.44/14.694 billion yuan). We are optimistic about the future performance release of leading companies after the industry enters a steady state. We are optimistic about the future performance release of leading companies after the industry enters a steady state. We are optimistic about the future performance release of leading companies after the industry enters a steady state, and introduced a profit forecast of 15.669 billion yuan for 2026, that is, the net profit after 24-26 adjustments, respectively 108.7/130.9/15.67 billion yuan, a year-on-year increase of 21%/20%/20%%, corresponding PE was 11/10/8x, respectively.
As a leading express delivery franchise company, the company has high performance certainty, market share continues to expand, competitive advantage continues to show, shareholder returns are sufficient, and we maintain a “buy” rating.
Risk warning: Industry growth is lower than expected; major safety incidents; increased price fluctuations.