Key points of investment:
Incident: SF Holdings released its 2023 Annual Report. In 2023, we achieved revenue of 258.4 billion yuan, down 3.4% year on year; realized net profit of 8.23 billion yuan, up 33.4% year on year; net profit after deducting non-return to mother was 7.13 billion yuan, up 33.7% year on year. Among them, 23Q4 achieved revenue of 69.4 billion yuan, an increase of 1.5% year on year; net profit to mother was 1.97 billion yuan, up 15.8% year on year. Due to factors such as the year-on-year decline in international air and sea freight demand and prices and the transition to the Ezhou hub, the performance was slightly lower than expected.
The trend of high-quality growth continued for 23 years, and profitability continued to improve. In 2023, 11.97 billion units of improved business were completed, an increase of 16% over the previous year (excluding Feng.com). Among them, time-sensitive parts achieved steady growth under the high base of the epidemic in '22, consumer contributions increased steadily, and returned goods maintained a high growth rate, showing resilience. Economic Devices completed product optimization and divested Fengwang's loss-making business in June 23, focusing on the rapid development of e-commerce brands and continuous improvement in revenue and gross profit. In 2023, SF Express Tongcheng turned a loss into a profit at the net profit level. At the same time, the volume of orders maintained a high growth rate, and the scale effect continued to be unleashed. On the cost side, the company's four-network integration upgrade to multi-network integration helped reduce costs, and the results of cost reduction and efficiency were remarkable. The company's net profit margin reached 3.2% in 2023, up 0.9 pct year on year, higher than the equity incentive target of 0.6 pct. We are optimistic that the company's profit margin will continue to improve in the future.
(Data from company announcements)
Repurchases and cancellations, and dividend ratios have increased dramatically, and emphasis is placed on shareholder returns. In 2023, the company paid 0.6 yuan per share, up 140% year on year; the dividend ratio reached 35%, up 15 pcts year on year. At the same time, the company announced a shareholder return plan for the next five years, and the cash dividend ratio will continue to increase steadily in 2024-2028. Based on confidence in future development prospects and high recognition of its own value, the company plans to change the use of repurchased shares in the three-phase repurchase plan to cancel. Since the January 2024 repurchase plan has not been implemented, it is estimated that the number of shares cancelled is about 65-78 million shares, and the proportion of cancelled shares is about 1.3%-1.6%, which will increase earnings per share by about 1.3%-1.6%. (Data from company announcements)? Long-term layout, seize long-term value. The company adheres to healthy and sustainable development, has a forward-looking layout of an efficient and reliable global network, and uses the Ezhou hub to expand the scope of the domestic time-sensitive network and strengthen international business capabilities. In the short term, the pressure on revenue and costs of international, supply chain, and Ezhou hub operations is fully reflected in the 23-year report. In the future, as business volume increases and operational efficiency increases, the scale effect is expected to continue to be unleashed. At the same time, it is also expected to open up the company's second growth curve in the long term. We are optimistic that the company will strengthen collaboration with Kerry Logistics in the future, deeply cultivate the Asian market, and further enhance international express delivery and integrated logistics business capabilities.
Investment analysis opinion: Lower profit forecasts and maintain the “gain” rating. Not considering the impact of the company's proposed H share issuance and listing plan. Due to the growth rate of time-sensitive components, the profit situation in the international and supply chain business is lower than expected, and Ezhou is still in the early stages of operation, we lowered our profit forecast. We expect the net profit to the mother for 24-26 to be 100.27/115.19/13.038 billion yuan, respectively (the original 24-25 value was 115.34/13.784 billion yuan; the profit forecast for '26 was newly introduced), up 21.8%/14.9%/13.2% year-on-year, corresponding to the 24-26 price-earnings ratio 18/15/ 14x
The company's stock price has experienced a full decline, and there are many pessimistic expectations, but the quality of operations continues to improve, the performance is in the upward range, and long-term value is determined. We are optimistic about the continued improvement of the company's performance and future valuation restoration, and maintain the “gain” rating.
Risk warning: Macro demand declined, leading to a slowdown in the growth rate of time-sensitive parts business; new entrants disrupted the situation, and competition in the industry exceeded expectations; Ezhou Airport's investment and operation costs were high, or the results fell short of expectations; air and sea freight demand and prices fell sharply.