A high-margin company on the middle- and low-end racetrack, and a leading e-commerce express delivery company that crosses the cycle. Zhongtong Express is based on the middle- and low-end e-commerce express delivery circuit. Although it was established the latest in the “Tongda” series, it has become the leader in e-commerce express delivery due to its co-construction, sharing, and double-tier equity network balance mechanism. In 14-23 years, the company's business volume grew 16 times, profit increased 21 times, average gross profit margin was 29%, and ROE was diluted by an average of 13%, crossing the cycle of growth and profit balance.
Market supply and demand: At the end of the capital cycle, the industry enters a period of rising returns. Before and after the pandemic, the two centers of industry growth and profit shifting gears weakened the will to spend capital, and there are clear signs of an improvement in the relationship between supply and demand at the end of the capital cycle. Industry capital expenditure peaked in '21, corporate capital expenditure peaked in '23, capacity utilization is expected to gradually peak in '25, and the industry enters a period of rising return on investment and shareholder returns.
Industry pattern: Major policy changes, strong leaders are growing stronger. After 2020, the State Post Office made it clear that the express delivery industry has entered a stage of high-quality development. The fourth revision of the “New Post Law” also focused on express delivery services and couriers, and opportunities for product stratification have already emerged. As a leader in the e-commerce express delivery industry, Zhongtong is leading in scale, investment, and management. The strategic layout of the superposition of three networks and direct chain terminals has taken the lead in product stratification, and it is expected that it will fully enjoy the dividends of the high-quality development of the industry.
Investment opportunities: undervaluation and high growth, there is an opportunity for Davis to double click. On 2016.06-2023.06, Zhongtong's market share increased from 15% to 23%, and the share of Santong Yida's profit increased from 30% to 62%, while PE valuation was lowered from 20x to a 10x low due to liquidity. Currently, the company is standing at the triple inflection point of performance (easing of the price war), logic (pattern improvement/product stratification), and liquidity (Hong Kong Stock Connect), which is expected to usher in a double click opportunity for Davis.
Profit forecast and investment advice: The 24-26 EPS is expected to be 12.55, 14.69, and 17.16 yuan/share, respectively, giving the company a 24-year 15 PE valuation. The corresponding reasonable values of Hong Kong stocks and US stocks are HK$207.34 per share and HK$26.17 per share, respectively, all of which are given a “buy” rating.
Risk warning. Industry demand growth fell short of expectations, industry price competition worsened again, franchise network operations were unstable, policy impact was uncertain, and macroeconomic environment was under pressure.