Incident Overview
On March 20, the company issued an announcement stating that in 2023, the company achieved operating income, adjusted net profit, and adjusted net profit of 38.42 billion yuan, 9.01 billion yuan, and 9 billion yuan respectively, with year-on-year increases of 8.6%, 32.3% and 29.4%, respectively. Among them, the company achieved operating income of 10.62 billion yuan in the fourth quarter, up 7.6% year on year; adjusted net profit was 2.21 billion yuan, up 4.4% year on year. Furthermore, in 2023, the company distributed 0.62 US dollars per share, an increase of 67.6% over the previous year.
Analysis and judgment
Price competition in the express delivery industry will be fierce in 2023, especially in regions where e-commerce demand is concentrated. The price of a single ticket in Yiwu, a grain-producing region in 2023, is at a historically low level. We believe that in a situation where the industry as a whole is showing a weak recovery, Zhongtong Express effectively balances the growth between service quality, business volume and profit while maintaining high-quality service quality.
Revenue side: In 2023, the core express delivery business revenue increased from 34.16 billion yuan in the same period last year to 37.51 billion yuan, up 9.8% year on year; of these, express delivery service revenue recorded 35.49 billion yuan, an increase of 8.9% year on year, accounting for 92.4% of total revenue. In 2023, the company achieved 30.2 billion packages, an increase of 23.8% over the previous year, and the market share increased by 0.8 pct to 22.9%; in line with industry trends, the company's core single ticket revenue fell 11.3%, or 0.16 yuan, of which 0.05 yuan was an incremental subsidy.
Cost side: In 2023, the company recorded a total operating cost of 26.76 billion yuan, a year-on-year increase of only 1.6%. Thanks to continued economies of scale, optimization of main line route planning, and falling fuel prices, trunk line transportation costs recorded a year-on-year increase of 13.59 billion yuan, an increase of 8.9% over the previous year, while the unit transportation cost decreased by 12.1% (0.06 yuan) year on year. The operating cost of the sorting center recorded 8.25 billion yuan, an increase of 5.2% year on year, while the unit sorting cost decreased by 15.0% (0.05 yuan) year on year. The total transportation and sorting process was reduced by 0.11 yuan. Furthermore, the company's capital expenditure in 2023 was 6.67 billion yuan, down 8% year on year.
Profit: In 2023, the company's gross profit reached 11.66 billion yuan, up 29.0% year on year, and gross margin increased 4.8 pct to 30.4%. The company's scale advantage, continuous increase in production capacity, and stable marketing and management fee structure offset the impact of the price decline, and the annual operating profit margin increased by 4.1 pct to 26.0%.
Dividends: The board of directors of Zhongtong Express has approved the distribution of a cash dividend of 0.62 US dollars per share in 2023, an increase of 67.6% over the previous year, and disclosed that the 2024 dividend payment rate will not be less than 40%.
In addition, the company will add 500 million US dollars to the original 1.5 billion US dollar repurchase plan, demonstrating management confidence.
Investment advice
We believe that “scale is king” is one of the core factors of competition in the express delivery industry, and Zhongtong, as a leading company in the express delivery industry, is expected to continue to exert scale effects; at the same time, the company has superior cost control capabilities. During the period 2018-2023 (excluding 2022), core single ticket costs showed a continuous downward trend. Unit transportation costs and unit sorting costs fell 0.06 yuan and 0.05 yuan year on year in 2023. Continuous improvement on the cost side effectively hedged the decline in single ticket revenue under the industry's price competition. We believe that in a situation where the industry as a whole is showing a weak recovery, Zhongtong Express effectively balances the growth between service quality, business volume and profit while maintaining high-quality service quality. In addition, according to the company's disclosure, the volume of packages is expected to be 347.3-35.64 billion units for the full year of 2024, an increase of 15% to 18% over the previous year. We forecast that the company's revenue for 2024-2026 will be 44.25 billion yuan, 49.28 billion yuan, and 52.84 billion yuan, respectively, up 15.2%, 11.4% and 7.2% year-on-year growth, and gross margin continued to improve from 2023, at 31.9%, 32.2% and 32.4%, respectively; net profit to mother will be 10.44 billion yuan, 11.91 billion yuan, and 13.02 billion yuan, respectively, up 19.3%, 14.1% and 9.3% year-on-year, respectively. The corresponding EPS was 12.67 yuan. 14.46 yuan and 15.81 yuan, with price-earnings ratios of 12x, 10x, and 10x corresponding to the closing price on March 27, maintaining a “buy” rating.
Risk warning
The economic recovery fell short of expectations; the prosperity of the e-commerce industry fell short of expectations; the price war was too intense; regulatory policy changes; oil prices rose sharply; labor costs continued to rise, etc.