Core view: In 2023, SF Express continued to reduce costs and increase efficiency, and the net interest rate of the main business increased significantly. However, due to the impact of sea and air freight rates dragging down international business, the performance was slightly lower than our previous expectations.
Adjust profit forecasts to maintain a “buy” rating. In 2023, SF Express continued to improve quality and efficiency, and the profitability of express and bulky goods businesses improved markedly, but international business was hampered by low sea and air freight rates, and the performance fell slightly short of expectations. According to the forecast of the State Post Office, the business volume growth rate of China's express delivery industry will be around 8% in 2024, and the growth rate has slowed significantly. At the same time, considering that SF Express will continue to invest in new projects such as Ezhou Airport and international networks in 2024, which will put some pressure on the company's costs in the short term, we adjusted SF's profit forecast for 2024-2026 to 95.7/115.7/13.11 billion yuan (the previous forecast was 106.8/13.47 billion yuan for 2024-2025). The company is currently in the stage of cost reduction and efficiency. There is still room for improvement in long-term profit margins. With the recovery in international sea and air freight rates, the profit level is expected to continue to rise. It still has allocation value under current valuation, giving it a “buy” rating.
The express shipping business has improved quality and efficiency, and net interest rates have increased significantly. In 2023, SF Express achieved net profit of 8.23 billion yuan, an increase of 33.4% over the previous year, and net profit of 7.13 billion yuan after deduction, an increase of 33.7% over the previous year. The company's deducted non-net interest rate increased 0.8 percentage points from 2.0% to 2.8%. Looking at the split, the net profit of the 1) Express and Heavy Goods division was 8.45 billion yuan, an increase of 54.6% over the previous year. 2) The net profit of the Tongcheng Instant Delivery Division was 50 million yuan, turning a loss into a profit. 3) The supply chain and international division had a net loss of 500 million yuan. The low operation of international sea and air freight rates caused a significant drag on the company's international business.
Multi-network integration continues to help reduce costs. Without considering the influence of Kerry Logistics, the gross profit margin of the company's main logistics business was 13.7% in 2023, an increase of 0.2 percentage points over the previous year. In terms of split costs, labor costs were 102.8 billion yuan, an increase of 12.2% over the previous year, accounting for 40.9% of revenue. Excluding the influence of Kerry Logistics, the year-on-year increase was 1.6 percentage points, mainly due to the company taking the initiative to increase the remuneration of Tier 1 and 2 employees. The cost of capacity was 82.9 billion yuan, down 22.4% from the previous year, accounting for 33.0% of revenue. Excluding the influence of Kerry Logistics, the year-on-year decrease was 1.8 percentage points. The main reason was that the company continued to promote multi-network integration and increase resource utilization.
The peak of capital expenditure has passed, increasing shareholder returns. Cash payments for SF Express's purchase and construction of fixed assets, intangible assets and other long-term assets totaled $12.47 billion in 2023, a year-on-year decrease of 12%. After Ezhou Airport was put into operation, the peak period of the company's capital expenditure has passed. Meanwhile, according to the company's announcement, the company's dividend ratio will increase from 20% in 2022 to 35%, and the 2024-2028 cash dividend ratio will increase steadily from 2023. Furthermore, the company will continue to buy back shares and cancel them at any time, further boosting market confidence and enhancing shareholder returns.
Keep an eye on international sea and air freight rate trends. Since 2022, SF Express has achieved significant improvements in continuous cost reduction and efficiency through a number of initiatives. Looking ahead to 2024, the revenue side of the industry will slow down, the company will continue to invest in the short term, and there is some pressure to increase the net interest rate of the main business. However, in terms of international business, changes in international sea and air freight rates have had a significant impact on the company's supply chain and the profits of the international division. If freight rates recover, it will significantly increase SF Express's profits.
Risk warning events: The growth rate of time-sensitive goods falls short of expectations, the decline in international sea and air freight rates, and the risk of untimely update of research report usage information.