Core view: (Unless otherwise specified, the currency unit for this report is RMB, 1RMB = 1.0814HKD)
Focus on the main line, and franchise-based express delivery leaders return to profit channels. As one of the founders of China's network-wide franchise express track, Eneng Logistics has spent more than ten years consolidating its leading position. In 18-23, the company's volume CAGR was 10%, and revenue CAGR was 13%. It is worth noting that in the past two years, Eneng focused on improving quality and efficiency, subtracting and adding profit. The company's business volume growth rate slowed in 23 years, but net profit turned loss into profit.
Slow is fast, and cost improvements open up room for growth. Although the strategic move to focus on the main business led to a slowdown in the company's revenue growth rate, the corresponding cost control capability improved markedly. According to the '23 annual report, Eneng reduced the cost of a single ticket by 11% year-on-year on the basis of optimizing the weight of a single ticket from 106 kg to 93 kg. In the express shipping circuit where products are homogenized, low cost is the core traffic entry point. Cost advantage is a prerequisite for increasing market share, and Eneng Logistics is expected to return to the growth channel by relying on cost advantages.
We want profit from management first, and then we want space from industry. Looking at governance in the short term, unlike the express delivery industry, joining express shipping has a lower level of automation, and the scale effect also needs to be supported by refined management capabilities.
Over the past 22 years, corporate governance has been optimized, management has changed, cost ratio has been optimized, profit margin has been repaired, and the profit center has risen markedly. Looking at the pattern in the medium term, the pattern of joining the Express Track is more divided than joining Express. The market share of Eneng, which ranked number one, was 2.28 times that of Shunxin Jetta, which ranked fifth. At the same time, listed companies also have stronger financial strength. Looking at industrial upgrading in the long term, the trend of penetration and expansion of joining express tracks to dedicated tracks and the trend of order fragmentation brought about by industrial upgrading are worth watching for a long time.
Profit forecasting and investment advice. We expect EPS to be 0.48, 0.62, and 0.74 yuan/share respectively in 24-26. The company is a leading franchise-based express company. In the context of maintaining the first volume of goods, starting to recover profits, and recovering return on investment, we gave the company a 24-year PE valuation of 14 times, corresponding to a reasonable value of HK$7.27 per share for Hong Kong stocks, covered for the first time, and gave a “buy” rating.
Risk warning. Industry demand growth fell short of expectations, industry price competition worsened again, franchise network operations were unstable, strategy implementation fell short of expectations, and macroeconomic environment was under pressure.