Key points of investment

2023 Annual Report and 2024 Quarterly Report Performance: Overall operation is stable, and the performance is in line with expectations 2023 Annual Report: In 2023, the company achieved operating income of $57.68 billion, +7.7% year over year; net profit to mother of $3,723 billion, -5.0% year on year; express delivery business net profit of 3.84 billion yuan, +5.15% year over year. Among them, 23Q4 achieved operating income of 16.925 billion yuan, +15.02% year-on-year, and realized net profit of 1,064 billion yuan, or -7.36% year-on-year. Despite a weak recovery in overall demand in 2023, compounded by phased price competition in the industry, the company's express delivery business performance improved steadily, and the performance was in line with expectations.

2024Q1:24Q1 achieved operating income of 15.427 billion yuan, +19.46% year over year, and realized net profit of 943 million yuan, +4.14% year over year, of which net profit from express delivery business was 994 million yuan, +11.87% year over year.

Dividends: The company's shareholder returns increased steadily in 2023, with a dividend of 0.35 per share, an increase of 40% over 2022.

In 2023, the focus was on fine control, and core costs declined steadily. The 2023 single ticket situation: 1) Price competition occurred in some regions after the Spring Festival in 2023. The company's single-ticket express delivery revenue in 2023 was 2.41 yuan, down 6.71% year on year; 2) Single ticket express delivery costs were 2.18 yuan, down 5.99% year on year; of these, single ticket transportation costs were 0.46 yuan, down 0.05 yuan from the same period last year; core costs (transportation+ (Central operation) totaled 0.75 yuan, down 0.07 yuan from the same period last year. 3) Achieved a gross profit of 0.23 yuan per ticket in '23, a year-on-year decrease of 13%.

24Q1 single ticket situation: 1) Since 2024, industry price competition has slowed down, and unit prices have rebounded month-on-month.

According to the monthly experience data disclosed by the company, we estimate that 24Q1 single ticket express revenue was 2.43 yuan per month, down 4.9% from 23Q1 and 0.3% higher than 23Q4. 2) The 24Q1 express delivery business achieved net profit of 0.18 yuan per ticket, a year-on-year decrease of 10.4%.

Continuously improve service quality, and market share is rising steadily

The company completed its express delivery business in 2023, with a year-on-year increase of 21.31%, exceeding the average growth rate of the industry by 1.9 percentage points and achieving a market share of 16.1%, +0.25pct compared to 2022. In 2023, the company continued to consolidate network infrastructure construction, investing nearly 4.9 billion yuan in capital expenditure for transit center construction, automation equipment upgrades, capacity improvement, and introduction of all freighters, etc., to further strengthen control over core assets and establish a solid foundation for the development of the main business. In 2023, the company's overall journey time was reduced by 5.63 hours compared to the same period last year, and the timeliness level of express shipments continued to improve.

24Q1 completed the express delivery business volume of 5.57 billion units, +24.9% year-on-year; market share was 15%. Since 2024, the industry volume growth rate has continued to exceed expectations. New types of live streaming e-commerce such as Douyin have brought more demand growth to the industry. In 2024, the company will continue to increase investment in infrastructure construction, promote the construction and expansion of transit centers, consolidate core resource advantages, continue to improve process equipment, promote automation upgrades, improve the level of automation and intelligence of transit centers, improve the operational efficiency of all aspects of the center, and continue to consolidate competitive barriers.

Actively promote international development and strengthen comprehensive logistics service capabilities. In 2023, the company completed about 148 million international express delivery and parcel services, an increase of nearly 20% over the previous year. Furthermore, the company focuses on clothing, automobiles, semiconductors, electronic products, etc., and uses the advantages of its own aviation to continuously strengthen global supply chain capacity building and expand overseas markets.

Profit forecasting

Considering that price competition in the industry has eased in 2024, the volume growth rate is expected to exceed expectations, and Yuantong Express's market share as a leading express delivery company is expected to further increase, which is expected to increase profitability. We expect Yuantong Express's net profit to the mother in 2024-2026 to be 42.6, 49.5, and 5.87 billion yuan respectively, corresponding to PE of 13.1, 11.3 times, and 9.5 times, respectively, maintaining the purchase rating.

Risk warning

There are downside risks to the economy, the industry's growth rate is lower than expected, and the express delivery price war is worsening.