23 years of steady growth in performance, 1Q24 achieved impressive growth rate

Debon Co., Ltd. announced results for 2023 and 1Q24:1) Achieved operating income/net profit of 36.28 billion yuan/750 million yuan in 23, an increase of 15.6%/13.3% year on year; 2) achieved operating income/net profit of 9.30 billion yuan/90 billion yuan in 1Q24, an increase of 25.3%/27.7% year on year. In '23, the company adjusted its express business strategy, optimized products and improved delivery quality, and increased business volume supported performance growth. In the medium to long term, we are optimistic that the integration of the company's network resources will bring further synergy effects, steadily expand the scale of business, and continue to improve profitability through lean cost management. Considering the existing competitive pressure in the express delivery business industry, we lowered our 24/25 net profit forecast of 10%/7% to 1.06 billion yuan, adding 1.77 billion yuan to the 26-year forecast; based on 17.6x 24E PE, the target price was reduced by 1% to 18.2 yuan (comparable to the company Wind's consistent expectation of 13.6x. The main reason for the valuation premium is that the company focuses on the middle and high-end freight market. Quality service has brand benefits, and product tuning is expected to continue to increase profitability) to maintain “growth”.

The express shipping business showed impressive year-on-year growth. The year-on-year decline in revenue from the express delivery business showed a year-on-year increase of 18.2% to 32.28 billion yuan (adjusted caliber) in '23. Benefiting from improvements in the company's service quality and sales capacity, the company achieved year-on-year growth in high-kilogram product revenue. Combined with JD, the effects of network integration with JD were gradually unleashed, and the year-on-year growth rate was impressive. The revenue from the express delivery business fell 11.2% year on year to 2.73 billion yuan (adjusted caliber). The decline in express delivery prices was mainly due to intense competition in the industry, and the decline in industry prices suppressed single ticket revenue. Revenue from other businesses increased 26.4% year-on-year to 1.27 billion yuan, benefiting from network integration with JD Logistics and increased utilization of warehousing resources.

Increased transportation investment boosted short-term costs, and the cost side was significantly reduced during the period. In 2023, the company's operating costs increased 17.6% year on year. Among them, transportation costs/labor costs increased by 45.7%/6.8% year on year, respectively. The main reason for the increase in costs is that in order to improve product quality and customer experience and increase investment in transportation resources, superimposed network integration still requires cost investment in the short term. On the cost side, expenses were reduced by 13.7% year-on-year during the 23-year period, and the cost ratio decreased by 2.2 pct year over year, mainly due to the restructuring of the company's organizational structure and improved management efficiency through technological empowerment and process optimization.

The scale of 1Q Express's business grew steadily, and we are optimistic that the company's medium- to long-term profit will be released in 1Q24. The company's express ship/express delivery/other businesses achieved operating revenue of 8.37 billion yuan/540,000/380 million yuan respectively, +29.6%/-22.0%/+44.5% over the same period last year. The express business achieved steady growth in business volume through integration of internal and external resources, leading to significant revenue growth. In 1Q24, the company's gross margin fell 1.1 pct year on year to 6.4%, but net profit margin increased 0.03 pct to 1.0% year on year. The year-on-year decline in gross margin was mainly due to changes in business structure to increase investment in transportation resources, while the increase in net interest rate was mainly due to the company's good cost control. In the medium to long term, dilution costs are released as the company's scale effect is combined with internal organizational optimization and lean management. We are optimistic that the company's profitability will increase, and profit margins are expected to continue to improve.

Risk warning: Industry growth is lower than expected; price competition worsens; downstream demand falls short of expectations.