The company announced results for the first quarter of 2023 and 2024:1) Operating revenue reached 36.28 billion yuan in 2023, up 16% year on year; 23Q4-24Q1 was 10.84 billion yuan and 9.3 billion yuan, respectively, +26% and +25% year on year; 2) gross profit reached 3.1 billion yuan in 2023, -3% year on year, gross profit margin 8.6%, and 1.6 pct year on year. The gross profit for 23Q4-24Q1 was 950 million yuan and 600 million yuan, respectively, +63% and +8%; gross margins were 8.8% and 6.4%, respectively, +2 pct and -1.1 pct, respectively. 3) The cost ratio for the period (sales/management/R&D/finance) was 7% in 2023, down 2 percentage points from the previous year. 4) Profit to mother was 750 million yuan in 2023, up 13% year on year, before deducting non-profit of 570 million yuan, up 77% year on year; 23Q4-24Q1 realized profit to mother was 270 million yuan and 90 million yuan, respectively, -15% and +28% year on year; net interest rates to mother were 2.5% and 1%, respectively, unchanged at -1.2 pct year on year; realized deducted non-profit of 290 million yuan and 0.2 billion yuan.

The express shipping business is the company's core business, and the cost structure is optimized. 1) By business, a) Express shipping is the company's core business, with revenue of 32.3 billion yuan in 2023, accounting for 89%, or +18% over the same period last year. b) Express delivery business, revenue in 2023 was 2.73 billion yuan, accounting for 7.5%, or -11% year-on-year. 2) The company's operating costs in 2023 were $33.2 billion, of which labor costs, transportation costs, rent and right-of-use asset depreciation, depreciation and amortization, and other costs were 151, 133, 18, 11, and 1.85 billion yuan respectively, up 6.8%, +46%, +8.8%, -4.6%, and -11.6%, respectively. By adjusting network locations, optimizing personnel layout, continuously recommending network optimization, and site integration, etc., the company reduced labor costs/rent costs and depreciation/depreciation amortization of usage rights assets as a share of revenue by 3.4, 0.3, and 0.7 percentage points, respectively.

In terms of logistics network layout, 1) Cooperation with JD Logistics was further strengthened. In the second half of 2023, the company promoted a network integration project, fully took over part of the assets of JD Logistics's 83 transit centers through asset acquisitions, and further expanded the express network. The actual transaction amount related to the provision of labor services by the company to the JD Group and its controlling enterprises in 2023 was 32.4 yuan. According to Debon's related transaction announcement on November 30, 2023, it is estimated to be 7.79 billion yuan, +140% over the same period last year. 2) By the end of 2023, the company had 9,194 outlets, including 5,814 direct-run outlets and 3,380 partner outlets. The company's operation and management terminal distributed 31,751 four-wheelers and other business vehicles, increasing the total collection rate by 3.2 percentage points over the same period last year. 3) In 2023, the share of the company's own capacity increased by 1.2 percentage points (excluding network integration services), 218 main routes were straightened, and the full link time was shortened by 5.23 hours; the damage rate of main products continued to improve, down 16.4% year on year.

Investment suggestions: 1) Profit forecast: Considering the recovery in market demand, we slightly adjusted the company's 24-25 net profit forecast to be 1.06 billion yuan and 1.3 billion yuan (the original forecast was 11.9 billion yuan and 1.42 billion yuan), and the profit forecast for the year 26 was 1.01 billion yuan. The corresponding EPS was 1.03, 1.26, and 1.47 yuan, respectively, and the corresponding PE was 16, 13, and 11 times, respectively. 2) Target price: We expect the company's net profit compound growth rate of 26% in 23-26. Combined with the future existence of the company and JD Logistics to bring potential growth space through further collaborative integration, we will give 18 times the estimated profit for 25 years, a target market value of about 22.7 billion yuan, and a target price of 22.7 yuan. We expect 37% of the space compared to the current rate, and maintain the “recommended” rating.

Risk warning: The economic growth rate is lower than expected, the industry competition pattern is deteriorating, and collaboration with JD is falling short of expectations.