2023 and 1Q24 results are in line with our expectations
Debon Co., Ltd. disclosed its 2023 and 2024 quarterly reports: the company's revenue for fiscal year 23 was 36.3 billion yuan, up 16%; net profit attributable to mother was 750 million yuan, up 15%; after deducting non-net profit of 570 million yuan, an increase of 82%. Excluding the impact of fair value change losses ($90 million), we estimate net profit for fiscal year 23 to be approximately $840 million, +28% over the same period last year. 1Q24 The company continued steady growth: revenue of 9.3 billion yuan, up 25%; net profit of 90 million yuan, up 28%. It was in line with our previous expectations. In 1Q24, government subsidies decreased by 34 million over the same period last year, but the company's profit growth rate still outperformed the industry. Mainly, network integration contributed to profits, and the reduction in the company's labor and distribution costs was remarkable.
The orderly integration with JD Express and the construction of endogenous products will promote the rapid growth of the main express industry. At the beginning of '24, the business caliber was adjusted to focus on the core business of express shipping over 10kg. 1Q24 had a comparable operating revenue of 8.4 billion yuan, an increase of 30%. We estimate that network integration contributed about 15% of the revenue.
Lean management continues to advance, and labor and distribution cost rates have improved markedly marginally. The 1Q24 labor cost rate decreased by 7.4 ppt year on year, and the distribution cost rate decreased by 0.2 ppt year on year, mainly due to the streamlining of endogenous business outlets, distribution and staff. As of the end of '23, the number of couriers in the company was about -9% year-on-year, the number of direct-run outlets decreased by 1%, and the number of endogenous distribution centers was reduced by 17%.
Transportation costs are expected to have a large margin of savings. Transportation costs also increased 73% in 1Q24, accounting for 11.3ppt of revenue. The main reason was that the relevant capacity in the early stages of network integration came mainly from overseas fleets, compounded by rising fuel prices, and short-term structural increases in transportation costs. In the future, we expect that as the company optimizes its fleet and network structure, there is room for significant savings in transportation costs.
Development trends
Reminder to focus on industry needs and marginal improvements in the company's network structure. 1) LTL Express targets 2B demand such as production and trade, which is affected by manufacturing and retail demand, and is uncertain. 1Q24 China's road freight volume was +5% year-on-year, down 2.7ppt from the January-January increase, or partly affected by the high base of the previous year; according to iResearch's estimates, the scale growth rate of the express industry may be 8.6% in 2024. 2) The focus of the company's 24-year profit is to reduce endogenous costs and focus on the network structure optimization process. The company currently operates 190 distribution centers (including 81 integrated network distribution) and 3,916 trunk lines (including 1,659 network integration lines), and there is still plenty of room for cost reduction. We suggest paying attention to the company's distribution and network aggregation process.
Profit forecasting and valuation
Due to macroeconomic impacts on demand in the express industry and short-term uncertainty, we lowered our 2024/25 net profit by 4.8%/3.7% to 1.10 billion yuan/1.45 billion yuan. The current stock price corresponds to the 2024/25 price-earnings ratio of 15.5x/11.8x. Due to optimism about the company's long-term growth, the rating and target price are maintained, corresponding to price-earnings ratios of 18.7 times, 14.1 times 2024 and 25, and there is 20.3% upside compared to the present.
risks
Price competition in the industry has worsened, the macroeconomy is declining, and fuel costs have risen sharply.