Key points of investment:

Incident: Sinotrans released its 2024 quarterly report. The company's Q1 revenue was 24.29 billion yuan, up 8% year on year, and net profit to mother was 803 million yuan, down 16% year on year, after deducting 730 million yuan from non-return mother, down 14.8% year on year. The total net profit for 2023Q4+2024Q1 was 1.86 billion yuan, an increase of 25% over the previous year. The profit was slightly lower than expected.

Q1 results fell slightly short of expectations, and the combined year-on-year growth of the past two quarters was still significantly better than that of peers. Due to some contract year-end settlement issues, we compared the 24Q1+23Q4 quarters' total with foreign peers. The company's net profit for the past two quarters was 1.86 billion yuan, an increase of 25.2% over the previous year. The net profit of comparable foreign companies Kuehne+2023Q4+2024Q1 fell 41% and 25% respectively for two consecutive quarters. Outbound has maintained positive growth, showing high resilience in performance.

In various sub-sections, it is expected that domestic contract logistics will be under some pressure, and that the freight forwarding business and Sinotrans DHL business will be stable. Sea freight forwarder:

Domestic and foreign freight forwarding showed a consistent downward trend in Q1, and the volume of overseas shipments was resilient. 2024Q1CCFI averaged 1290, +18% YoY.

The company's shipping agent was 3.26 million TEU, and 2.661 million TEU in the same period last year, with a growth rate of 21%. Supply in the shipping market is abundant, and the freight forwarder discount rate is increasing, compounding the cost advantages brought by core depot warehouses. The gross profit of leading overseas freight forwarder DSV and Kuehxun Q1 shipping agents decreased by 11.1% and 27% respectively. The profit trend is consistent with that of outbound shipping, and the volume of goods on the outbound shipping side is still resilient. Air freight agents: Unit profit declined due to fluctuations in air freight rates and charter prices. The average value of 2024Q1TAC exports to Pudong was 3935, -13.38% YoY. According to the company's announcement, the company's Q1 air freight business volume was 173,000 tons, an increase of 20% over the previous year. E-commerce business: The company completed the cross-border e-commerce business volume of 79 million tickets/55,000 tons in Q1, an increase of -17%/34% year-on-year.

Air transport-related businesses are related to market sentiment, and Sinotrans DHL mainly contributed to verifying the stability of investment income. The company's investment income was mainly contributed by Sinotrans DHL Joint Venture. The company's investment income for the first quarter was 478 million yuan, a decrease of 0.94% over the previous year.

The company Sinotrans DHL is a 50% and 50% joint venture between the company and DHL. The unit price for high-end international express delivery is high, similar to SF Express. Demand is stable and less affected by the fall in air freight prices. The decline in investment income is lower than the decline in net profit, and stability has been verified.

Alpha's performance resilience continues to stand out. Compared with peers, the net profit of leading overseas companies Kuehne+DSV 2023Q4+2024Q1 fell 41% and 25% respectively for two consecutive quarters. Outbound maintained positive growth, reflecting high resilience in performance.

Equity incentives build a bottom line of performance. In November 2021, the company once again issued a draft equity incentive plan. The ROE for 2021-2023 is not less than 10.25%, 10.5%, 10.75%, and not lower than the industry average. In addition, net profit to mother grew at a compound rate of 11%, 11.25%, and 11.5%. According to the exercise requirements, the company's net profit to mother in 2024 was not less than 4.257 billion yuan.

Continued stable dividends bring a margin of safety. According to the company's previous announcement, the company plans to distribute year-end dividends of RMB 1,051 million (tax included). In addition, the company already paid a mid-year dividend of RMB 1,051 billion on October 19, 2023. The total annual dividend amount accounts for 49.77% of the net profit to the mother, combined with the repurchase of the company's H shares, with a dividend rate of 50.4% and a dividend rate of 4.6%.

Maintain profit forecasts and maintain a “buy” rating. Considering the strong resilience of the company's main freight forwarding business, and that equity incentives form the bottom of performance, compounding stable dividends to bring a margin of safety and maintain profit forecasts, the company's 2024E-2026E net profit is estimated to be 43, 4.6, and 4.9 billion yuan, corresponding to 11/10/9 times PE. Maintain a “buy” rating.

Risk warning: The global economy is declining, leading to a continuous decline in international trade volume and demand; the competitive pattern of contract logistics has further deteriorated.