Incidents:

On April 24, 2024, Shentong Express released the 2023 Annual Report and the 2024 First Quarter Results Announcement:

In 2023, the company achieved operating income of 40.924 billion yuan, an increase of 21.54% over the previous year; completed net profit of 341 million yuan, an increase of 18.41% over the previous year; completed deducted net profit of 339 million yuan, an increase of 9.86% over the previous year. Among them, 2023Q4 achieved operating income of 11.587 billion yuan, a year-on-year increase of 20.78%; completed net profit of 120 million yuan, an increase of 55.91%; and completed deducted net profit of 130 million yuan, a year-on-year decrease of 16.35%.

In 2024Q1, the company achieved operating income of 10.132 billion yuan, a year-on-year increase of 15.87%; completed net profit of 190 million yuan, an increase of 43.20% over the previous year; completed deducted net profit of 186 million yuan, an increase of 48.70% over the previous year.

In terms of business, in 2023, Shentong Express completed the express delivery business volume of 17.507 billion tickets, an increase of 35.23% over the previous year, a market share of 13.26%, an increase of 1.55 pct over the previous year, and a single ticket revenue of 2.23 yuan, a decrease of 11.24% over the previous year. The company's 2024Q1 business volume completed the express delivery business volume of 4.587 billion tickets, up 36.68% year on year, market share 12.36%, up 1.04 pct year on year, and total single ticket revenue was 2.21 yuan, down 15.22% year on year.

Investment highlights:

“Small profit and multiple sales” achieved high performance growth in 2023. In terms of volume, the company's express delivery business volume rose to 17.507 billion tickets, up 35.23% year on year, leading the industry's growth rate of nearly 16pc (t 2023 industry 132.072 billion tickets, up 19.43% year on year), and the company achieved a market share increase of 1.55 pct to 13.26% year over year. 2024Q1

In terms of price, the company's single ticket revenue in 2023 was 2.23 yuan, a year-on-year decrease of 11.24%, mainly due to industry price competition and a decline in industry ticket weight. However, the company also reduced costs by 10.94% to 2.15 yuan/ticket over the same period last year through digital intelligent operation, refined management, and economies of scale. In the end, the company's gross profit per ticket fell 18.10% year on year to 0.087 yuan, and net profit from a single ticket fell 12.43% year on year to 0.019 yuan.

Although the company's profit per ticket declined in 2023 due to industry price competition and the company's price reduction strategy, its business volume growth rate was high and it still achieved “small profits and many sales”. Net profit returned to mother increased 18.41% year-on-year for the whole year. The company's strategy of “exchanging price for quantity” and “reducing cost with volume” has basically worked.

2024Q1's total single ticket revenue was 2.21 yuan, down 15.22% year on year; total single ticket cost was 2.08 yuan, down 16.12% year on year; total gross profit of single ticket was 0.13 yuan, up 2.20% year on year; finally, net profit of single ticket was 0.04 yuan, up 4.77% year on year. 2024Q1's express delivery business volume was 4.587 billion tickets, up 36.68% year on year. The leading industry growth rate was about 11 pcts (the 2024Q1 industry was 37.11 billion tickets, up 25.2% year on year). The growth rate of the company's express delivery business was still far higher than that of the industry, and its market share increased 1.04 pct to 12.36% year on year. 2024Q1, the company continues to play a role in digital intelligent operation, fine management, and scale effects. Although the price reduction is comparable to 2023, it has guaranteed the restoration of single-ticket profits and achieved a sharp increase in quantitative profit.

Shortfalls in scale, investment and service have been filled, product competitiveness has improved, and the company has entered an upward channel

In terms of scale, the company's market share has continued to increase since 2021 (2021/2022/2023, the company's market share was 10.23%/11.71%/13.26%, respectively). In March 2024, the average daily order volume exceeded 56 million votes, further narrowing the gap with peers, and costs continued to decline due to scale effects.

In terms of investment, the company continued to promote three-year 10-billion-level production capacity improvement projects. The company implemented a total of 37 capacity improvement projects and 18 transformation and optimization projects throughout the year, and the company's normal throughput capacity was greatly increased. It is estimated that within 2024, the company's normal throughput capacity is expected to increase to more than 75 million orders per day, and the stable service capacity is stronger.

In terms of service, while production capacity is increasing, the company's timeliness special fund is playing a role, and the flattened promotion of outlets has greatly improved the timeliness and service experience. In terms of timeliness, the contract processing time was shortened to about 44 hours, and the gap with leading peers was significantly narrowed. The company's logistics index rankings on multiple platforms continued to rise, and the premium capacity is expected to increase.

The company has made up for shortcomings in scale, investment, and service, and improved product competitiveness, which is expected to bring in more orders. “quantity, quality, capital, and profit” forms a virtuous cycle. The company's fundamentals have entered an upward channel, and there is strong certainty. We expect performance flexibility brought about by the company's continuous recovery in single ticket profits.

Profit forecast and investment rating Based on the latest annual report data, we introduced the 2026 profit forecast. Shentong Express's revenue for 2024-2026 is estimated to be 48.242 billion yuan, 55.908 billion yuan and 63.510 billion yuan, respectively, net profit to mother of 806 million yuan, 1,260 billion yuan and 1,585 billion yuan, respectively. The corresponding PE for 2024-2026 is 17.53 times, 11.21 times, and 8.91 times, respectively. The company achieved a double increase in profit and quantity through reasonable price competition, which is expected to bring about greater performance flexibility and maintain a “buy” rating.

Risks suggest that macroeconomic growth falls short of expectations, time-efficiency growth falls short of expectations, international business development falls short of expectations, market expansion falls short of expectations, risks of mergers and acquisitions, rapid rise in labor costs, sharp rise in oil prices, and aviation accidents.