Incidents:

On April 26, 2024, Debon Co., Ltd. released its 2024 quarterly report:

2024Q1, the company completed operating income of 9.295 billion yuan, a year-on-year increase of 25.31%, achieved net profit of 92.79 million yuan, an increase of 27.74% over the previous year, and realized net profit of 15.58 million yuan without deduction to mother, an increase of 254.03% over the previous year.

By product, 2024Q1, the express delivery business completed revenue of 542 million yuan, a year-on-year decrease of 22.04%; the express shipping business completed revenue of 8.373 billion yuan, an increase of 29.64% over the previous year; and completed revenue of 380 million yuan from other businesses, an increase of 44.45% over the previous year.

Investment highlights:

Internal and external resource integration+network integration, the company's revenue is expected to achieve rapid annual growth 2024Q1. The company's revenue will increase 25.31% year-on-year, mainly driven by the growth of the express shipping business. The company actively experiments and explores new operating models. Through the integration of internal and external resources, the company drives its own business revenue to achieve steady growth. At the same time, the orderly progress of superimposed network integration projects promotes further growth in express shipping revenue.

On December 1, 2023, the company issued the “Notice on the Company's 2024 Daily Related Transaction Forecast”. In 2024, the company expects to provide 7.80 billion yuan of labor to JD Group and its control companies, accounting for 21.50% of the company's revenue in 2023. Combined with the company's steady endogenous growth, we expect the company's revenue to grow by more than 20% in 2024 and maintain a high revenue growth rate throughout the year.

In the context of JD's continuous increase, on the one hand, the company's revenue is expected to maintain a high growth rate; on the other hand, related transactions are the company's daily actions. Transactions are based on market prices, and follow the principles of fair, just, and fair pricing, which will also bring considerable profit growth to the company.

The promotion of refined management+network integration projects is expected to catalyze a decline in costs and release performance flexibility in 2024Q1. The company's gross margin was 6.42%, down 1.24pct year-on-year, mainly due to cost fluctuations. 2024Q1, the company's operating cost was 8.698 billion yuan, up 26.99% year on year, and the growth rate was slightly higher than revenue growth. However, through management optimization, the company's revenue ratio of three fees (sales, management, and financial expenses) decreased by 1.16 pct year on year, effectively hedging the impact of cost fluctuations on net profit margin. In the end, 2024Q1, the company's profit margin to mother was 1.00%, an increase of 0.02 pct over the previous year.

The company's gross margin and cost fluctuations in 2024Q1 were mainly due to a year-on-year increase of 72.93% in transportation costs to 3.823 billion yuan, accounting for an increase of 11.33 pcts of revenue over the same period last year. This cost fluctuation is mainly affected by two factors. On the one hand, as the dual-network integration project progresses, the overall ride-sharing and intermodal transport business volume, which mainly focuses on transportation costs, the increase in fuel prices has affected transportation costs; on the other hand, in order to improve product competitiveness, the overall implementation rate of the main product increased by 6.9 pct year-on-year, but the short-term cost of resource investment was impacted. With the integration of dual networks, cargo volume distribution and the increase in front-end investment vehicle loading rates, the company's transportation cost ratio is expected to continue to decline month-on-month. Short-term cost fluctuations will not change the long-term cost reduction trend, and will open up room for long-term cost reduction.

Furthermore, the company's labor costs in 2024Q1 were 3.663 billion yuan, up 5.57% year on year, accounting for a year-on-year decrease of 7.37 pcts of revenue. Mainly for the company to continue to promote various lean management initiatives, the transformation of civilian personnel, and the promotion of dual network integration projects. After excluding the impact of network integration projects, the ratio of labor costs to revenue continued to improve year over year. As network integration projects+lean management initiatives continue to advance, it is expected that the operational efficiency of the company's handover and delivery will continue to improve, and labor cost savings are still interesting.

Currently, the “network integration” work between the company and JD Logistics is progressing steadily. Resource integration includes site integration, route planning, and vehicle/sorting equipment investment. As network integration progresses, it will effectively catalyze the decline in company costs, which is expected to bring additional performance flexibility.

Profit forecast and investment rating According to the company's 2023 annual report and 2024 quarterly report, we adjusted the profit forecast. The estimated operating income of Debon Shares in 2024-2026 is 44.385 billion yuan, 48.649 billion yuan, and 52,566 billion yuan respectively, and net profit to mother is 1.152 billion yuan, 1,513 billion yuan, and 1,813 billion yuan, respectively. The corresponding PE for 2024-2026 is 15 times, 11 times, and 9 times, respectively. Accelerated business cooperation between the company and JD Group will catalyze the company's revenue and profit growth, and maintain a “buy” rating.

Risks suggest that macroeconomic growth is slowing; integration progress falls short of expectations; synergy and scale effects fall short of expectations; price wars are restarting; and cost optimization is slowing down.