Key points of investment:
Yuantong Express: Focus on the main express delivery business and continue to improve its comprehensive strength. Yuantong Express is the main representative of franchised express delivery companies and the first private express delivery company to embrace Ali. The company's revenue mainly comes from domestic express delivery business, accounting for more than 80% of revenue. Since 2015, the company has successively deployed aviation business and freight forwarding services, accounting for about 7.4% of total revenue in 2023.
The company's performance grew steadily, and the compound annual growth rate of net profit from 2017-2023 was 17.1%.
Industry prospects: Online consumption is still resilient, and there is limited room for price competition. In 2023, the zero growth rate of China's physical goods network rebounded to 8.4%, and in Q1 2024, online consumption resilience still exists. Among them, live e-commerce contributed the main increase. In 2023, the share of Douyin + Kuaishou GMV increased by about 3 pcts over the same period last year. Industry prices have stabilized since 2024. There is limited room for price reduction due to the effective market supervision environment and the slowing pace of production capacity release in the industry. The competitive landscape of the industry is stabilizing. As of 2024, Yuantong's market share was 15.0% in Q1.
Latecomer advantage: “repairing shortcomings” + “forging a long board”. Continuously strengthening competitive advantage. The company laid out assets such as land and housing construction earlier, and started working hard after the automated transformation process. Thanks to the company's focus on upgrading automated transportation centers and technological investment in infrastructure in recent years, the level of refined management has continued to improve, and transit-related costs have dropped significantly. The core cost of Yuantong's single ticket fell from 1.39 yuan to 0.75 yuan in 2016-2023, which has a cost advantage of about 0.03 yuan over the industry.
Facing the future: cost advantage as a shield, brand upgrade as a spear
The price drop for each 100 million pieces of spin-off in 2023 was 0.003/0.005/0.015/0.006 yuan/piece for Zhongtong/Yuantong/Yunda/Shentong respectively. The company's cost in exchange for volume is relatively low, thus maintaining the relative stability of performance. The company's digital technology leads the industry. Based on the cost advantages accumulated in the early stages, the integrated operation efficiency of the entire network and the improvement of the terminal customer experience under digital empowerment are expected to drive the company's overall product and service pricing capabilities to continue to increase.
Profit Forecasts, Valuations, and Ratings
The company's revenue for 2024-2026 is expected to be 653.25/732.31/81,591 billion yuan, respectively, with year-on-year growth rates of 13.25%/12.10%/11.42%; net profit to mother of 43.86/51.96/5.774 billion yuan, respectively, with year-on-year growth rates of 17.82%/18.47%/11.12%; EPS of 1.27/1.51/1.68 yuan respectively. Comparable to the company's 2024 average valuation, 13.19 times. Given the company's outstanding cost advantage, profitability is expected to continue to increase under digital empowerment. The company will be given 16 times PE in 2024, with a target price of 20.32 yuan for the first time, coverage for the first time, and a “buy” rating.
Risk warning: macroeconomic recovery falls short of expectations; price competition in the express delivery industry exceeds expectations; cost control results fall short of expectations.