Key points of investment
Zhongtong Express later took the lead, ranking first in the industry in terms of volume starting in 2016. In the 1990s, demand for export customs materials and samples skyrocketed, and EMS services were unable to meet the demand for rapid delivery. As a result, private enterprises were established one after another, and Zhongtong began in 2002. Although the company was founded late, with accurate investment and decision-making, the company has continued to catch up and take the lead in the e-commerce express delivery industry for more than 20 years since its establishment. Since 2016, Zhongtong has been the number one component volume in the industry for 8 consecutive years. The CAGR growth rate of the company's component volume from 2014 to 2023 was 37%. The company's revenue mainly comes from express delivery services. Express delivery services accounted for 92.4% of the company's revenue in 2023.
Although the growth rate of the express delivery industry in the Chinese market has slowed, the rise of an emerging model of e-commerce has injected momentum into the upstream commercial flow.
Volume: China's express delivery volume growth rate in 2022 was only 2.1%; the 2023H1 volume was only 7.1% under the natural growth rate excluding the impact of the low base in 2022 (assuming a 10% H1 growth rate in 2022), and the industry has entered the inventory development stage. However, emerging e-commerce, represented by Pinduoduo, relied on low prices, social networking, and live streaming to rapidly fission in the sinking market, opening up the consumption power of low-tier cities, increasing the penetration rate of online shopping in the sinking market while also speeding up the decline in the value of a single package, thus leading to an increase in the number of packages. Price: With the support of the price policy, vicious price competition may no longer occur, but the off-season or partial healthy price competition may cause prices to fluctuate. Combined with the introduction of new industry regulations in March 2024, the industry will gradually enter a stage of healthy competition and high-quality development. At this stage, industry profits have shown a trend of concentration. Since 2019, Zhongtong's net profit has continued to account for more than 50% of Tongda's total profit and has gradually increased. We believe that industry concentration is expected to further increase.
In the latter half of the long-distance run, the leader rose, and the advantage was remarkable. In the early days of the development of the express delivery industry, the self-operation rate of main line transportation and transit centers of various express delivery companies was relatively low. Corresponding to this, companies had low control over main lines, etc., and their operating efficiency was not high. The China Communications Review realized the importance of the asset-heavy model in the express delivery industry early on, and used its own capital to take the lead in capital investment. As early as 2010, Zhongtong's assets were only 1/3 of Shentong's assets. In the period of rapid development of the industry, Zhongtong has continuously increased infrastructure construction and is constantly catching up. As of December 31, 2023, Zhongtong's 15-17 meter high capacity trailers accounted for 92%. The company has 99 sorting centers, 91 of which are self-operated.
The number of automated sorting lines increased from 58 in 2017 to 464 in 2023, effectively boosting the automation rate of transit centers and improving operational efficiency. Zhongtong's single ticket sorting cost was reduced from 0.43 yuan in 2016 to 0.27 yuan in 2023, which also enabled Zhongtong to gradually take the lead in industry competition. With the increase in business volume and investment in assets, Zhongtong's cost advantage is obvious. Costs related to the transportation and sorting of single tickets in the 2023 Mid-Year Pass were 0.45/0.27 yuan respectively, a total year-on-year decrease of 0.11 yuan, or 13%. Implement the corporate culture of “building together and sharing” to strengthen cohesion. The ability of a franchise-model express delivery company to take delivery needs to rely on the investment and assistance of franchisees. Zhongtong adheres to the concept of “co-building and sharing”, has forged a foundation of trust among franchisees, and innovatively initiated reforms such as “equity reform” and paid payment.
Profit forecasting and valuation
As a leader in the industry, Zhongtong is expected to further increase the market share of leading express delivery companies during the industry stock development stage, thereby driving performance growth. The net profit for 2024-2026 is expected to be 100.53, 117.95, and 13.357 billion yuan, respectively. The corresponding PE is 13.9, 11.8, and 10.5 times, respectively, covered for the first time, giving it an “increase in weight” rating.
Risk warning
Economic downturn risks, industry growth is lower than expected, express delivery price war worsens