Incidents:
On May 16, 2024, Zhongtong Express announced its results for the first quarter of 2024:
2024Q1, Zhongtong Express achieved operating revenue of 9.60 billion yuan, up 10.87% year on year, of which core express delivery service revenue was 9.240 billion yuan, up 10.15% year on year; the company achieved gross profit of 3.02 billion yuan, up 19% year on year, and adjusted net profit of 2,224 billion yuan, up 15.85% year on year.
In terms of business, 2024Q1 and Zhongtong Express completed the business volume of 7.171 billion tickets, up 13.88% year on year, and the market share reached 19.32%, down 4.10 pcts year on year.
Investment highlights:
Maintaining a price competition strategy within the scope of cost reduction, achieving a sharp rise in quantitative profit. Performance grew steadily in 2024Q1, and net profit adjusted for a single ticket was 0.31 yuan, up 1.73% year on year (up 0.01 yuan year on year). Zhongtong Express Service's single ticket revenue (excluding freight forwarding) reached 1.36 yuan, down 2.53% year on year (down 0.04 yuan year on year); single ticket cost (excluding freight forwarding) was 0.94 yuan, down 5.30% year on year (down 0.05 yuan year on year); single ticket gross profit (excluding freight forwarding) was 0.42 yuan, up 4.37% year on year (up 0.02 yuan year on year); gross profit margin (excluding freight forwarding) increased 2.03 pcts year on year to 30.62%; the reduction in single ticket cost was greater than the price reduction, and finally achieved an increase in net profit after the single ticket adjustment 2024Q1 .
Combined with 2024Q1, Zhongtong Express completed a business volume of 7.171 billion tickets, an increase of 13.88% over the previous year.
In the end, the company achieved a sharp increase in quantitative profit of 2,224 billion yuan, an increase of 15.85% over the previous year, and achieved steady growth in performance.
By not making loss-making express shipments, the profit market share is further increased
The express delivery business growth rate of the 2024Q1 industry reached 25.2%, far exceeding expectations (the State Post Office estimated a growth rate of 8% in 2024 at the beginning of the year). The trend of miniaturization is the key for the industry's growth rate to exceed expectations (the trend of miniaturization is the decline in the value of individual packages (down 28.04% year-on-year in March), and the same sales contributed more units). However, at the same time, the trend towards smaller parts has also led to an increase in the share of low-priced e-commerce items, intensifying price competition in production areas, and increasing the proportion of unprofitable or even loss-making express shipments.
Zhongtong insisted on not doing loss-making businesses or low-stickiness customers, and did not participate in the growth dividends of low-priced e-commerce items brought about by the booming development of live e-commerce and social e-commerce. Although 2024Q1's share volume decreased by 4.1 pcts year on year, its profit share increased further year over year, maintaining healthy profit growth.
Product stratification breaks through homogenized competition and increases terminal and headquarters profitability Since 2024, Zhongtong Express has paid more attention to improving service quality and product stratification to break through homogenized low price competition. 2024Q1's single ticket revenue (excluding freight forwarders) fell by 0.04 yuan (down 2.53% year on year), far lower than the price drop in the express delivery industry and peer prices (down 1.23 yuan (down 12.80% year on year). Yuantong Express, Yunda Express, and Shentong Express decreased by 0.13 yuan/0.42 yuan/0.31 yuan year on year respectively, down 8.04%/15.92%/12.39% year on year). 2024Q1 The company focuses on itself and creates product differentiation and services. With the continuous optimization of the product structure, it is expected to improve the profitability of the terminal and headquarters.
The strong profitability of the terminal and headquarters can also promote terminal stability and the ability to invest in hierarchical headquarters products, continue to enhance the company's service competitiveness and premium capacity, and form a virtuous cycle.
“Direct branch chain”, terminal cost reduction opens up flexible space for the company's performance, and the Tuxi supermarket collection service realizes the cost reduction function: the courier places the courier at the Tuxi supermarket without door-to-door delivery, and the recipient goes to the Tuxi supermarket to sign for the delivery on their own. Normally, the express delivery cost for an order from Tuxi supermarket is 0.6 yuan. In addition, the branch line transportation cost from the delivery outlet to the Tuxi supermarket is about 0.1 yuan, totaling 0.7 yuan, which is less than the 1.2 yuan delivery fee required for courier delivery, thus reducing terminal delivery costs. As of 2024Q1, the company's terminal stations have 110,000+ stores across the country. The layout basically covers the whole country, providing huge infrastructure for terminal collection and cost reduction, which is expected to open up flexible space for the company's performance.
The company has always grasped the “quantity, quality and profit” balanced development strategy. Under a virtuous cycle of quantity, price, capital and profit, performance growth is steady. In the long run, with the continuous advancement of the company's product stratification and direct chain of outlets, the company will further widen the gap between profit market share and peers. Stronger profits and cash flow will continue to support the company's service differentiation and quality improvement, forming a virtuous cycle of high quality, and continuing to recommend Zhongtong Express, the leading e-commerce express company.
Profit forecast and investment rating We expect the operating income of Zhongtong Express in 2024-2026 to be 42,976 billion yuan, 48.431 billion yuan and 54.556 billion yuan respectively, with net profit attributable to mother of 10.077 billion yuan, 11.805 billion yuan and 14.485 billion yuan respectively. The corresponding PE for 2024-2026 will be 13.73 times, 11.72 times, and 9.55 times, respectively. The company insists on balanced development of “volume, price, cost and profit”, is optimistic about the leading e-commerce express delivery company Hengqiang, and maintains a “buy” rating.
Risks suggest that the industry's growth rate is falling short of expectations, the price war is restarting, management improvements falling short of expectations, cost control falling short of expectations, franchisees bursting out of positions, and unstable Sino-US relations.