1Q24 Results Greatly Exceed Our Expectations
The company announced 1Q24 results: revenue of 2.38 billion yuan, +15.2% year on year; gross profit of 380 million yuan, +77.6% year on year; gross profit margin of 16.1%, +5.7ppt year on year. Adjusted profit before tax was $280 million, +134% year on year; net profit attributable to mother was 190 million yuan, +326% year on year; adjusted net profit of 210 million yuan, +174% year on year. The performance greatly exceeded our expectations, mainly due to cost reduction efforts and impressive volume growth.
The volume of goods is driving a healthy increase in revenue. The volume of goods in 1Q was 2.88 million tons, an increase of 22%; the number of tickets increased by 25%, and the volume of goods increased significantly, mainly by franchisees entering the network (cooperation and agents increased month-on-month) and small ticket products increased (volume of goods under 70kg also increased 25%). The unit price decreased by 5% and increased month-on-month, mainly adjusted by the pricing mechanism. The unit price reduction was less than the cost reduction, indicating that the company has taken the initiative in pricing.
The cost reduction was beyond our expectations. Single-ton transportation/distribution costs decreased by 8% and 27% year-on-year, respectively; even during the 2H23 peak season, 1Q single-ton costs remained flat, and the cost reduction effect was impressive, mainly due to the company's early network distribution structure optimization and vehicle efficiency improvement series of cost reduction measures, which continued to release benefits, combined with rapid growth in cargo volume and increased utilization of fleet and distribution assets. The 1Q management fee rate decreased by 1.8ppt to 5.4% year-on-year, and flat management+flexible incentives brought about improved human efficiency.
Development trends
Joining the express industry shows a clear sign of accelerated concentration, and cost advantages are becoming the core competitiveness. The three major signals indicate an accelerated concentration of joining Express: ① 10 million tons of cargo volume has become a watershed in profit, and the gap between companies has widened; ② the capital market has returned to rationality, and the industry has not had large-scale financing in recent years; ③ leaders have adopted more proactive pricing and franchisee management mechanisms. Reviewing the LTL development process in the US, cost and cash flow are the core competitiveness of logistics companies during the integration period. It is recommended to continue to pay attention to the company's cost optimization process.
I am optimistic that medium- to long-term cost reduction and scale growth will continue to materialize. Based on 1Q's profit exceeding our expectations, compounded by increased demand for goods in the subsequent peak season and sufficient “bullets” to reduce costs, we are optimistic that the company will enter a healthy growth path of “lower cost - better pricing - higher share - stronger scale effect”. Looking at the medium to long term, we expect that with the concentration of the franchise industry pattern, there is still room for further improvement in the company's profit margin.
Profit forecasting and valuation
As the company's cost reduction exceeded expectations and the scale growth logic was strongly implemented, we raised 2024/2025 net profit by 10.9%/15.7% to 693 million yuan/903 million yuan, corresponding adjusted net profit of 795 million yuan and 1,001 million yuan respectively. The current stock price corresponds to the 2024/2025 price-earnings ratio of 8.9x/6.9x.
Maintaining an outperforming industry rating, we raised our target price by 13.3% to HK$8.50, corresponding to 12.9 times the 2024 price-earnings ratio and 9.9 times the 2025 price-earnings ratio, which has 44% upside compared to the current stock price.
risks
Price competition in the industry; volume growth falls short of expectations; cost control falls short of expectations.