Incidents:

On June 13, 2024, Eneng Logistics issued a share repurchase announcement:

From January 1, 2024 to June 13, 2024, the company has repurchased approximately 3 million shares, spending a total of about HK$14 million in idle capital.

At the same time, the company plans to further repurchase shares in the market. The total repurchase amount for 2024 is expected to be no more than HK$150 million.

Investment highlights:

Quality excellence has created conditions for continuous scale growth and cargo structure optimization. In 2024Q1, the company achieved 2.88 million tons of goods, an increase of 21.7% over the previous year; operating income of 2,378 billion yuan, an increase of 15.2% over the previous year; and achieved gross profit of 382 million yuan, an increase of 77.6% over the previous year.

The gross profit margin was 16.1%, up 5.7 pcts year on year; net profit to mother was 190 million yuan, an increase of 326.1% year on year. Net profit margin to mother was 7.9%, up 5.8pcts year over year.

Since 2023, the competitiveness of Eneng Logistics products has continued to improve, showing a steady upward trend in terms of timeliness, quality and service, and 2024Q1 quality data has reached a new high.

In terms of timeliness, the average waybill time for the full year of 2023 decreased by 10.1% year-on-year to less than 72 hours, and in March 2024, the company's average waybill time was once again reduced to less than 70 hours, and the timeliness continued to shorten; in terms of quality, the number of lost items per 100,000 pieces in 2022/2023/2024 Q1 was 1.2/0.2/0.06, respectively, and the number of damaged items per 100,000 pieces was 49.0/32.6/8.67, respectively, and the company's quality continued to improve; In terms of service, the company has formed 520 standards, namely 5 minute response, 2 hour resolution, 0 repeated complaints, and fast service response.

In the context of continuous improvement in timeliness, quality and service, the company's product competitiveness and service quality have been continuously improved, creating prerequisites for steady growth in the company's cargo volume and optimization of the cargo structure.

Against the backdrop of significant improvements in service quality, the cargo structure has further optimized low-kilogram transportation in the express industry, which requires higher service quality, but has better profitability.

Improving the quality of the company's products and services will lay a solid foundation for optimizing the company's product structure and improving bargaining power.

In the context of improving the company's service quality, the company's cargo structure is also being continuously optimized.

2024Q1's overall cargo volume increased 21.7% year on year. Among them, 0-70kg mini bags increased 24.8%, 70-500kg small ticket LTL increased 20.8%, and 500kg+ big ticket LTL increased 20.9%. The growth rate of mini packages was higher than the overall growth rate, and the share continued to increase. In 2022/2023/2024, the company's ticket weight was 106/93/91 kg respectively. The average ticket weight continued to decline, and the cargo structure optimization effect was remarkable.

In the future, it will focus on developing 0-300kg products. The market space, fast market growth rate, and high gross profit space. The strength of this product is expected to continue to optimize the company's business structure.

Unit costs have declined, expenses have continued to improve, and profitability has improved dramatically. In addition to optimizing the company's cargo structure, the company has also achieved significant results in reducing costs and increasing efficiency since 2023. In 2023, the company reduced a net reduction of 55 relatively inefficient small distribution centers, and sold excess trunk trucks to ensure a reasonable ratio of routes, drivers, and drivers. Furthermore, under the refined management of the fleet, it also reduced the amount of people, fuel, and road traffic, further enhanced network transportation efficiency, and achieved a significant reduction in costs.

Compared with 2023Q1, the unit core cost of 2024Q1 dropped sharply. Among them, the unit trunk cost decreased from 0.337 yuan/kg to 0.027 yuan/kg to 0.310 yuan/kg, and the unit distribution center cost decreased from 0.207 yuan/kg to 0.056 yuan/kg to 0.151 yuan/kg. With the continuous optimization of the company's cargo structure and the continuous release of cost reduction and efficiency benefits, gross margin will continue to be repaired. 2024Q1's gross margin reached 16.1%, an increase of 5.7 pcts over the previous year, and the gross margin reached a new high level since listing.

While the gross margin reached a record high, the company strictly implemented cost control. The management expense ratio continued to decline. The management expense ratio for the first quarter of 2022/2023/2024 was 9.6%/7.8%/5.4%, respectively. In the end, the company achieved net profit margins to mother of -4.4%/4.0%/7.9% in the first quarter of 2022/2023/2024, respectively, and the company's profitability increased significantly.

The competitiveness of Eneng Logistics products continues to improve, cargo volume is growing steadily, profitability continues to improve, and performance is expected to continue to be released.

Profit forecast and investment rating We expect Aneng Logistics's 2024-2026 revenue to be 11.601 billion yuan, 13.499 billion yuan and 15.269 billion yuan, respectively, and net profit to mother of 697 million yuan, 834 million yuan and 937 million yuan, respectively. The corresponding PE is 9.56 times, 7.99 times and 7.11 times, respectively. As a leading domestic franchise express company, the company has initially shown results in strategic adjustments and management improvements in the short to medium term. In the medium to long term, it is expected to benefit from the growth space brought about by the accelerated penetration of LTL and maintain a “buy” rating.

Risks suggest that economic growth falls short of expectations; the share of road freight has declined; price wars have resumed and industry competition has intensified; labor and oil price costs have risen sharply; related policies have affected uncertainty; and the company's performance has fallen short of expectations.