Incident: In 2024, H1 achieved revenue of 18.45 billion yuan, up 17.5% year on year, of which Q2 achieved revenue of 9.15 billion yuan, up 10.6% year on year; realized net profit of 0.33 billion yuan, up 37.1% year on year. Of these, Q2 achieved net profit of 0.24 billion yuan to mother, an increase of 41.2% year on year.

Product innovation is superimposed by network integration, and the company's revenue is expected to continue to grow. 1) In 2024, H1 achieved revenue of 18.45 billion yuan, +17.5% year-on-year, and 24Q2 achieved revenue of 9.15 billion yuan, +10.6% year-on-year and -1.5% month-on-month. Looking at Q2 by business, express shipping/express delivery/other businesses achieved revenue of 8.26/0.53/0.36 billion yuan respectively, +13.6%/-25.6%/25.1% YoY, and -1.3%/-2.0%/-5.5%. The year-on-year increase in revenue was mainly due to continued promotion of network integration and improved product competitiveness in the company's express shipping business to meet the diversified needs of customers. We believe that the month-on-month decline was mainly due to the company's adjustment of the price strategy to cope with the further decline in Q2 market demand; 2) The company reorganized its product system in 2024, strategically focused on bulky delivery business, improved service quality to drive core customer growth, and eliminate the influence of network integration. 2024H1 achieved express freight volume of 6.0336 million tons/year over year. Starting in July, the company will adjust its business strategy, promote revenue-side product innovation, and combine the continued strength of the original market, and the business volume is expected to continue to grow further.

Gross margin is expected to increase as the scale effects of internal integration and network integration are released. 24H1 gross profit margin was 7.62%, -1.13pct year on year, of which Q2 gross margin was about 8.84%, and -1.04pct year on year. 1) The company continued to promote refined management initiatives, and the share of labor/rent and right-of-use assets/depreciation/amortization/other costs H1 in revenue decreased by 6.4 pct/flat /0.7 pct/1.2 pct, respectively. 2) Under H2 network integration in 23, the company continued to increase investment in transportation resources, resulting in an increase in the share of transportation cost revenue, a slowdown in capital expenditure in 24, and an increase in capacity utilization driving a month-on-month improvement in transportation costs. 23Q3, 23Q4, 24Q1, and 24Q2 transportation costs accounted for 39.8%, 41.9%, 41.1%, and 40.2% of revenue respectively; 3) Looking ahead to the second half of the year, the company promoted internal integration and terminal network upgrading to reduce transportation costs through route optimization, model upgrades, and capacity collection. The gross margin is expected to increase.

Expense control continued to gain strength, and the fee rate declined year on year. The cost rate for the 24H1 period was about 6.11%, -1.34pct year on year, and 6.08% for Q2, and -1.51 pct year on year. Q2 Sales Expense Rate/ Management Expense Rate/ Financial Expense Rate/ R&D Expense Ratio were 1.80%/3.39%/0.34%/0.55%, respectively, +0.21pct/-1.54pct/+0.01pct/-0.20pct. The management cost ratio has been greatly improved, mainly because the company continues to promote process optimization and the flattening of functional organization to achieve continuous improvement in management efficiency.

Profit forecast and investment perspective: We expect the company's 2024-2026 net profit to be 1.11/1.38/1.63 billion yuan, respectively, and the corresponding 2024-2026 PE will be 11.8x, 9.5x, and 8.1x, respectively. We selected Eneng Logistics, Zhongtong Express, and Yuantong Express as comparable companies. The average PE valuation in 2024 was about 11.2x. The high-end express delivery pattern is clear. The integration of the company and the JD network continues to advance throughout the year. The expansion of new revenue-side business is expected to increase the scale of cargo volume, and the space for cost savings under refined management will be further strengthened as production capacity utilization increases. As improvements continue to be released, the company's profit flexibility can be expected, and for the first time coverage will be given a purchase rating.

Risk warning: 1) Traffic growth falls short of expectations due to macroeconomic fluctuations; 2) Cost control falls short of expectations due to rising fuel prices; 3) loss of share due to increased market competition