The company announced its 2024 semi-annual report: 1) revenue of 24H1 achieved 18.45 billion yuan, +17.5% year over year; of which Q2 revenue was 9.15 billion yuan, +10.6% year over year; 2) gross profit of 24H1 achieved 1.41 billion yuan, +2.5% year over year, gross margin was 7.6%, -1.3 pct year on year; of which Q2 gross profit was 0.81 billion yuan, -1.1% year on year, gross margin was 8.8%, or -1.0 pct year on year. 3) The cost rate for the period (sales/management/R&D/finance) was 6.1% for 1H24, -1.3 pct year-on-year. 4) Profit to mother of 24H1 achieved profit to mother of 0.333 billion yuan, +37.1% YoY, minus 0.198 billion yuan of non-profit, +51.0% YoY; of these, Q2 realized 0.24 billion yuan of profit to mother, +41.1% YoY, and realized deduction of 0.182 billion yuan of non-profit, or +44% YoY. 5) Asset disposal income 24H1 confirmed revenue of 0.098 billion yuan, accounting for 24.5% of total profit, mainly income from the transfer of shares in subsidiaries.

The scale of the express shipping business grew further, and the cost structure continued to improve. 1) By business, a) Express shipping is the company's core business. 24H1 revenue was 16.64 billion yuan, accounting for 90.2%, up 21.1% year on year; core business (excluding vehicles) volume was 6.034 million tons, up 7.7% year on year; network integration projects continued to advance, catalyzing further growth in the scale of the express shipping business; of these, Q2 revenue was 8.26 billion yuan, up 185% year on year. b) Express delivery business, 24H1 revenue was 1.07 billion yuan, accounting for 5.8%, a year-on-year decrease of 23.9%; of these, Q2 revenue was 0.53 billion yuan, a year-on-year decrease of 25.7%. c) Other businesses, mainly including warehousing and supply chain businesses. 1H24's revenue was 0.74 billion yuan, accounting for 4%, up 34.3% year on year. 2) 24H1's operating costs were 17.04 billion yuan, including labor costs, transportation costs, rent and right-of-use asset depreciation, depreciation and amortization, and other costs were 71.9, 75, 1, 0.53, and 0.83 billion yuan, respectively, with a year-on-year increase of +0.9%, +54.2%, +17.4%, -6.5%, and -7.6%, respectively. The company reduced labor costs/depreciation amortization as a share of revenue by 6.4 and 0.7 percentage points, respectively, by carrying out refined management, improving the level of intelligence, optimizing personnel layout, and continuously promoting network optimization and site integration.

Logistics network integration progressed steadily, with remarkable results in optimizing the main products. 1) Further promoting the integration of the JD logistics network, 24H1 optimized 1,238 business outlets to 7956, with a township coverage rate of 93.7%, which was basically the same as the previous year; distribution centers were optimized to 165, with a total distribution center area of 3.01 million square meters, +36.4% over the same period last year.

24H1's actual transaction amount related to the provision of labor services to JD Group and its controlled enterprises was 27.7 yuan, and the full year of 2024 is expected to be 8.51 billion yuan, +163% over the same period last year. 2) The main products continued to be optimized, and the customer experience was significantly improved and stickiness increased. The 24H1 customer 10,000 ticket liability complaint rate was -43.6%, and the number of active contract customers remained the same; as of 24H1, the company had 0.0155 million branch line vehicles, improving transportation timeliness, and the overall compliance rate was +3.8%; 24H1 increased investment in automated sorting equipment, and the damage rate of main products was further improved, down 28.3% year on year.

Investment advice: 1) Profit forecast: Considering the slowdown in market growth, we slightly adjusted the company's 24-26 profit forecasts to 1.01, 1.22, and 1.45 billion yuan (the original forecast was 1.06, 1.3, and 1.51 billion yuan), respectively. The corresponding EPS was 0.98, 1.19, and 1.41 yuan, respectively, and the corresponding PE was 14, 11, and 10 times, respectively. 2) Target price:

We expect the company's net profit compound to grow at 25% in 23-26. Combined with the future existence of the company and JD Logistics to bring potential growth space through further collaborative integration, we will give the estimated profit 15 times PE in 25 years, a target market value of about 18.3 billion yuan, and a target price of 17.8 yuan. We expect 33% of space compared to the current level, maintaining the “recommended” rating.

Risk warning: The economic growth rate is lower than expected, the industry competition pattern is deteriorating, and collaboration with JD is falling short of expectations.