After a lapse of five years, we once again released the company's depth. We discovered that the company's transformation factors have turned into positive performance, and it is more likely to release flexible performance under the “anti-internal roll” of the industry.

Business volume is the cornerstone: Shentong's component volume growth rate is back to leading the industry. 1) Since 2023, Shentong has continued to lead the way in component volume growth, and the share gap has narrowed. In 2023, Shentong's volume growth rate was 35.2%, 13.2 pct higher than the average value of Tongda series; according to monthly data, in the 31-month period from January 2022 to July 2024, Shentong achieved the first monthly growth rate in 25 months; in terms of share: in 23, the third-place share of Shentong and Tongda fell to 1 percentage point for the first time, and the 24H1 gap remained around 1 percentage point. 2) Underlying support: Direct marketing of transit centers+increased capital investment to increase production capacity. In the 2019 in-depth report, we proposed two major strategic directions for the company to break the game: increasing the proportion of direct marketing of transit centers and increasing capital expenditure. Observe the company's progress:

In 2018-2020, direct operation of core transit centers was accelerated, with a direct operation rate of 94.1% at the end of 2020. In 2021, construction and expansion projects for transit centers were intensified. In the period from 2022 to 2024, the “10 billion in three years” plan is to increase production capacity. According to year-end production capacity estimates, the 2021-2024E production capacity was 50, 60, and 75 million, up 19%, 20%, and 25% year-on-year.

The cycle where quantity comes before “profit” starts. We are watching the company achieve a positive volume-cost-benefit cycle. 1) Average ticket revenue: Shentong had the lowest average ticket revenue from the second half of 2022 to May '24, but in July '24, Shentong was 0.02 yuan higher than Yunda. There are many factors behind the lower revenue from a single ticket: some competition in the industry, lightweight packages, and a high percentage of outlets running on their own. 2) The growth rate of business volume brought about a reduction in average ticket cost greater than revenue, and the net profit of a single ticket showed a clear inflection point. Looking at the non-net profit deduction from a single vote, a basic correction began in 22Q1, ending the loss of non-net profit deducted from a single vote starting in 20Q3. 2024Q1 deducted non-net profit of 0.041 yuan from a single ticket, an increase of 0.003 yuan over the previous year. According to the company's interim report performance forecast, it is estimated that Q2 Company was 0.042 yuan, which remained stable from month to month. 3) Free cash flow recovers and hematopoietic function is restored. In 2023, the company achieved a free cash flow of 0.5 billion yuan, which was corrected for the first time since 2018 after expanding investment and construction expenses.

The “anti-domestic investigation” of the industry is a general trend, which is conducive to the flexible release of express delivery companies' performance. 1) Industry authorities have clearly proposed an “anti-domestic investigation” for the express delivery industry. 2) The industry landscape is being optimized. The competitive strategies of major companies in the industry are changing. Zhongtong has shifted its strategic focus to service quality, and Jitu achieved adjusted profits in the first half of 2024. Capital expenditure support for major express delivery companies continues to slow down, laying the foundation for optimizing the industry pattern.

3) Self: Strengthen internal skills, and seek differentiation based on cost performance. Including expanding and strengthening the operating chassis:

Headquarters - improving production capacity, terminal optimization structure, network-wide digital intelligence transformation and upgrading; establishing a customer hierarchy mechanism, optimizing the customer service system, etc.

Investment advice: 1. Profit forecast: We expect the company to achieve net profit of 0.86, 1.27, and 1.58 billion yuan in 2024-26, with year-on-year increases of 152%, 48%, and 24%, respectively. Corresponding to the 2024-26 EPS of 0.56, 0.83 and 1.03 yuan, respectively, and PE of 15, 10, and 8 times, respectively. 2. Target price: We expect the express delivery industry's business volume growth rate to remain around 15% in 2025-26. In the context of the industry's backlash, single-ticket profits are expected to remain stable at least, maintaining a level of performance growth that exceeds the industry volume growth rate. Leading companies should repair at least 15 times PE. As an inflection point company, Shentong Express considers the certainty of the market's future performance release, which may still need to be observed. We gave the 2025 profit forecast 13 times PE, corresponding to a target market value of 16.5 billion yuan and a target price of 10.78 yuan. We expect 27% of the space compared to the current price, and give it a “recommended” rating.

Risk warning: Price competition in the industry is intensifying, and e-commerce demand is lower than expected.