Net profit returned to mother increased in the first half of the year, and market share continued to increase

Shentong Express announced 1H24 results: 1) operating revenue of 21.57 billion yuan, up 13% year on year; 2) net profit of 0.44 billion yuan, up 100% year on year; 3) completed 10.23 billion express delivery, up 32.5% year on year; of these, 2Q24 achieved operating income of 11.44 billion yuan and net profit of 0.25 billion yuan to mother, respectively. The results for the first half of the year exceeded our previous expectations (net profit of 0.42 billion dollars to mother). In the first half of the year, the volume of parts in the industry increased, but prices faced downward pressure. By investing in infrastructure construction and improving network terminal service capabilities, the company continues to increase its gross profit while increasing its market share. We are optimistic that the company will continue to improve quality and efficiency and enhance profitability. We maintain our 2024/2025/2026 net profit forecast of 0.81 billion/1.13 billion/1.45 billion yuan, and give 24x 2024E PE (comparable company Wind unanimously expected 13x. The main reason for the valuation premium is that the growth rate of the company's express delivery volume is expected to continue to be higher than the industry average, and the performance is highly elastic), corresponding to the target price of 12.72 yuan to maintain “buying”.

The price-for-volume strategy has achieved remarkable results, and the volume growth rate is higher than that of the industry

In terms of volume, the express delivery industry completed 80.16 billion pieces in the first half of '24, an increase of 23.1% over the previous year.

The company completed 10.23 billion pieces in 1H24, +32.5% year-on-year (Yunda/Yuantong: +30%/+24.8%).

Of these, 5.64 billion pieces were completed in 2Q24, +29.2% year-on-year. The company's volume growth rate in the first half of the year was faster than the industry average. In terms of price, the company's express delivery service revenue in the first half of '24 was 2.09 yuan/ticket, compared to -11.4% (Industry/Yunda/Yuantong: -6.5%/-15.5%/-4%), mainly due to the increase in the share of lightweight small parts and the company's adjustment of the corresponding policy launch according to market conditions. 1H24's market share was 12.8%, compared to +0.9 pct (Yunda/Yuantong: +0.7/+0.2pct). The company seized the opportunity of industry volume growth in the first half of the year, and the price-for-volume strategy had remarkable results. (Data source: State Post Office, company announcement) Single ticket costs continue to decline, and gross margin increases at an accelerated pace

In the first half of '24, the cost of a single ticket for the company's express delivery business was 1.97 yuan/ticket, -12.4%/-4.9%; the express delivery business achieved a gross profit margin of 5.76%, +1.17/1.85pct year-over-year, respectively.

The company's costs continued to decline in the first half of the year, and gross margin both achieved significant year-on-month growth. In the first half of the year, the company continued to invest in new automated sorting equipment to reduce package sorting pressure during peak periods, increase sorting efficiency by 30%, and significantly reduce sorting costs.

Continued investment in infrastructure is expected to lead to profit growth in the first half of '24. The company's investment in machinery and equipment increased 115.6% year on year to 0.98 billion yuan, and transportation equipment investment increased 87.9% year on year to 0.19 billion yuan. In 2022, the company launched a three-year 10 billion production capacity improvement project, focusing on the upgrading and standardization of transit centers. Entering the final year of the project, 1H24 completed a total of 12 capacity improvement projects, driving the company's average daily order volume to exceed 65.5 million orders in June. The company expects normal throughput capacity to exceed 75 million orders in 2024. In addition, the company received asset-related government subsidies in the first half of the year, and there are still 0.3 billion yuan of unconfirmed profit and loss. Profit is expected to continue to rise in the second half of the year.

Risk warning: The volume growth rate is lower than expected; the cost reduction effect is lower than expected; price competition worsens.