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On August 30, 2024, Shentong Express released its 2024 semi-annual report on operations. 2024H1, Shentong Express achieved operating income of 21.569 billion yuan, an increase of 13.01% year on year; completed net profit of 0.437 billion yuan, up 100.17% year on year; completed deducted net profit of 0.437 billion yuan, up 100.87% year on year. Among them, in 2024Q2, Shentong Express achieved operating income of 11.437 billion yuan, an increase of 10.58% year on year; completed net profit of 0.247 billion yuan, up 188.81% year on year; completed deducted net profit of 0.251 billion yuan, up 171.77% year on year.

In terms of business, 2024H1 and Shentong Express completed the express delivery business volume of 10.227 billion tickets, up 32.46% year on year, market share 12.76%, up 0.90 pct year on year, and single ticket revenue was 2.11 yuan, down 14.68% year on year. Among them, in 2024Q2, Shentong Express completed the express delivery business volume of 5.64 billion tickets, a year-on-year increase of 29.21%, a market share of 13.10%, an increase of 0.80 pct over the previous year, and a single ticket revenue of 2.03 yuan, a year-on-year decrease of 14.42%.

Investment highlights:

Following the trend, in order to achieve rapid business volume growth, refined management achieved a sharp drop in costs in 2024H1, the company's business volume increased by 32.46% year on year, leading the industry growth rate (2024H1 industry increased 23.11% year on year), and the company achieved a 0.90pct year-on-year increase in market share to 12.76%; under the influence of the “fast and provincial” brand mentality, the company's single ticket revenue fell 0.36 yuan year on year, but by continuing to launch smart devices, sorting costs were significant 2024H1 Decrease; through expanding the scale of its own vehicles and refined management, the loading rate was greatly increased (the loading rate increased by 5 pcts compared to the end of the previous year), and the company's 2024H1 single ticket operating cost decreased by 0.38 yuan year on year, and single ticket expenses decreased by 0.01 yuan year on year. Ultimately, net profit from a single ticket was 0.04 yuan, and net profit from a single ticket not returned to mother was 0.04 yuan, an increase of 0.01 yuan over the previous year. Among them, in 2024Q2, the company's volume growth continued to maintain a strong momentum (up 29.21% year on year). Single ticket revenue decreased by 0.34 yuan year on year, single ticket operating cost decreased 0.37 yuan/ticket year on year, and single ticket fee decreased 0.01 yuan year on year. Ultimately, net profit from single ticket was 0.04 yuan, and non-net profit per ticket was 0.04 yuan, up 0.02 yuan year on year.

The three-year capital expenditure plan of 10 billion dollars continued, opening up room for the company's growth and cost reduction. In June 2024, the company's average daily order volume reached 65.5 million orders, reaching a new high. The company's business volume growth rate and production capacity utilization rate were high. The company continues to advance the “three-year 10 billion” production capacity increase plan. The company completed a total of 12 capacity improvement projects in the first half of the year, pushing the company's production capacity to the next level. It is expected that within 2024, the company's normal throughput capacity will increase to more than 75 million orders per day.

At the same time as production capacity has increased, the company's operating capacity has been further improved. 2024H1, as the company optimizes standards and improves timeliness in backward regions, the company's monthly contract period was shortened to less than 44 hours, and the index ranking of multiple logistics platforms increased significantly year-on-year, strengthening the “fast” brand mentality. Furthermore, the company improved transportation links and illegal operations through central equipment technology upgrades, and the damage rate was also effectively reduced, and the “good” brand mentality was strengthened.

The company continues to improve in terms of production capacity, timeliness and service capacity. It is expected to bring more order volume growth at reasonable prices, fully implement the “fast and save” brand strategy, and maintain rapid growth.

Furthermore, due to scale effects and rising production capacity, there is plenty of room for reduction in transit, transportation, and delivery costs at the headquarters, leading to single ticket profits and upward flexibility in performance.

There is a virtuous cycle of “volume increase, cost reduction, and quality improvement”. I am optimistic that single-ticket profit recovery will bring performance flexibility. As capital expenditure of 10 billion dollars continues to advance over three years and the trend of small parts continues, the company is expected to achieve high volume growth to drive down costs, and there is still plenty of room for single ticket costs to decline.

As the company's turnover accelerates, there is also room for improvement in timeliness, and it is expected that it will get rid of a simple price-for-volume strategy. The company's “volume increase, cost reduction, and quality improvement” has entered a virtuous cycle. Against the backdrop of the “price” of the company's single ticket rising and “cost” falling, it is expected to achieve a continuous recovery in single ticket profits. The net profit from a single 2024Q2 ticket is only 0.04 yuan, which has a lot of room for repair compared to other peers. I am optimistic about the upward elasticity of the company's single ticket profit in the future.

Profit forecast and investment rating According to the latest semi-annual report data, Shentong Express's revenue for 2024-2026 is estimated to be 48.142 billion yuan, 55.065 billion yuan and 61.996 billion yuan, respectively, +18%, +14%, and +13% year over year; net profit to mother is 0.854 billion yuan, 1.225 billion yuan and 1.552 billion yuan, respectively, and +27% year-on-year, corresponding EPS 0.56 yuan, 0.80 yuan, 1.01 yuan, corresponding PE is 16.30 times, 11.36 times, and 8.97 times, respectively. Through reasonable price competition and more room for cost reduction, the company is expected to continue to recover single ticket profits, bring greater performance flexibility, and maintain a “buy” rating.

Risks suggest that macroeconomic growth falls short of expectations, time-efficiency growth falls short of expectations, international business development falls short of expectations, market expansion falls short of expectations, risks of mergers and acquisitions, rapid rise in labor costs, sharp rise in oil prices, and aviation accidents.