3Q24 results fell short of our expectations

The company announced 3Q24 results: revenue of 29.5 billion yuan, +18% year on month, -8% month on month; gross profit of 1.28 billion yuan, -11% year on month, -22% month on month; net profit to mother of 0.88 billion yuan, -10% year on month and -23% month on month after restatement. The 3Q24 performance was slightly lower than our expectations, mainly due to the slowdown in agent traffic growth, pressure on contract logistics efficiency, and DHL's demand for time-sensitive parts falling short of expectations.

Development trends

In terms of business volume, the growth rate of air and sea transportation has slowed, railway agents have continued to increase at a high rate, and contract logistics has declined year-on-year.

The 3Q24 company's air freight channel, shipping agent, railway agency and contract logistics business volume changed by +1.4%/+3.7%/+56.2%/-7.1%, respectively. The growth rate of the company's air and sea freight agents is slowing down, mainly due to the company optimizing cash flow while reducing some of the business volume with low additional costs and high capital consumption. Domestic logistics demand is still weak. In July-September, China's public logistics park throughput index was -7%/-6%/-5%, respectively. Considering that warehouses are affected by industry demand and vacancy rates, we estimate that 3Q's contract logistics benefits may still be under pressure.

Operating cash flow improved significantly compared to the same period last year. The company's 1H24 net operating cash flow outflow was 1.65 billion yuan due to fluctuations in freight rates and expansion of business scale; since 3Q, the company has taken the initiative to improve cash flow, reduce the use of related business capital, and achieved a net operating cash inflow of 2.06 billion yuan, +1,665% year-on-year and +94% month-on-month.

We expect the amount of dividends per share to remain stable throughout the year. The company declared an interim dividend of 0.145 yuan (tax included) per share, and the dividend ratio rose to 54%; considering the cash dividend of 0.145 yuan (tax included) per share in the middle and end of 2023, and combined with the company's cash flow improvements and capital expenditure plans, we expect dividends per share to stabilize throughout the year. Assuming that the total dividend amount per share continues to be 0.29 yuan (tax included) in 2024, the dividend rates corresponding to the current price of the company's A and H shares are 5.4% and 8.1%, respectively.

Profit forecasting and valuation

Considering the slowdown in the company's traffic growth rate and the increase in future trade uncertainty, we lowered our 2024/2025 net profit by 13%/15% to 3.738 billion yuan/3.867 billion yuan. The current A share price corresponds to the 2024/2025 price-earnings ratio of 10.5 times/10.1 times. The current H share price corresponds to the 2024/2025 price-earnings ratio of 6.9 times/6.5 times.

A-shares maintained an outperforming industry rating. Taking into account the company's profit expectations and dividend ratio, we lowered our target price by 6% to 6.18 yuan, which corresponds to 12.1 times the 2024 price-earnings ratio and 11.7 times the 2025 price-earnings ratio. There is 14.9% upside compared to the current stock price. H shares maintained an outperforming industry rating, but for the same reason, we lowered our target price by 6% to HK$4.55, which corresponds to 8.0 times the 2024 price-earnings ratio and 7.5 times the 2025 price-earnings ratio. There is 16.1% upside compared to the current stock price.

risks

International trade frictions, contract logistics prices continued to be under pressure, and the decline in subsidies exceeded expectations.