Incidents:

On October 31, 2024, Shentong Express announced that in terms of operations in the 2024 three-quarter report, 2024Q1-Q3, Shentong Express achieved operating income of 33.491 billion yuan, up 14.16% year on year; completed net profit of 0.652 billion yuan, up 195.18% year on year; completed deducted net profit of 0.639 billion yuan, up 204.77% year on year. Among them, in 2024Q3, Shentong Express achieved operating income of 11.922 billion yuan, a year-on-year increase of 16.31%; completed net profit of 0.215 billion yuan, compared to 0.003 billion yuan in the same period last year; completed deducted net profit of 0.202 billion yuan, compared to -0.008 billion yuan in the same period last year.

In terms of business, 2024Q1-Q3 and Shentong Express completed the express delivery business volume of 16.11 billion tickets, up 30.77% year on year, market share 13.02%, up 0.87 pct year on year, and single ticket revenue was 2.08 yuan, down 12.70% year on year. Among them, in 2024Q3, Shentong Express completed the express delivery business volume of 5.883 billion tickets, a year-on-year increase of 27.95%, a market share of 13.49%, an increase of 0.83 pct over the previous year, and a single ticket revenue of 2.03 yuan, a year-on-year decrease of 9.09%.

Investment highlights:

Scale effect+refined management achieved a sharp reduction in costs, achieving continuous restoration of single ticket profits in 2024Q1-Q3. The company's business volume increased by 30.77% year on year, leading the industry growth rate (2024Q1-Q3 industry grew 22.03% year on year), and the company achieved a 0.87pct year-on-year increase in market share to 13.02%; under the influence of the “fast and economical” brand mentality, the company's single-ticket revenue fell 0.30 yuan year on year, but the company continued to invest 2024Q1-Q3 Smart equipment, sorting costs have dropped significantly; by expanding the scale of its own vehicles and refined management, the loading rate was greatly increased (2024H1 loading rate increased by 5 pcts compared to the end of the previous year), and the company's 2024Q1-Q3 single ticket operating costs decreased by 0.33 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 was 0.04 yuan, an increase of 0.02 yuan over the previous year. Among them, in 2024Q3, the company's volume growth continued to maintain a strong momentum (27.95% year-on-year increase), with single ticket revenue falling 0.20 yuan year-on-year, single-ticket operating costs falling 0.24 yuan year-on-year, and single-ticket expenses falling 0.01 yuan year-on-year. Ultimately, net profit from a single ticket was 0.04 yuan, up 0.04 yuan year-on-year, and non-net profit per ticket was 0.03 yuan, up 0.04 yuan year-on-year.

Production capacity shortfalls have been made up, service quality has been improved, and space has been opened up to increase the company's volume, price, capital, and profit. In September 2024, the company's average daily order volume reached 66.6 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, and is expected to bring more order volume growth at reasonable prices. 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 plenty of room for cost reduction, and the company still has a lot of room to reduce the cost of a single ticket, which is optimistic that the profit recovery will bring about flexible performance. As the company's turnover accelerates, there is also room for improvement in timeliness. It is expected that it will get rid of the simple price-for-volume strategy and achieve a continuous recovery in single ticket profits against the backdrop of a steady decline in “price” and “cost”. The net profit from a single 2024Q3 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 We expect Shentong Express's revenue for 2024-2026 to be 48.142 billion yuan, 55.065 billion yuan and 61.996 billion yuan, respectively, +18%, +14%, and +13% year on year; net profit to mother will be 0.858 billion yuan, 1.229 billion yuan and 1.556 billion yuan, respectively, and +152%, +43%, and +27% year-on-year, corresponding EPS of 0.56 yuan, 0.80 yuan and 1.02 yuan, corresponding PE is 19.54 times, 13.64 times, and 10.77 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.