3Q24 results beat our expectations

ANE announced its 3Q24 results: Revenue rose 21% YoY and 5% QoQ to Rmb3.04bn; gross profit grew 67% YoY to Rmb476mn; gross margin rose 4.3ppt YoY to 15.6%; adjusted net profit grew 28% YoY to Rmb218mn. Factoring in a high base for other income in 3Q23 due to the additional VAT deduction policy (about Rmb60mn), the firm estimates that adjusted pre-tax profit rose 76% YoY in 3Q24. 3Q24 earnings beat our previous forecast (Rmb210mn), mainly due to better-than-expected ASP and continued cost reduction driven by network structure optimization.

Trends to watch

3Q24 freight volume and revenue hit new quarterly highs. In 3Q24, the company completed shipment of a total freight volume of 3.74mnt (up 18% YoY and up 5% QoQ); it recorded a total number of 45.91mn shipments (up 38% YoY and up 13% QoQ); revenue rose 21% YoY and 5% QoQ to Rmb3.04bn, hitting quarterly highs. 3Q is a traditional slack season for freight transport. The Public Logistics Park Throughput Index fell 7% YoY in July, 6% YoY in August, and 5% YoY in September. The company delivered solid performance, as it rolled out innovative products and increased the number of outlets. As of end-3Q24, the number of its outlets rose about 4,000 YoY to about 32,000. As a result, shipment volume increased steadily and the company improved its end-market services and reduced related costs.

A solid pricing mechanism. Revenue per tonne rose 2% YoY in 3Q24, beating our expectation. The ASP of the firm's less-than-truckload (LTL) business rose 2% YoY to Rmb815/t in 3Q24, as the firm optimized its freight weight structure and improved service quality while implementing a solid pricing mechanism (e.g., no price hikes in peak season and no price cuts in slack season). Stable pricing not only helps mitigate seasonal fluctuations in earnings, but also helps franchisees refine operations, thereby improving franchisee retention rate.

Cost control effective; provisions for bonuses and other expenses increased. In 3Q24, cost dropped by 3% YoY to Rmb687/t, thanks to effective cost control. Costs of trunk line transportation and distribution fell 6% and 17% YoY, and costs of value-added services and freight delivery rose 75% and 6% YoY. G&A expenses rose 41% YoY to Rmb222mn due to increased provisions for employee bonuses, share-based payment expenses and marketing expenses.

We are upbeat on the firm's healthy earnings growth in the medium and long term given its network ecosystem and product mix optimization. In 3Q24, the firm's shipment volume of mini freight (0-70kg) rose 37% YoY. As a result, the average freight weight fell 15% YoY to 81kg. Under the new cargo weight structure, we expect the firm to further optimize its cost structure and achieve healthy earnings growth by promoting the construction of digital and automated transportation systems.

Financials and valuation

We keep our 2024 and 2025 earnings forecasts unchanged. The stock is trading at 11.2x 2024e and 8.6x 2025e recurrent P/E. We maintain an OUTPERFORM rating. We roll over to valuation for 2025, and lift our target price 10% to Rmb11.0. Our TP implies 11x 2025e recurrent P/E, offering 39% upside.

Risks

Disappointing economic growth; intensifying price competition; disappointing cost control.