1. The policy “combo punch” brought about a revaluation of China's assets, and the logistics sector showed flexibility in the procyclical cycle

Recently, Chinese assets have once again returned to the eyes of global investors.

The main reason behind this is that the Federal Reserve cut interest rates exceeded expectations, providing a good opportunity to reconsider asset allocation.

In terms of data representation, Chinese assets have strong performance compared to major global economies. They have high potential, high quality assets, and low valuations, so they are more likely to attract an influx of external capital.

At the domestic macroeconomic policy level, the introduction of monetary policy and the positive signals of steady growth released by the Politburo have also greatly boosted market expectations.

In this context, the procyclical sector, which benefits from the expected recovery in demand and where profits are expected to improve significantly, should be the current priority direction, such as the logistics sector.

The China Logistics Industry Sentiment Index released by the China Federation of Logistics and Purchasing for October showed that the logistics industry sentiment index rebounded significantly from month to month, and the upstream and downstream supply chains were further active. China's logistics industry sentiment index in October was 52.6%, up 0.2 percentage points from the previous month.

Recently, Eneng Logistics (9956.HK) released the latest financial report. Overall, it was “better than expected.”

Looking further, among many logistics companies, Eneng Logistics is one of the few high-quality targets that achieved a sharp rise long before policy incentives were stimulated. According to the data, as of the close of trading on November 15, Eneng Logistics had risen by more than 40% this year, leading the Hong Kong stock logistics sector.

2. Eneng Logistics became the leader in growth, and there are several major logical supports behind it

In the third quarter of this year, Eneng Logistics achieved revenue of 3.044 billion yuan, an increase of 21.2% year on year; adjusted profit before tax was 0.284 billion yuan, an increase of 39.2% year on year.

At the same time, continuing the upward trend in cargo volume in the first half of the year, the company achieved a total freight volume of 3.73 million tons in the third quarter, an increase of 18.5% over the previous year. It can be said that the continuous increase in cargo volume has supported Eneng Logistics for a day.

From once again achieving strong growth in both revenue and profit, to achieving a spectacular increase in the company's stock price during the year in the capital market, what is unique about Eneng Logistics? In my opinion, the details can be considered from the following perspectives.

Since the third quarter of 2022, Eneng Logistics has taken the lead in launching an “effective scale growth strategy with equal emphasis on profit and quality” in the industry, established the “Five Greatest” development vision, and guided the firm implementation of a series of measures. At present, the results of its transformation have paid off, and the correctness of the strategy has been further verified.

With the gradual strengthening of various capabilities for “high-quality growth”, Eneng Logistics is also gradually deepening in product strength building and channel construction.

On the one hand, we will continue to increase the coverage of encrypted networks with the goal of “the five largest” and “the most dense network coverage”. By the end of September, the company had a total of about 32,000 freight partners and freight forwarders, ranking first in the scale of the domestic express delivery network. Among them, the number of first-level outlets increased significantly, and the number of forwarder cooperation reached 6,812, an increase of 1,118 over the previous year.

On the other hand, Eneng also continues to improve its network capabilities and stimulate the vitality of its outlets. Since the third quarter, Eneng has continuously strengthened its network structure, starting from the actual needs of the market, and flexibly adjusted the mix of grain production areas and service areas. At the same time, the headquarters also continued to empower outlets with guarantee mechanisms such as “520” and “Iron Triangle” with “the fastest service response”, continue to conduct network standardization training, empower outlets with practice at the detailed level, and enhance the network's own operating capabilities.

The optimization of the network ecosystem also has a superposition effect in improving product strength. In the express shipping industry, most companies rely on “price adjustments” to compete for the market, that is, increasing prices during the peak season to obtain profits and cutting prices during the off-season to maintain market share. Eneng took the lead in breaking this competitive model, starting from the idea of empowering outlets, increasing customer stickiness with stable prices and enhancing the customer acquisition capacity of the outlets themselves.

Specifically, Eneng not only insisted on not rising during the peak season to maintain price stability throughout the year, but also launched “3,300 ace products” based on market demand, and continued to promote the implementation of the “0 surcharge” policy to enhance terminal service capabilities in the form of headquarters subsidized outlets, continue to benefit the market, reduce logistics payment costs for customers, and promote first-tier outlets to quickly leverage the market. Gradually solid product service capabilities and quality have contributed to a positive cycle of steady profit.

The correctness of strategic choices and the effectiveness of implementation have also enabled Eneng Logistics to “stay away from competition and surpass competition”, break away from the industry's low-latitude price war, and push it to further embrace high-quality growth.

This explains why Eneng Logistics was able to achieve double-digit revenue growth for several consecutive quarters, and the excellent performance of nearly doubling the profit level. In the third quarter, Aneng Logistics's gross profit was 0.476 billion yuan, up 66.7% year on year; corresponding gross margin reached 15.6%, up 4.2 percentage points year on year.

The good financial situation also makes Eneng Logistics more motivated to create value for shareholders. In August of this year, the company's board of directors approved a share repurchase plan. The company plans to repurchase no more than 0.116 billion shares under appropriate market conditions and in accordance with the relevant plan rules.

Generally speaking, buybacks demonstrate the company's management's confidence in the company's financial situation and help raise market expectations about the company's future growth potential and profit. The company has money on its accounts, and future profit side profits will not be bad. Combined with the company's great emphasis on increasing shareholder value, Eneng Logistics is expected to attract continuous attention from the capital market over a long period of time and continue to release the brand value brought by its high-quality growth.

III. Concluding Remarks

Although the company has achieved a sharp rise since this year's low, the valuation level is still low in the industry. Now, with the advent of the smooth wind market, valuations at a low level in the industry have also unleashed greater flexibility for the return of the value of Eneng Logistics.

Data source: Futu

Based on current market trends and policy environment, there is reason to continue to be optimistic about the future performance of the Hong Kong stock and A-share markets. As more medium- to long-term capital embraces Chinese assets, companies with solid fundamentals like Eneng Logistics are more likely to gain market recognition, which is expected to bring more surprises to the market in future market interpretations.