Zhongtong Express announced 3Q24 results: 1) Revenue +17.6%/-0.5% to 10.7 billion yuan; 2) Net profit to mother +2.2%/-8.3% YoY to 2.4 billion yuan (slightly lower than our expectations of 2.56 billion yuan); 3) adjusted net profit to mother of 2.41 billion yuan, +3.0%/-14.2% YoY. The month-on-month decline in profits was mainly due to increased price competition in the industry, and single ticket revenue declined month-on-month. The 3Q24 express delivery volume was +16.0%/+3.2% to 8.72 billion tickets, and the market share was -2.4/+0.4pct to 20.0% month-on-month. Looking ahead to 25 years, the company's guidance will rebalance resource allocation and pricing strategies to expand market share leadership while maintaining steady profits. We are optimistic that the adjustment of the company's 25-year business strategy will help increase market share and profit growth, and reaffirm “buying.”

3Q/9M volume increased 16.0%/13.3% year on year, lower than industry volume growth rate of 29.8%/32.9% 3Q/9M completed express delivery volume of 8.7 billion/24.3 billion tickets, up 16.0%/13.3% year on year, lower than industry volume growth rate of 29.8%/32.9%; market share was 20.0%/19.7%. The unit volume growth rate is lower than that of industry owners due to the increase in the proportion of low-value e-commerce parts in the market since this year. In order to balance service quality, business volume, and profit, the company abandoned some of the low-price parts business volume, thereby dragging down the growth rate, causing the market share to decline year-on-year in the first three quarters. Since 3Q, the company has actively adjusted its business strategy, and its market share has rebounded month-on-month.

According to the company's guidelines, the increase in the share of low-value e-commerce parts in the industry in 24 years posed challenges to the company's overall strategy.

The company is making adjustments to rebalance resource allocation and pricing strategies to help regain business volume growth.

3Q single ticket revenue increased 1.8% year on year, and adjusted single ticket net profit fell 12.0% year on year. 3Q's single ticket revenue was +1.8%/-3.6% year over month to 1.20 yuan; single ticket cost -0.2%/+0.1% year over month to 0.82 yuan; adjusted single ticket net profit -12.0%/-17.6% yoy to 0.27 yuan.

The adjusted net profit for 3Q24 was 2.41 billion yuan, up 3.0% year over year. Net profit from a single ticket declined year on year, but the overall net profit increase was mainly driven by the year-on-year increase in the volume of items. In the first three quarters, single ticket revenue fell 0.4% year on year to 1.29 yuan; single ticket cost fell 1.6% year on year to 0.85 yuan; single ticket net profit fell 3.5% year on year to 0.30 yuan. Overall adjusted net profit for the first three quarters increased 9.0% year over year to 7.41 billion yuan.

Lowering the net profit forecast for 25/26; rolling PE to 25E, increasing the target price by 3% to HK$199.7. We maintain our 24-year net profit forecast of 9.19 billion yuan (adjusted net profit of 10.1 billion yuan); looking ahead to 25/26, consider a further price reduction for the company to obtain more business volume to increase market share. We lowered the 25/26 single ticket revenue assumption, corresponding to a reduction of 8.6%/9.1% to 10.74 billion/11.77 billion yuan (adjusted net profit to mother 11.04 billion/12.08 billion yuan). We switched the PE valuation year to 25E, and based on 13.9x 25E PE (the average PE value of the company's three-year history minus one standard deviation, the valuation was mainly due to increased price competition in the industry), and raised the target price by 3% to HK$199.7 (the previous target price was based on 15.8x 24E PE) to maintain “buying”.

Risk warning: The volume growth rate is lower than expected; the cost is higher than expected; the price competition in the industry worsens.