Incident: The company announced unaudited financial results for the third quarter of 2024. The 24Q3 express delivery business volume was 8.723 billion units, up 15.9% year on year; adjusted net profit was 2.387 billion yuan, up 2.0% year on year.

Comment:

Customer structure optimization led to a steady increase in core revenue per ticket, and steady growth in business volume 1) Express delivery business volume: The company achieved 8.723 billion packages in 24Q3, an increase of 15.9% over the previous year, and the year-on-year growth rate was relatively low. Our analysis was mainly the impact of sorting and optimizing lower-quality loss packages. Looking at the full-year perspective, the company's express delivery business volume is 33.7 billion to 3.9 billion units, an increase of 11.6% to 12.3% over the previous year.

2) In terms of single express delivery price: The company's 24Q3 single ticket core revenue (excluding freight forwarding) was 1.20 yuan, down 0.05 yuan (-3.64%) from month to month, and up 0.02 yuan (+1.83%) year on year. The year-on-year increase in Q3 core single ticket revenue was mainly due to the optimization of the customer structure. The increase in the share of direct customer revenue offset the negative impact of the decrease in the weight of a single package and the increase in incremental subsidies.

3) In terms of the core cost of single-ticket express delivery: Benefiting from the combined effects of improved economies of scale, optimization of trunk route planning and increased loading rate, the company's 24Q3 single-ticket trunk line transportation cost decreased by 0.04 yuan (-9.7%) to 0.39 yuan; due to the combined effects of improved automation efficiency, rising wages, and the commissioning of expanded facilities, the operating cost of the company's 24Q3 single ticket sorting center decreased by 0.02 yuan (-6.4%) to 0.25 yuan year on year. Overall, the core cost of single express delivery decreased by 0.06 yuan to 0.64 yuan year-on-year.

4) In terms of single-ticket profit: The company's 24Q3 single-ticket adjusted net profit was 0.28 yuan, down 0.03 yuan (-11.2%) year on year, and 0.06 yuan (-16.9%) month-on-month, mainly affected by the company's wholly-owned subsidiaries receiving income tax rebates of 0.207 billion yuan from “key software companies” in the third quarter of 2023. If income tax rebates are excluded, the 24Q3 company's net profit after the single ticket adjustment was basically the same year on year.

5) In terms of single ticket cash flow: 24Q3, the company's single ticket operating cash flow was 0.36 yuan, down 0.03 yuan (-8.7%) year on year, and 0.05 yuan (-13.4%) month on month. Single ticket operating cash flow remained at a healthy level, laying the foundation for the company's steady operation.

There is still room for growth in the express delivery industry. The company's market share is expected to steadily increase the scale of e-commerce express delivery volume expansion. In the context of the further rise of live e-commerce, on the one hand, the penetration rate of online shopping consumption has further increased, and on the other hand, the decline and fragmentation of online shopping consumption behavior has driven the decline in online purchases of physical products with single express packages. We believe that the express delivery industry is still growing more than upstream e-commerce. According to the company announcement, while maintaining high quality service and customer satisfaction, the company plans to regain market share, expand the company's leading edge in business volume, and achieve a reasonable level of profit, and the market share is expected to increase steadily.

Profit forecasting and valuation

Considering the steady increase in the company's volume and the decline in the core cost of a single ticket, we expect the company's net profit to be 10.204 billion yuan, 10.971 billion yuan, and 12.521 billion yuan respectively in 2024 to 2026, up 16.63%, 7.52%, and 14.13%, respectively. Zhongtong Express is the leading e-commerce express delivery company in China. In the context of the industry entering a stage of high-quality development and maintaining a stable competitive order, it is expected to achieve steady growth in volume and profit with its own scale, assets and management advantages, and maintain a “buy” rating.

Risk factors: Online shopping demand for physical products falls short of expectations; e-commerce express price competition worsens; terminal franchisee stability declines.