Incidents:

On November 20, 2024, Zhongtong Express-w issued the 2024Q3 unaudited financial results announcement:

2024Q3, Zhongtong Express achieved operating revenue of 10.675 billion yuan, up 17.62% year on year, of which core express service revenue was 9.813 billion yuan, up 17.64% year on year; the company achieved gross profit of 3.335 billion yuan, up 23.22% year on year, and adjusted net profit of 2.387 billion yuan, up 1.99% year on year.

In terms of business, 2024Q3 and Zhongtong Express completed business volume of 8.723 billion tickets, up 15.9% year on year, market share reached 20.00%, and comparable caliber decreased by 0.71 pcts year on year.

Investment highlights:

The year-on-year growth rate of loose orders exceeded 40%, direct customer revenue increased 122% year over year, the business structure was continuously optimized, and the core revenue of 2024Q3 single tickets increased year-on-year

The company has ranked among the highest in terms of customer satisfaction for 10 consecutive years. The 2024Q3 full-link timeliness index has been consistently ranked first, and the service quality has been recognized by customers for a long time. On this basis, the company deepened reverse component cooperation among major platforms, and 2024Q3 loose orders achieved a year-on-year increase of more than 40%. According to the company's semi-annual guidelines, the spare parts business volume is also expected to nearly double by the end of the year (according to the company's disclosure, the average is less than 4 million orders per day in 2023; it is expected to be 6 million orders this year; the peak is expected to exceed 7 million orders). Due to the continued increase in the share of reverse goods on higher-value packages, 2024Q3's direct customer revenue (established to serve core express direct customer customers) was 1.3 billion yuan, an increase of 122% over the previous year.

According to the company's 2024Q3 performance exchange meeting, 2024Q3's direct customer business was 0.3 billion yuan (accounting for 3.5%), and single ticket revenue was 4.3 yuan (up 31% year-on-year); of these, the platform's reverse ticket revenue was 6.5 billion yuan. The revenue from loose orders/direct tickets is high, and the profit from single tickets is high. As the share of this type of business continues to increase, it has had a great positive impact on the company's single ticket revenue and single ticket profit. 2024Q3 In the context of industry price competition and a decrease in the weight of individual packages, the company still achieved core single ticket revenue of 1.20 yuan, an increase of 0.02 yuan over the previous year through an increase in the proportion of loose orders/direct customers. The increasing share of loose orders continues to play a supporting role in leading the company's high-quality price development.

Scale is the foundation. It regains share and helps accelerate “three networks superposition” and “direct delivery chain” cost reduction and efficiency projects

By the end of September 2024, the number of self-operated distribution centers of the company increased by 3, the number of 15-17 meter high-capacity trailers increased by about 400, and the proportion of distributed self-operated trailers increased by 5 pcts/4 pcts to 96%/97% respectively; at the same time, automation equipment increased by 53 units year-on-year, 5.63 automation devices in a single distribution center (4.97 in the same period last year), and the proportion of automated equipment in a single distribution center had increased year-on-year, and the number of automated equipment in a single distribution center had increased year-on-year, and the efficiency was further improved. Adequate infrastructure preparations.

The company's cost reduction and efficiency measures have begun to fulfill the company's report. With the promotion of a direct chain of operations, the average number of package transfers across the network continues to decrease. Coupled with the improvement in asset quality and scale effects, the 2024Q3 company's single ticket core cost (transport+distribution cost) was 0.64 yuan, a year-on-year decrease of 0.06 yuan (of which single ticket transportation cost/single ticket distribution cost decreased 0.04/0.02 yuan year on year), reaching another record low.

We believe that the company's supply capacity has increased dramatically this year, and there is plenty of room for subsequent production capacity climbing and cost reduction.

The regulatory environment supports reasonable competition. Based on the judgment that consumption downgrade will continue, the company will launch a volume growth plan and adjust strategies to regain market share. As the share recovers, the cost of a single ticket is expected to continue to reach new lows. On the one hand, rising production capacity will bring room for cost reduction; on the other hand, the increase in component volume will also help accelerate the “three network superposition” and “direct delivery chain” cost reduction projects.

Net profit per ticket declined slightly year-on-year, mainly due to short-term increases in single ticket costs for high-value enterprise customers, increases in single ticket income tax, and increases in non-current account expenses. There is plenty of room for upward recovery

2024Q3, the company's core single ticket revenue increased by 0.02 yuan year on year, and the core single ticket cost decreased by 0.06 yuan year on year, but due to the increase of 0.05 yuan in other single ticket costs, single ticket gross profit only increased 0.02 yuan year on year. In addition, the company's income tax on a single ticket increased by 0.03 yuan year on year, single ticket sales, general and administrative expenses increased by 0.005 yuan year on year, and net income from other operations on a single ticket decreased by 0.01 yuan year on year. Ultimately, net profit for a single ticket and net profit after adjustment for a single ticket fell 0.04 yuan year on year, and net profit after deducting unadjusted single ticket fell 0.03 yuan year on year. Let's break it down:

2024Q3, the company's other single ticket costs increased by 0.05 yuan year-on-year, mainly due to the year-on-year increase of 0.06 yuan in single ticket costs for higher-value enterprise customers. Due to the company's development strategy at this stage, more benefits brought about by the increase in the share of high-value enterprise customers in spare parts are prioritized for increasing the revenue of outlets and salesmen. In the future, as the company's strategy adjustments and scale effects dilute this cost, there is plenty of room for decline.

2024Q3, the company's single-ticket income tax increased by 0.03 yuan year-on-year, mainly due to the high base impact of the 2023Q3 company's wholly-owned subsidiary, Shanghai Zhongtongji Network Technology Priority Company, receiving a tax rebate of 0.207 billion yuan as a key software company.

2024Q3, single ticket sales, general and administrative expenses increased by 0.005 yuan year-on-year, mainly due to non-recurrent factors such as changes in financial service credit loss provisions and fixed asset disposal losses.

As a result, 2024Q3's gross profit per ticket increased by 0.02 yuan year on year, but net profit per ticket decreased by 0.04 yuan year on year, mainly due to high tax rebate base or other unusual factors. As non-recurrent factors dissipate and the benefits of high-value customers are exploited, the company's single ticket profit has a lot of room for repair.

At the bottom of the current valuation, we are waiting for the inflection point in market share to bring opportunities for valuation repair. In the medium to long term, we are optimistic about the leading players and Hengqiang, and recommend an active layout

According to the stock price and consistent market performance expectations on November 25, 2024, Zhongtong Express-w's consistent expected performance in 2024 is only 11.4 times PE and 12.7 times the market profit (TTM), or has more fully reflected the company's annual business volume growth rate lowered to 11.6% to 12.3%.

In the short to medium term, in terms of profit from a single ticket, as the tax rebate base is high and the impact of irregular factors on the cost side dissipates, the profitability of a single ticket is resilient. In terms of business volume growth, as the company rebalances resource allocation and network pricing, it is expected to regain business volume growth and re-expand market share, bringing opportunities for valuation repair. The bottom range of the company's current valuation, combined with dividends and repurchase methods to guarantee rich shareholder returns, suggests an active layout.

In the medium to long term, as the share of the company's loose order business increases and the “three networks superposition” and “direct delivery chain” cost reduction projects advance, the company is expected to continue to widen the average single ticket profit gap with the market. In the context of regaining share, we can also look forward to investment opportunities brought about by inflection points in the pattern.

Profit forecast and investment rating We expect Zhongtong Express's 2024-2026 revenue to be 43.039 billion yuan, 48.181 billion yuan and 53.158 billion yuan, respectively, +12%, and +10% year-on-year; net profit to mother will be 10.012 billion yuan, 11.051 billion yuan and 12.805 billion yuan, respectively, and +14% year-on-year, corresponding EPS 12.36 yuan, 13.64 yuan, 15.80 yuan; the corresponding PE for 2024-2026 was 11.23 times, 10.17 times, and 8.78 times, respectively. The company is far ahead in size and single-ticket profitability. As the business structure continues to be optimized and cost reduction projects continue to advance, single-ticket profitability is expected to continue to widen the gap with peers. In the short term, we expect the quantitative and profit rebalancing strategy to bring about growth and recovery. In the long term, we are optimistic about leading e-commerce express delivery companies with excellent management skills and maintain a “buy” rating.

Risks suggest that the industry's growth rate falls short of expectations, price war restarts, management improvements fall short of expectations, cost control falls short of expectations, franchisees bursting out of positions, unstable Sino-US relations, and the risk of exchange rate fluctuations.