The company expects adjusted net profit of 500 million yuan in 2023, which exceeds our expectations. The company expects to achieve non-HKFRS adjusted net profit of not less than 500 million yuan in 2023, and a loss of 220 million yuan for the same period last year. The company expects revenue to increase by at least 6% year on year to about 10 billion yuan in 2023; gross profit to increase by at least 70% year on year to 1.24 billion yuan; operating profit is expected to be no less than 570 million yuan, and net operating loss for the same period last year is 170 million yuan. Profit exceeded our previous expectations for 23 years. The company announced a significant profit improvement, mainly due to the initial results of the transformation of the efficiency and quality improvement strategy, cost reduction brought about by optimization of the distribution network structure, improvements in internal lean management, and continuous optimization of the franchisee network ecosystem.
Key points of interest
Based on the announcement, we estimate the lower profit limit for the second half of the year: 2H23 revenue increased by about 3% year on year; gross profit increased by about 51% year on year; non-HKFRS adjusted net profit was about 270 million yuan, reversing the loss year on year.
On the volume side: Considering the express ship-related manufacturing and retail boom, we estimate that 2H23 volume may be flat year over year, but there is still a 26% month-on-month increase compared to the off-season in the first half of the year.
Cost side: Based on the announcement, the gross margin for 2023 was about 13%, an increase of about 4.7 ppt over the previous year. The company's operating efficiency has improved markedly. We believe it is mainly due to the optimization of the distribution structure and lean optimization of resources such as personnel and storage areas: the company began straightening lanes and streamlining distribution at the end of May, and the number of allocations dropped from 136 in 2022 to 94 in June 2023. Specifically, we estimate 2H23: mainline/distribution costs may decrease by about 11%/9% year on year, respectively, and about 11%/15% month over month; considering the company's product structure is skewed towards small ticket goods, it is estimated that the cost of value-added per ton and delivery service costs (all charged per ticket) may still rise.
Price side: In the first half of the year, the company basically completed the optimization of the product structure and pricing mechanism. Based on cost plus pricing logic, assuming that unit gross profit stabilizes month-on-month, and considering weak industry demand, we estimate that 2H23 unit price may be -5% month-on-month/+5% month-on-month; unit gross profit is basically flat month-on-month.
It suggests potential consolidation opportunities in the industry landscape. Considering that joining Express has already reached a profit threshold of 10 million tons, and the capital market tends to be rational in recent years. Leaders represented by Eneng are using cost advantages to take control of pricing initiatives. We recommend focusing on companies below the threshold or the possibility of settlement, which suggests potential integration opportunities for the industry.
Profit forecasting and valuation
As the company's cost reduction results exceeded expectations, we raised 2023/24 net profit of 71%/71% to 410 million yuan/620 million yuan, introduced net profit of 780 million yuan, up 25% year on year; also raised 2023/24 non-HKFRS net profit 18%/30% to 51 million yuan/72 million yuan, and introduced 25 million yuan of non-HKFRS net profit, up 21.5% year on year. Current stock prices correspond to 6.1/5.0 times 24/25 non-HKFRS price-earnings ratios, respectively. Considering that future industry demand is still uncertain, the rating and target price are maintained, corresponding to 9.9 times/8.1 times the 2024/25 non-HKFRS price-earnings ratio, with 62% upside compared to the current one.
risks
Economic growth fell short of expectations, fuel costs increased more than expected, and cost control fell short of expectations.