2Q24 results in line with our expectations

Yunda Holding announced its 1H24 results: Revenue rose 8% YoY to Rmb23.25bn, net profit attributable to shareholders grew 20% YoY to Rmb1.04bn, and recurring attributable net profit increased 5% YoY to Rmb832mn, in line with our expectations.

Per-parcel data: In 1H24, per-parcel cost fell Rmb0.38 YoY to Rmb1.90, thanks to economies of scale and cost control (per-parcel sorting cost fell Rmb0.08 to Rmb0.31 YoY, and transport cost dropped Rmb0.15 to Rmb0.39). Gross profit per parcel fell Rmb0.06 to Rmb0.22 YoY (the express delivery industry's average gross profit fell Rmb0.03 to Rmb0.21 YoY), net profit per parcel stayed largely flat YoY at Rmb0.10, and recurring net profit was Rmb0.08, down Rmb0.01.

The firm also announced its 2Q24 results: Revenue rose 9% YoY to Rmb12.10bn, net profit attributable to shareholders rose 23% YoY to Rmb628mn, and recurring net profit grew 1% YoY to Rmb447mn.

Per-parcel data: In 2Q24, the firm's parcel volume grew 31% YoY to 5.98bn units, corresponding to a market share of 13.9% (under the new statistical standard, -0.1ppt YoY). Per-parcel revenue was Rmb2.02, down Rmb0.40 YoY; net profit per-parcel was Rmb0.11, up Rmb0.02 QoQ and down Rmb0.01 YoY; and recurring net profit per parcel was Rmb0.07, largely flat QoQ but down Rmb0.02 YoY.

Trends to watch

Industry: Data on demand for express delivery continues to improve; parcel volume growth may continue to beat expectation. According to the State Post Bureau of China, parcel volume in the express delivery industry rose 21.3% YoY in 2Q24. We expect demand for express delivery to continue improving driven by live-streaming e-commerce, smaller size of parcels, and parcels returned by consumers. We expect business volume growth in the industry to exceed 15% in 2024.

ASP sees limited downside, capex has peaked in the industry, and the competitive landscape is manageable. On August 22, the State Post Bureau held a meeting in Shanghai on regulating market order and improving service quality. According to the meeting, efforts will be made to prevent "involution" and vicious competition. We believe regulators will continue to focus on high-quality development, and we see room for cost reduction and limited downside for parcel prices in 2024.

Looking ahead, we expect earnings growth to recover if parcel volume maintains high growth, capacity utilization rate increases, and cost control measures bear fruit. We expect the firm's earnings growth to recover, driven by rapid growth in parcel volume, improving product and service capabilities, and effective cost control: 1) The firm's capex has been on a downward trend; 2) per-parcel cost continues to decline thanks to economies of scale and refined cost control; and 3) per- parcel expense continues to improve, and financial expenses will likely fall amid improvement in balance sheet (financial expenses fell 52% YoY in 2Q24).

Financials and valuation

We keep our 2024 and 2025 earnings forecasts unchanged at Rmb2,321mn and Rmb2,793mn. The stock is trading at 8.7x 2024e and 7.3x 2025e P/E. Maintain OUTPERFORM. We maintain our target price at Rmb9.60, implying 12.0x 2024e and 10.0x 2025e P/E and offering 37% upside.

Risks

Express delivery parcel volume disappoints; competition intensifies.