1H23 results in line with our forecast

ANE (Cayman) Inc announced 1H23 results: Revenue rose 10% YoY to Rmb4.55bn, gross profit grew 102% YoY to Rmb552mn and GM rose 6ppt YoY to 12%. Adjusted net profit turned around YoY to Rmb236mn, mainly due to improvement of trunk network, distribution structure, pricing strategy, franchisee network ecosystem and service efficiency.

Trends to watch The first results report since business transformation in 4Q22.

Freight volume: The firm optimized customer structure and increased the proportion of high-GM small-parcel cargoes. In 1H23, LTL freight volume and parcel volume fell 1% and 15% YoY and per- parcel weight dropped 14% YoY to 94kg. The freight volume of mini- parcel (less than 70kg) and small-parcel LTL (70-500kg) rose 17.5% and 5.8% YoY.

Prices: LTL unit price rose 11% YoY to Rmb847/t. The price increase was mainly due to rising proportion of small parcels and cost-based pricing policy.

Cost and gross profit: Cost per tonne of LTL rose 5% YoY in 1H23, with costs of trunk lines, distribution, value-added services and delivery -1%, -2%, +12% and +22%. The decline in transportation costs was mainly due to lower fuel costs and improved route allocation, while the increase in overall cost per tonne was mainly due to slow growth in freight volume and high fixed costs. GM in 1H23 was 2.7ppt lower than the 2020 high. We suggest paying attention to the cost reduction brought by the HoH increase in freight volume in the peak season of 1H23.

Expenses: Since 4Q22, the firm has been adjusting its business operation nationwide, and its flattening of organizational structure helped significantly reduce G&A expense. General and administrative expenses fell 15% YoY to Rmb347mn in 1H23, with its percentage as of revenue down 2.3ppt YoY.

Watch new growth drivers from high-GM businesses and improved

service quality. Compared with traditional express delivery, the mini- parcel business tend to have lower weight and higher GM, but they have also high requirements for service quality such as timeliness, flexibility and stability of logistics services. In 1H23, the average delivery time declined 10% YoY, on-time delivery rate rose 12ppt YoY and breakage rate fell 28.6%. We suggest paying attention to new growth drivers from improved product efficiency and high-GM businesses.

Financials and valuation

We keep our 2023 and 2024 earnings forecasts unchanged. We forecast non-HKFRS net profit of Rmb431mn in 2023 and Rmb558mn in 2024. The stock is trading at 14.5x 2023e and 10.9x 2024e non-HKFRS P/E. We maintain OUTPERFORM and our TP of HK$7.50, implying 17.1x 2023e and 12.8x 2024e non-HKFRS P/E, offering 17.7% upside.

Risks

Disappointing reforms to organizational structure; risks related to transparency of industry and company data; economic growth disappoints; sharper-than-expected increase in fuel costs; disappointing cost control.