1Q24 results are in line with our expectations

The company announced 1Q24 results: revenue of 5.22 billion yuan, +14% year on year; net profit to mother of 590 million yuan, -23% year on year; deducted non-net profit of 530 million yuan, -20% year on year. The performance was in line with our expectations. The year-on-year decline in profit was mainly due to declining industry freight rates, short-term contraction of the company's fleet, and cost pressure; however, comprehensive logistics revenue and profit growth was impressive, and long-term growth can be expected.

Profit pressure is mainly affected by declining freight rates, production capacity, and rising costs. By business, 1Q24 Air Express achieved revenue of 2 billion yuan (-17% year over year) and gross profit of 310 million yuan (-57% year over year), mainly due to 1Q24 industry freight rates -13% year over year, and the company's usable fleet size was reduced by 1 aircraft. Integrated logistics revenue of 2.6 billion yuan (+64% year over year) and gross profit of 280 million yuan (+3% year over year). Revenue growth was impressive due to cross-border e-commerce, but gross margin was under short-term pressure due to off-season freight rates and resource investment; ground service revenue of 600 million yuan (+7% year over year) and gross profit of 230 million yuan (+37% year over year). The profit base for the same period last year was low due to epidemic prevention and control. On the cost side, the company's financial expenses were affected by exchange rate fluctuations and increased by 80 million yuan.

Development trends

The profit structure has been significantly optimized, ground services contribute a steady ballast stone, and integrated logistics can be expected to grow. Since 2022, international air freight prices have declined year by year from a high level, and the company's three major businesses have been significantly affected by price fluctuations: air express > integrated logistics > ground services. Among them, ground services mainly provide high-barrier cargo terminal operation services, contributing to steady profit ballast. Except for special periods affected by the epidemic, gross margin basically stabilized at around 40%; integrated logistics actively captured the increase in cross-border e-commerce, and gross profit increased against the trend. In 1Q24, the gross profit share of this business increased 11ppt to 34% year-on-year, and growth was outstanding.

There is plenty of cash on hand, so it is recommended to focus on the company's production expansion plans. The 1Q24 company has a monetary capital of 8.8 billion yuan, and the company has a lease debt of 2.3 billion yuan due within one year by the end of 23; according to the company's “14th Five-Year Plan”, it will expand its fleet size in an orderly manner and accelerate the layout of domestic and foreign core nodes 25 years ago. We are optimistic that the company will expand its production capacity in an orderly manner in the future, seize opportunities for cross-border e-commerce development, and achieve a double increase in share capacity.

E-commerce is driving the demand boom, and we suggest that supply in the industry is still tight. Cross-border air freight rates have increased by 34% since March 2024, mainly supported by new export orders and the cross-border e-commerce boom; on April 29, the year-on-year increase in freight rates increased to 16%. We suggest that in the short term, abdominal cavity repairs are slow, production capacity of all new freighters is limited, stocks are facing retirement, and industry supply may still be tight. We recommend focusing on subsequent price interpretations.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 10.3 times/8.8 times. Maintaining an industry rating and a target price of 21.00 yuan corresponds to 11.7 times the price-earnings ratio of 2024 and 10.0 times the price-earnings ratio of 2025, with 13.6% upside compared to the current stock price.

risks

Import and export trade fell short of expectations, macroeconomics at home and abroad declined, and fuel prices rose sharply.