Incident: The company released its annual report and quarterly report. In 2023, the company achieved revenue of 57.68 billion yuan, a year-on-year increase of 7.7%, and net profit to mother of 3.72 billion yuan, a year-on-year decrease of 5.0%. The first quarter achieved revenue of 15.43 billion yuan in a single quarter, up 19.5% year on year, and net profit of 940 million yuan, up 4.1% year on year.

The 23Q4 market share increased slightly, and the 24Q1 share remained stable: the company achieved a business volume of 21.2 billion units in 2023, of which 6.19 billion and 5.57 billion units were completed in the fourth quarter of last year and the first quarter of this year, respectively. In terms of market share, 23Q4 market share was 15.9%, up 0.2 pct from 22Q4. The market share in 24Q1 (after considering the post office caliber adjustment) was 15.0%, the same as 23Q1. Price competition in the industry is fierce, and the phenomenon of exchanging price for quantity is common in the field of low-priced parts. The company has maintained its relatively steady pricing strategy, so the growth rate of business volume is not outstanding.

Price competition is intense, but net profit per ticket did not fluctuate much: in the second half of '23, price competition in the industry intensified, causing the company's single ticket revenue to drop from 2.44 yuan for 23H1 to 2.39 yuan for 23H2, and gross profit for a single ticket fell from 0.27 yuan in 23H1 to 0.23 yuan. In terms of net profit per ticket, 23Q4 single ticket net profit (after deduction) was 0.17 yuan/ticket, which is a certain increase from 0.14 yuan/ticket in 23Q3. 24Q1 was 0.16 yuan/ticket. Relying on strong market competitiveness and excellent cost control, the company's net profit per ticket did not decline significantly.

Both single ticket transportation and transit costs have declined markedly: in '23, the company showed strong cost control capabilities, and both core transportation costs and transit costs have declined significantly. Among them, the transportation cost of a single ticket fell from 0.51 yuan/ticket to 0.46 yuan/ticket in '22, a year-on-year decrease of 9.7%; the transit cost of a single ticket network dropped from 0.15 yuan/ticket to 0.13 yuan/ticket in '22, a year-on-year decrease of 14.5%; and the operating cost of a single ticket center fell 5.3% year-on-year to 0.29 yuan/ticket.

Pay attention to shareholder returns and increase cash dividends: the company's dividend was 0.15 yuan per share in 18-21, increased to 0.25 yuan in '22, and further increased to 0.35 yuan in '23. Dividends account for about 32% of net profit to mother; in addition, the company also spent 379 million yuan to repurchase shares in '23. We believe that the rapid increase in dividends and share repurchases reflect the importance the company attaches to shareholder returns. The company's net operating cash flow is abundant, and the peak of capital expenditure has passed, and free cash flow is expected to continue to increase. Therefore, we believe there is still a lot of room for improvement in the company's future dividends.

Company profit forecast and investment rating: We expect the company's net profit for 2024-2026 to be $42.1, 51.6, and 6.22 billion yuan, respectively, with corresponding EPS of 1.22, 1.50 and 1.81 yuan, respectively. The current stock price corresponding to 2024-2026 PE is 13.2, 10.8, and 9.0 times, respectively.

Although the industry is in a fierce price war, we think there is limited room for its intensity to continue to increase.

Once the price war eases, in the context of a low profit base for a single ticket, profits will have strong upward elasticity.

The company has effectively improved the customer experience through digital transformation in industry competition, obtained service premiums, and is expected to gradually break away from the vortex of internal circulation on the cost side of the industry. We are optimistic about the company's long-term development and maintain the company's “Highly Recommended” rating.

Risk warning: macroeconomic downturn, increased competition in the industry, rising labor costs beyond expectations, etc.