Core view: In the first quarter, Zhongtong adjusted its strategy and paid more attention to improving profitability and service quality. The share declined, and profit growth slightly exceeded expectations.
Maintain profit forecasts and maintain a “buy” rating. In the first quarter of 2024, Zhongtong adjusted its strategy to focus more on profit and service improvement in the balance of service quality, profitability, and share. Against the backdrop of falling prices in the industry, the company's net profit did not fall but rose after adjusting the single ticket. Considering the rapid growth of the express delivery industry and the stability of the performance of Zhongtong as the leader, we maintained the company's profit forecast for 2024-2026 at 97/122/13.4 billion yuan, and the corresponding adjusted net profit of 99/123/13.5 billion yuan. Currently, considering the company's competitive advantage and industry position at this stage, performance is expected to be released steadily, has allocation value at the current valuation level, and maintains a “buy” rating.
Shares declined, and performance slightly exceeded expectations. In the first quarter, Zhongtong completed 7.27 billion units of business, up 13.9% year on year, market share 19.3%, down 1.9 percentage points year on year. Mainly, Zhongtong focuses on improving the customer structure and strategically abandons some of its loss-making items. In terms of profit, the company's net profit for the first quarter was 1.45 billion yuan, down 13% from the previous year. Among them, Ali offered to buy Cainiao tradable shares, and the company's shares depreciated by 480 million yuan. The company's adjusted net profit was 2.22 billion yuan, up 15.8% year on year. In terms of net profit for a single ticket, the adjusted net profit for a single ticket was 0.31 yuan, an increase of 0.01 yuan over the previous year.
The unit price fell, and the cost fell sharply to achieve hedging. Overall, industry prices fluctuated slightly in the first quarter and were in a stable operating range. In the first quarter, the single ticket price of Zhongtong Express was 1.29 yuan, a year-on-year decrease of 0.04 yuan. As scale continues to grow, Zhongtong continues to optimize costs through a series of measures such as 1) economies of scale, 2) improving loading rates, and 3) optimizing routes. The transportation cost of a single ticket in the first quarter was 0.47 yuan, a year-on-year decrease of 0.04 yuan, and the cost of sorting a single ticket was 0.30 yuan, a year-on-year decrease of 0.02 yuan.
Strengthen the spare parts business and strengthen the profitability of terminal outlets. In the first quarter, Zhongtong's loose order business volume averaged 5 million orders per day. We believe that as the company's service quality continues to improve and customer mentality continues to strengthen, the company's loose order business volume is expected to grow rapidly. Furthermore, the parts business with higher unit prices is expected to significantly increase the profitability of terminal outlets.
The company has entered the profit release stage, and profits are expected to grow steadily. As the scale of the industry continues to expand, the cost gap and service quality among express delivery companies have subsided. Zhongtong changed its strategy and paid more attention to improving service quality and profitability. In the short term, profits are expected to grow steadily. Furthermore, Zhongtong has proposed a series of measures such as increasing the dividend ratio and increasing the repurchase amount, and shareholder returns are expected to continue to increase.
Risk warning events: If the cost curve flattens over a long period of time, it will not be conducive to differentiation among enterprises; there is still uncertainty about the implementation of relevant policies, industry price wars increase risks, and the risk of untimely updates to research and use information.