Profit growth was strong, and the driving factor was sustainable. It was raised to “buy” Debon shares to release 1H24 results: 1) operating income increased 17.5% year over year to 18.45 billion yuan; 2) 1H24 net profit to mother increased 37.1%/51.0% year over year to 0.33 billion yuan/0.2 billion yuan, respectively. The net profit to the mother was better than our expected 0.285 billion yuan. The main reasons for the significant increase in the company's profits are: 1) product innovation and operating model changes to increase product competitiveness; 2) improving service levels and transportation quality to increase customer stickiness; 3) technology investment and network integration to achieve cost reduction and efficiency. Stock prices have recently recovered. Although the industry's growth rate has slowed, the competitive pattern is good and the leading share has increased. The above three profit drivers are expected to continue to gain strength and be raised to a “buy” rating. Based on the performance exceeding expectations for the first half of the year, the net profit forecast for 24/25/26 was slightly raised to 1.12/1.5/1.82 billion yuan, and the target price was raised 4.9% to 19.1 yuan, corresponding to 17.6x24E PE (comparable company Wind agreed to 13.0x 2024E PE. The valuation premium is mainly due to the fact that the competitive pattern of high-end bulky goods is better than e-commerce express delivery, and complementarity with JD Logistics resources is expected to release synergistic benefits).
Express business volume increased steadily, and revenue growth was impressive
By business, 1H24's fast operating revenue increased 21.1% year on year to 16.64 billion yuan, and cargo volume increased 7.7% year on year to 6.034 million tons. Among them, 2Q24 Express's revenue increased 13.6% year-on-year to 8.26 billion yuan. The company's express business volume grew steadily, enhanced customer stickiness through high-quality services, expanded the customer base through innovative products, and performed well on the revenue side. 1H24's express delivery business revenue fell 23.9% year on year to 1.07 billion yuan, of which 2Q24 revenue fell 25.6% year on year to 0.53 billion yuan, mainly due to industry competition still existing, and the company focused more on the express delivery business. 1H24's warehousing and supply chain business grew by 34.3% year over year to 0.74 billion yuan, thanks to capacity investment and customer expansion.
Continuous cost optimization, continuous improvement of service quality
On the cost side, the company has now entered a period of integration, and operational efficiency is gradually improving. 1H24's labor costs as a share of revenue decreased by 6.4 pcts year on year, mainly due to the company improving multi-link labor efficiency through lean and digital intelligence, superposition of network integration with low labor, and an increase in the share of vehicle and other businesses; the company's depreciation and amortization decreased 6.5% year over year, mainly due to the completion of long-term asset layout, capital expenses were mainly stabilizing expenses; 1H24, the company's period expenses decreased by 1.3 pct to 6.1% year on year, mainly due to the company expanding its sales team to strengthen sales capacity building, and management expenses fell 9.5% year on year. The main reason is that the company optimizes processes, flattens the organizational structure, and improves management efficiency. The full compliance rate of 1H24 Company increased by 3.8 pct year on year, and the customer's responsible complaint rate of 10,000 votes decreased by 43.6% year on year.
The express delivery business has made outstanding contributions. We are optimistic that the company's medium- to long-term market share will increase. Under the direct management model, the company relies on excellent service quality and the synergy effect of sharing network resources with JD Logistics, and the market share is expected to continue to rise. At the same time, the scale effect releases, dilutes costs, and combines internal organizational optimization and lean management. We are optimistic about the company's profitability improving, and profit margins are expected to continue to improve.
Risk warning: Industry growth is lower than expected; price competition worsens; downstream demand falls short of expectations.