Incidents:
On August 21, 2024, Zhongtong Express announced the results for the first half and second quarter of 2024:
2024H1, Zhongtong Express achieved revenue of 20.686 billion yuan, up 10.48% year on year, of which core express service revenue was 19.116 billion yuan, up 9.94% year on year; the company achieved gross profit of 6.623 billion yuan, up 13.64% year on year, and adjusted net profit of 5.03 billion yuan, up 13.01% year on year.
Among them, in 2024Q2, Zhongtong Express achieved operating income of 10.726 billion yuan, up 10.12% year on year, of which core express service revenue was 9.876 billion yuan, up 9.75% year on year; the company achieved gross profit of 3.62 billion yuan, up 9.56% year on year, and adjusted net profit of 2.806 billion yuan, up 10.85% year on year.
In terms of business, 2024H1 and Zhongtong Express completed business volume of 15.623 billion tickets, up 11.80% year on year, reaching 19.49% market share, down 1.97 pcts year on year; of these, in 2024Q2, Zhongtong Express completed business volume of 8.452 billion tickets, up 10.10% year on year, and the market share reached 19.63%, down 2.00 pcts year on year.
Investment highlights:
The share of loose orders continues to rise, supporting the company's core single ticket revenue to maintain a steady 2024Q2 industry's express delivery business volume with a year-on-year growth rate of 21.33%. The trend of small parts is the key for the industry's growth rate to exceed expectations. However, at the same time, the small package trend has also led to an increase in the share of low-priced e-commerce items, intensifying price competition in production areas, and increasing the proportion of unprofitable or even loss-making express shipments.
However, the company insists on promoting the transformation from high volume to high quality to control the inflow of loss-making businesses and low-stickiness customers. Although the 2024Q2 volume share dropped by 2.00 pcts year on year, the business structure has been greatly optimized due to leading service quality (full link time is stable, terminal door-to-door service response speed and on-demand service capacity are constantly improving), and the spare parts (high-value non-e-commerce parts) business volume is also expected to nearly double by the end of the year (according to the company's disclosure, the daily volume is less than 4 million orders last year, and the peak is expected to exceed 6 million orders this year. 7 million single).
According to our estimates, the price of the company's loose orders is 4 times that of ordinary items, and the additional profit from loose orders will be distributed rationally throughout the entire chain. The increase in the share of loose orders can not only improve terminal profitability, but also effectively hedge against the decline in unit prices brought about by the company's incremental subsidies and the trend of miniaturization. In 2024Q2, in the context of price competition in the industry, the company still achieved a core single ticket revenue of 1.24 yuan through an increase in the share of loose orders, which is the same as the same period last year. The continuous increase in the share of loose orders supports the company's price.
Reiterating the rate of component volume growth, the scale effect helped the full-link cost decline. Although the company's 2024Q2 unit volume growth rate was lower than that of the industry, the capacity utilization rate remained at a reasonable level. The 2024Q2 company's single ticket core cost (transport+distribution cost) was 0.65 yuan, down 0.02 yuan year on year, another record low. The decline in core costs was due to improved fleet operation efficiency and better resource utilization, that is, the further development of the scale effect.
Among them, the 2024Q2 company's single ticket transportation cost/single ticket distribution cost was -0.03/+0.01 yuan year on year. Distribution costs increased, mainly due to increased depreciation and amortization costs due to site expansion and equipment iteration (up to 2024Q2, 3 directly-managed transfer centers and 55 automated sorting lines were added year over year), but it also left room for further decline in subsequent distribution costs.
In the 2024 interim results announcement, the company reiterated the guidance of 15% to 18% business volume growth in 2024. 2024H1's business volume increased 11.80% year on year, and the year-on-year growth rate for the second half of the year is expected to be 17.76%-23.34%.
The growth rate of 2024H2's business volume is expected to accelerate. With sufficient production capacity reserves, on the one hand, the company's core costs are expected to decline further as production capacity climbing companies and the “three-network superposition” project (that is, direct line delivery); on the other hand, as company-scale outlets invest in automated sorting equipment directly to the end, and direct delivery costs from outlets to stores are reduced, which is conducive to a sharp reduction in terminal costs and enhance the cost competitiveness of the entire link.
Up to now, the company has installed automation at about 2,000 outlets (6,000 first-level outlets in the entire network, automation rate 33%), laying a solid foundation for the “three networks superposition” and “direct delivery chain” projects.
In terms of “direct delivery chain”, according to our estimates, the courier placed the courier at the Tousi supermarket without door-to-door delivery, and the recipient went to the Touxi supermarket to sign for the delivery himself. Normally, the express delivery cost for a single order from Tuxi supermarket is 0.6 yuan, plus the branch line transportation cost from the delivery outlet to the Touxi supermarket is about 0.1 yuan, which is less than the 1.2 yuan delivery fee required by the courier, thereby reducing terminal delivery costs and achieving a drastic reduction in delivery costs. In terms of “three network superposition”, the number of transfers by the company has dropped to 2.09 times. For every 0.1 reduction in the number of transfers, the transit cost for a single ticket is expected to be reduced by 0.025 yuan.
Based on the scale effect, the company is expected to open up full-link cost reduction space and strengthen the core barriers of the company's cost competitiveness through the promotion of two major cost reduction projects, “Direct Delivery Chain” and “Three Network Superposition”.
The trend of steady “price” and “capital” decline will continue, performance will maintain steady growth, shareholder returns will be rich in 2024Q2, and net profit adjusted for a single vote is 0.33 yuan, which is the same as the previous year. Zhongtong Express Service's single ticket revenue (excluding freight forwarding) was 1.24 yuan, the same year on year; single ticket cost (excluding freight forwarding) was 0.82 yuan, up 0.70% year on year (up 0.01 yuan year on year); single ticket core cost (transport+distribution cost) was 0.65 yuan, down 2.51% year on year (down 0.02 yuan year on year); single ticket gross profit (excluding freight forwarding) was 0.44% year on year (down 0.002 yuan year on year); 2024Q2 The company's single ticket revenue and single ticket costs are stable, and ultimately the net profit after the single ticket adjustment is stable.
Combined with 2024Q2, Zhongtong Express completed a business volume of 8.452 billion tickets, an increase of 10.10% over the previous year.
In the end, the company achieved a steady increase in volume and profit. The adjusted net profit was 2.806 billion yuan, an increase of 10.85% over the previous year, and achieved steady growth in performance.
In the long run, in terms of price, the company can effectively hedge against the negative impact of price competition on single ticket profits and ensure “price” stability; in terms of cost, the company has achieved a further reduction in full-link costs through the promotion of “three-network superposition” and “direct delivery chain” projects. Under the trend of “price” and “capital” falling steadily, the company is expected to continue to guarantee steady growth in performance and guarantee rich shareholder returns through dividends and repurchases.
Profit forecast and investment rating We expect the operating income of Zhongtong Express in 2024-2026 to be 42.976 billion yuan, 48.431 billion yuan and 54.556 billion yuan, respectively, +12%, +13% year-on-year; net profit to mother will be 10.077 billion yuan, 11.8 billion yuan and 14.479 billion yuan, respectively, +15%, +17%, and +23% year-on-year, corresponding EPS of 12.40 yuan. 14.52 yuan, 17.81 yuan; the corresponding PE for 2024-2026 was 11.92 times, 10.18 times, and 8.30 times, respectively. The company insists on balanced development of “volume, price, cost and profit”, is optimistic about the leading e-commerce express delivery company Hengqiang, and maintains a “buy” rating.
Risks suggest that the industry's growth rate is falling short of expectations, the price war is restarting, management improvements falling short of expectations, cost control falling short of expectations, franchisees bursting out of positions, and unstable Sino-US relations.