CITIC Securities released a research report stating that it maintains the Zhongtong Express-W (02057) “buy” rating. Currently, the express delivery competition has entered a critical stage. As the industry leader, Zhongtong Express has entered Hong Kong Stock Connect. Improved liquidity is expected to catalyze a valuation premium, with a target price of HK$258. Recently, the company's component volume growth rate has attracted market attention. The bank expects the company's component volume growth rate in 2024 or 4 to 5 pcts leading the industry with the investment of additional production capacity. It is estimated that in 2023, the company's net profit will account for 60% to 63% of the four Tongda Group companies. In the context of the industry still playing games, the company's leading edge will continue to expand. Currently, Tongda's valuation is very attractive. Focus on short-term marginal changes in express delivery volume and price to drive industry valuation repair. The company focuses on forging long-term competitive advantages, and leading premiums are gradually showing.

Incident: On March 1, the Shanghai Stock Exchange announced a new batch of securities adjustment information for the Hong Kong Stock Exchange. China Express - W was transferred to the Hong Kong Stock Connect list. The effective date is March 4, 2024.

The views of CITIC Securities are as follows:

Currently, competition in the express delivery industry has entered a critical stage. As the industry leader, Zhongtong Express has entered Hong Kong Stock Connect, and improvements in liquidity are expected to catalyze valuation premiums. Zhongtong Express, which is based on the “build and share” network business idea, has been one step faster in the e-commerce express delivery industry's direct operation and automation in the past 10 years. Since 2016, it has surpassed Yuantong to become number one in the industry, and since then it has stabilized and continued to expand its competitive advantage. The company entered the Hong Kong Stock Connect on March 4, 2024 after switching to a dual major listing on the Stock Exchange and the New York Stock Exchange on May 1, 2023. Improved liquidity is expected to release the company's valuation premium. Currently, the bank predicts that in 2024, the company's current price will only correspond to 11 times PE, which is very attractive.

It is expected that in 2024, the company's component volume growth rate will continue to lead the industry by 4 to 5 pcts, continue to build a network system with excellent service, fast timeliness, large order volume and stable price, focus on itself, adhere to the long-term principle, and continue to expand its leading edge. In 2023, China's express delivery business volume increased 19.4% year-on-year to 132.07 billion units. The company's component volume growth rate is 4.4 pcts ahead of the industry, and the corresponding market share increased by 0.8 pcts. According to data from the Ministry of Transport, from January to February 2024 (as of February 25), domestic express delivery and collection increased by 14.1%/21.1% year-on-year, better than previous expectations. The bank expects the national express delivery business volume to increase by 12% to 14% in 2024. As the industry leader, Zhongtong Express is expected to continue leading the industry by 4-5 pcts. The company continuously consolidates service advantages, optimizes production capacity investment, and continues to push first-hand prices to the edge to stimulate recruitment vitality. At the same time, the company focused on assessments and developed the high-profit spare parts business. It achieved an average daily business volume of 100 million pieces during the Double Eleven period last year, and there were no delays in all aspects, highlighting the processing capacity of the center and site. The concentration and differentiation of the industry has formed a clear evolutionary trend. The company is expected to deepen its multi-faceted leading edge by accumulating a network system with excellent service experience, large order volume and stable price over many years, and abundant cash on the books that can support franchisees' operations.

The express delivery industry is still competitive in 2024. It is expected that the decline in single tickets at the express delivery headquarters will narrow, and short-term marginal changes in volume and price are expected to drive the valuation repair of listed express delivery companies. The profitability and abundant cash of Zhongtong Express will help increase business acquisition, while further expanding to the middle and upper end of the express delivery market. In 2023, Yuantong/Yunda/Shentong ASP decreased by 0.18/0.23/0.29 yuan to 2.41/2.37/2.23 yuan, respectively. Price competition suppressed the release of profits from express delivery headquarters to a certain extent. The bank expects the net profit of Zhongtong to account for 60% to 63% of the four Tongda companies in 2023. The express delivery industry is still competitive in 2024. The bank expects that the absolute value of the decline in single tickets at the express delivery headquarters is expected to narrow. Combined with further optimization of transportation+sorting costs, short-term marginal changes in volume and price are expected to drive the valuation repair of listed express delivery companies. As of 2023Q3, Zhongtong/Yuantong/Yunda/Shentong's cash on book (monetary capital, short-term investment/transactional financial assets) was 169.4/107.8/80.8/3.18 billion yuan respectively. The company's cash advantage is expected to help expand the middle and high-end volume market, focus on improving service quality and insist on obtaining profitable business and share growth, and provide a variety of ways to give back to shareholders.

The “Express Delivery Market Management Measures” may raise the prices of some low-end terminals. Merchants choose express delivery services or focus on the top, while focusing on the company's continuous development of the high-end parts market to form an iterative business model. The Ministry of Transport's revised “Administrative Measures on the Express Delivery Market” came into effect on March 1, 2024. Among them, fines were proposed for “the use of smart express boxes, express delivery service stations, etc. without the user's consent”. The bank expects the e-commerce side to be more detailed on the price side for entry and the different delivery methods. According to this logic, the prices of some low-end terminals are expected to rise, and merchants will choose express delivery services or focus on the lead. The profit of the company headquarters is growing steadily and the cash flow of franchisee outlets is growing, and the competitive advantage is expected to continue to expand in the next two years. The bank expects the proportion of the company's standard express and loose orders to increase to about 5% in 2023, and the medium- and low-end component volume structure is clearly superior to comparable companies. In the context of industry game logic, the business model brought about by the company's continued efforts towards mid-range and high-end components continues to iterate. The short-term proposal focuses on marginal year-on-year changes in industry volume and price, as well as the release of companies' leading premiums during the repair of the valuation center of listed express delivery companies.

Risk factors: The macroeconomic growth rate is declining, e-commerce online shopping demand is slowing down, competition is intensifying, and cost control falls short of expectations.