Zhongtai Securities released a research report stating that it reaffirmed the “buy” rating of Zhongtong Express-W (02057). The price competition situation in 2023 is in line with previous judgments. Its profit forecast for 2023-2025 is 92/104/12.2 billion yuan, corresponding to adjusted net profit of 92/105/12.3 billion yuan. Considering the company's current position in the industry, future profitability, and valuation level, it is believed that China Communications currently has good allocation value. On March 1, 2024, the Shanghai Stock Exchange officially announced the transfer of China Express to Hong Kong Stock Connect, which took effect on March 4. After entering Hong Kong Stock Connect, the company's stock liquidity will improve significantly, which is expected to catalyze value revaluation.
The report's main points are as follows:
The largest and most profitable.
The express delivery industry has significant economies of scale. Larger scale reduces average unit costs. Large enterprises can lock in customers at more attractive prices, continue to expand their scale, and achieve good profits. The competitive advantage of economies of scale depends on the difference in market share between leading companies and their competitors. Taking 2023 as an example, Zhongtong achieved a total business volume of 30.2 billion units, with a market share of 22.9%. In the same period, the market shares of the second to fourth place in the industry were 16.1%, 14.3%, and 13.3%, respectively. In terms of profitability, in the 3rd quarter of 2023, China Express had a net profit of 0.31 yuan per ticket. In the same period, net profit from the second to fourth list votes in the industry was 0.15, 0.06, and 0.001 yuan, respectively.
Management soft power is an important factor for Zhongtong to achieve leadership.
The e-commerce express delivery industry is dominated by a franchise system. The degree of managers' awareness of the essence of the franchise system determines the stability of the franchisee network. A more stable franchisee network can mobilize more social capital to help enterprises continue to expand production capacity. Meanwhile, between 2011 and 2022, Zhongtong's share increased from 7.6% to 22.9%, and the ranking rose from fourth place in the Tongda system to number one in the industry. It did two things right:
1. Acquisition of franchisee property rights at a premium. Around 2013, the industry began to take back the property rights of the transit center to the headquarters to realize the operation model of direct management of the transit center and terminal network franchise. Compared to other companies in the industry, Zhongtong offered a higher consideration, which is reflected in a goodwill of 4.1 billion yuan on the balance sheet, while other companies have less goodwill.
2. Continued investment in infrastructure. After leading the way in 2016, Zhongtong continued to invest in infrastructure, driving franchisees to expand production capacity ahead of schedule to meet the rapid growth in industry demand. In 2016-2022, China Communications made a total capital expenditure of 40.7 billion yuan, of which 5.5 billion yuan was invested in land, making it the highest access system. Therefore, there are almost no shortcomings in infrastructure construction such as land, automation equipment, and vehicles.