Why Does Anneng Logistics Keep High-Quality Growth Amid Industry Competition?

Not long ago, the China Federation of Logistics and Purchasing released the China Logistics Industry Prosperity Index for July, which fell by 0.6 percentage points month-on-month to 51%. Affected by the natural environment, this year's national business demand and logistics activity have slowed down, causing a slight decline in the logistics prosperity index. The uncertainty in the logistics industry remains, and how to find a certain target in the fluctuations has become the key consideration for investors at present.

Coinciding with the recent concentrated release of mid-term performance reports of listed companies, the report card handed in by Ann Logistics (9956.HK) has therefore attracted much attention. In the first half of this year, its revenue and profits have maintained high quality and rapid growth. Against the background of external environmental fluctuations and intensified competition for market share, Ann Logistics has stood out, with what kind of underlying logic?

First, the win-win of scale and profitability, and the "flywheel effect" is gradually highlighted.

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There are many commendable points in Ann Logistics' latest performance.

The financial report shows that in the first half of this year, Ann Logistics achieved a revenue of 5.289 billion yuan (unit: RMB, the same below), a year-on-year increase of 16.2%, and has continued to grow steadily since the company started transformation in the third quarter of 2022.

At the same time, profitability has once again jumped, with a gross profit of 877 million yuan, a year-on-year increase of 59.0%; the gross profit margin of 16.6%, a year-on-year increase of 4.5 percentage points, has been significantly improved; the adjusted net profit has increased by 82.4% year-on-year to 430 million yuan, which is quite amazing.

So overall, Ann Logistics has achieved a win-win in scale and profitability, and the performance has achieved "double improvement in quality and efficiency", and the company's operations have shown a healthier development trend.

Ann Logistics can achieve such operating results today, which is inseparable from the significant effects achieved after it began to implement the "five most" development goals.

From the financial report, it can be seen that on the basis of continuous improvement in timeliness, quality, and service, the company's product competitiveness and service quality have been continuously improved, driving the company's cargo volume to grow steadily, and the optimization of the cargo weight structure is significant.

Around timeliness, quality, and service, in the first half of the year, Ann Logistics proposed the "9996" timeliness standard, driving the overall service efficiency to be further improved, and the average transportation order time in the first half of the year was shortened by 5.8% year-on-year to within 68 hours. At the same time, the service quality has also been improved, the loss rate of express items (the number of lost items per hundred thousand) decreased by 95.3% year-on-year, and the damage rate (the number of damaged items per hundred thousand) decreased by 77.1% year-on-year.Building on this foundation, Ane Logistics continues to optimize its cargo weight structure. In the second quarter of this year, the "3300" product was fully upgraded, while "special area surcharges for cargo within 300 kilograms were abolished." The increasingly flexible product strategy has continuously enhanced the overall product competitiveness, leveraging a broader market demand.

Data shows that in the first half of the year, the average ticket weight dropped to 89kg, a year-on-year decrease of 5kg. Among them, the volume of mini small tickets (0-70kg) increased by 25.6%, and the volume of small ticket LTL (70-300kg) increased by 19.6%, with the proportion of small kilogram products with greater profit margins significantly rising. Behind the continuous optimization of data is the confidence brought by Ane Logistics' significant improvement in service quality, which effectively increases the volume of "focusing on high gross profit kilogram segments." Of course, it is also an inevitable result of its strategic choices.

The latest research report points out that the 0-300kg freight market space is large, the growth rate is fast, and the gross profit margin is high. Focusing on this kilogram segment means that Ane Logistics will continue to optimize service quality and continuously strengthen product competitiveness in future development. In fact, Ane Logistics is focusing on this.

As a Chinese franchised express company, Ane Logistics' measures in network ecosystem optimization are also a benchmark. In the 2024 flight year, thanks to the continuous implementation of the "520" service mechanism, strengthening the "Iron Triangle" three-in-one empowerment of outlets, and promoting standardized training of outlets, a sustainable, stable, and healthy "wealthy ecosystem" network has gradually taken shape. In the first half of the year, the number of Ane Logistics outlets increased significantly, totaling more than 31,000, ranking first in the domestic franchised express network scale, and the national township coverage rate increased to 99.2%. Both the service capability of the outlets and the network density have reached another level.

Not only that, in the era of pursuing scale, the proud "low-price competition" also seems not to be applicable to Ane Logistics. Ane Logistics, which has a scale of tens of millions of tons and leads the express industry in cargo volume, also has a leading advantage in cost fine control. In the first half of the year, thanks to the continuous optimization of vehicle line planning and production and distribution, and the promotion of fine fleet management; as well as the continuous optimization of internal field management and systematic personnel training, and the promotion of rent reduction and centralized procurement, Ane's unit dry line transportation cost decreased by 6.4% year-on-year, and the unit distribution center cost decreased by 23.4% year-on-year. The control effect of the two core operating costs is significant.

In 2023, the net profit was 392 million yuan, and in the first quarter of 2024, it was 188 million yuan. From turning losses to continuous performance growth, the underlying direction is, first, the correctness of strategic choices and the effectiveness of execution; second, the current and future market's fine control and foresight. This is also the confidence of Ane's management team at the performance meeting to face "price wars": "We do not take the initiative to fight price wars, but even if the industry encounters more intense price competition, today's Ane has enough ability to respond flexibly."

Compared with Deppon, Deppon's gross profit margin in the first half of the year was 7.62%, less than half of Ane Logistics. In 2023, the market scale of the national LTL logistics was 1.22 trillion yuan, and the market concentration further increased. Under the advantage of scale, Ane Logistics' "high-quality growth" ability, cultivated through refined operation, further enhances business competitiveness and strengthens its own profitability. This forms a positive cycle of "service quality improvement - profitability enhancement - service capability consolidation," and the flywheel effect is highlighted.

Express practitioners frankly stated: "Service quality is in line with direct operation, outlet density is far beyond franchising, and profitability is stable and rising. Ane has completed the core capability construction of 'surpassing competition'."

Confidence from the inside out is also reflected in performance guidance. Ane Logistics stated that it is expected that in 2024, the cargo volume will increase by about 15% year-on-year, the revenue growth rate will be basically the same as the cargo volume growth rate, the gross profit margin will be around 16%, and the adjusted pre-tax profit will be around 1.05 billion yuan.

Second, from the perspective of returning to value investment, how to evaluate Ane Logistics' growth logic?From the perspective of value investment, how is the quality of Annway Logistics as an investment target? From the perspective that investors value, let's discuss it from the top down.

At the policy level, this year, four departments including the National Development and Reform Commission issued the "Notice on Doing a Good Job in Reducing Costs in 2024", which proposes specific tasks for "promoting the quality, efficiency, and cost reduction of logistics". The Third Plenary Session of the 20th Central Committee pointed out the need to build a unified national market, and the logistics industry is an indispensable and important part. In addition, the large-scale policy of replacing the old with the new also mentioned the logistics industry.

It can be seen that the policy is continuously strengthening the demand, growth rate, and profitability of the logistics industry. In the long term, the logistics industry will show high-quality development, which also means that the low-dimensional "price war" will eventually pass, and logistics companies with real strength will adapt to the industry trend and usher in better development.

At the capital market level, the value potential of Annway Logistics is widely recognized. CITIC Securities recently covered Annway for the first time and gave it a "buy" rating. In its research report, it believes that as the domestic company with the largest cargo volume in the whole network express industry, Annway Logistics' healthy network ecosystem and leading market product strategy create conditions for continuous scale growth and cargo structure optimization, coupled with cost control, which together drive a significant increase in profitability.

In the first half of the year, several securities institutions including CICC, JP Morgan, Guohaitong, GF Securities, Haitong, and CITIC have given high praise to Annway Logistics. Among them, CICC maintains a "better than industry" rating, and Haitong International Securities maintains a "better than the market" rating. They are optimistic about the strength and prospects of Annway Logistics. Since February of this year, the company's stock price has continued to rise, achieving a gain of more than 125% compared to the lowest point at the beginning of February.

In terms of buybacks and dividends, Annway Logistics announced in June that it is expected to use no more than 150 million Hong Kong dollars for buybacks this year. And as performance continues to be realized, Annway is actively discussing and promoting dividend plans,用实际行动回报广大股东 support, which will greatly enhance investor confidence.

Looking forward, Annway Logistics will also promote the construction of the "rich ecosystem" network through multiple measures, drive the continuous optimization of the network ecosystem, and gradually establish a prosperous network ecological environment. This means that a win-win situation for Annway Logistics, terminal customers, and other parties will be formed.

So, on the whole, the growth logic of Annway Logistics is quite clear, and it is worth giving it higher expectations. Now, market resources are gradually concentrating on leading companies such as Annway Logistics, and the industry will develop towards a more efficient and healthier direction. Annway will continue to sit steadily on the express "throne" and open up the imagination space.

III. Summary

Looking at the latest report card of Annway Logistics, it can be seen that its scale effect as a leader is becoming more and more prominent, and it is full of growth potential.From an industry perspective, Aneng Logistics has become an excellent case study for observing the future development direction of logistics platforms. Leading the industry growth, Aneng Logistics is set to enjoy more incremental benefits amidst industry prosperity, making the company's growth trajectory very clear. For investors, it represents a rare long-term opportunity.