ANE has been the largest express freight network in less-than-truckload (LTL) market in China for the fourth consecutive year in terms of total freight volume, with market share reaching 17.3% in 2020. Besides, ANE’s express freight is one of the fast-growing networks from 2015 to 2020, with a CAGR of ~31% in terms of total freight volume growth, significantly above the industry average. Leveraging the efficient freight partner platform model on the back of technology advantage, there is a good potential for ANE to capture the opportunity of the industry consolidation going forward. We forecast ANE’s core net profit will grow 22%/32%/34% in 2021E/22E/23E. Initiate with BUY with TP of HK$16.8, based on 15.8x 2022E P/E. Initiate with BUY.
China is the largest LTL market in the world but fragmented. The market size of China’s LTL industry (in terms of revenue) reached RMB1.5tn in 2020. At present, China’s LTL market is highly fragmented and inefficient, with CR10 of only 5.7% in 2020, whereas a large number of small-and-medium direct-line LTL freight operators provide the local logistics services. That said, the supply chain upgrade driven by e-commence and rapid digitalization have sped up the development of the innovative freight partner platform model. We see large potential of industry consolidation in future.
ANE adopts an efficient freight partner platform model. ANE directly operates and controls all mission-critical sorting and line-haul processes, while its freight partners and agents are responsible for operating the outlets at their own costs, as well as providing standardized feeder service, pickup and dispatch services. ANE, together with its partners, are capable of providing nationwide express freight services.
Earnings projection. We forecast ANE to deliver freight volume CAGR of 30% in 2021E-23E, reaching 22.6mn tons in 2023E, driven by the Company’s continuous effort in expanding both the number of freight partners and the freight volume per freight partners. We forecast ANE’s core net profit will grow 22%/32%/34% in 2021E/22E/23E, driven largely by volume growth, resilient unit gross profit and lower expense ratios.
Initiate with BUY. We benchmark ANE to the non-express delivery sector average in China (15.8x 2022E P/E) to reach our TP of HK$16.8. We believe the pullback of share price since listing, due largely to profit taking from some retail investors, offers good entry opportunity.