Guosheng Securities: Express delivery industry is fighting against internal competition, expected to have a spreading effect and sustainability from top to bottom.

Guosheng Securities released a research report stating that this round of express delivery is fighting against internal competition. On one hand, it emphasizes the express delivery companies as the main force against internal competition, and on the other hand, it emphasizes the supervisory responsibilities and enforcement capabilities of the national and local postal regulatory authorities. This anti-internal competition movement in the express delivery industry is top-down, with Guangdong province taking the lead. The firm believes that it will have a spreading effect and, with the background of the peak and off-peak seasons transitioning and the new social security regulations, the anti-internal competition movement in express delivery has sustainability, with major listed express delivery companies having great flexibility in performance. The main points of Guosheng Securities are as follows: Building a system for anti-internal competition with postal regulatory authorities supervising enforcement and express delivery companies as the main force The 6th meeting of the Central Committee for Financial and Economic Affairs on July 1, 2025 emphasized regulating low-priced and disorderly competition of enterprises in accordance with laws and regulations; on July 24th, the draft amendment to the Price Law of the People's Republic of China further improved the criteria for identifying low-price dumping and governing "internal competition". In response, the State Post Bureau held meetings of the Party Group and conferences with Express delivery companies like Tongda on July 8 and July 29, clearly opposing "internal competition"; local postal authorities also followed up on the anti-internal competition work. This round of anti-internal competition in express delivery emphasizes both the express delivery companies as the main force against internal competition and the supervisory responsibilities and enforcement capabilities of the national and local postal regulatory authorities. Initial results of anti-internal competition: Guangdong express delivery raises base price According to the Southern Metropolis Daily, starting from August 4, the base price of express delivery in Guangdong province was raised by 0.4 yuan/ticket, with an average price increase to over 1.4 yuan, and a 0.1 yuan/kg increase for every 0.1 kg; and a 15-day lock-in period was set to avoid customer poaching during this period. The price increase in Guangdong has a demonstrative effect and is expected to spread to other regions As a region with a high proportion of express delivery volume, Guangdong's share of national express delivery volume has remained between 24.33% and 27.25% since 2017. It was the first to implement measures against internal competition and is expected to set an example for other express delivery "grain-producing areas" nationwide. Based on the actions of other local postal authorities, it is expected that other regions such as Zhejiang, Fujian, and other areas will raise prices to some extent. With the price increase in the off-peak season combined with the new social security regulations, the anti-internal competition effect is expected to last for a certain period of time Unlike the peak season price increases in previous years, this year, driven by the anti-internal competition movement, the price is raised in the off-peak season, which can be followed by the peak season. From the demand side, the anti-internal competition effect of this round is expected to have a certain degree of sustainability. The Supreme People's Court emphasized that participating in social security in accordance with the law is a legal obligation, and the new regulations will be implemented from September 1. Calculating based on each delivery person handling 500 tickets per day and paying social security based on local standards, the average impact on a single ticket is 6 cents. Therefore, from the cost side, if all delivery personnel subsequently pay social security, the cost for franchisees will increase, the operating pressure will further increase, and the price increase driven by the anti-internal competition movement will cover the new social security costs for franchisees. This price increase under the anti-internal competition movement also has a certain degree of sustainability. With low profitability per ticket and high business volume, price elasticity is greater than business volume elasticity for express delivery companies, leading to greater profit flexibility Zhongtong/Yuantong/Shentong/Yunda had business volumes of 340.10/265.73/227.29/237.83 billion pieces at the end of 2024, but profitability per ticket was 0.30/0.15/0.05/0.08 yuan respectively. The huge business volume and relatively low profitability per ticket determine that an increase in ticket prices leads to greater profitability. Taking into account (1) differences in market and cost between regions, the increase in prices in individual regions cannot be linearly extrapolated to a nationwide price increase; (2) this round of price increase needs to be redistributed between headquarters, branches, and delivery personnel; (3) the duration of the price increase, the firm calculates profit elasticity under optimistic, neutral, and pessimistic scenarios. Taking the neutral assumption of a nationwide price increase of 0.25 yuan, 50% going to the headquarters, lasting until the end of the year, the social security impact for 4 months, and a corporate income tax rate of 25%, for example, profitability per ticket can increase by 0.03 yuan, with profit elasticity at Zhongtong/Yuantong/Shentong/Yunda compared to 2024 reaching 10.59%/20.93%/69.06%/39.27%, considering the business volume growth rate in 2025. Total profit elasticity is 28.44%/45.63%/99.34%/55.18%. Risk Warning: the spread of anti-internal competition in express delivery does not meet expectations, express delivery business volume falls short of expectations, industry structure deteriorates, calculation errors.