Investment summary:
From the second half of last year to the first half of this year, an unprecedented price war broke out in the express industry, causing great pressure on the profitability of the whole industry. With the intervention of regulatory authorities, the competitive environment of the industry has gradually improved. This paper focuses on the reasons for the outbreak and mitigation of the price war and the regulatory logic of the regulatory authorities, in order to predict the subsequent impact of the event. We believe that the change in the regulatory environment will have a far-reaching impact on the future development trend of the express industry.
The intensity of this round of price war is unprecedented, and its outbreak is the result of the joint action of many factors: we attribute the causes of this round of high-intensity price war to three points: 1. After the small and medium-sized express delivery is basically cleared, there is almost no income from the low-intensity price war; 2。 During the epidemic, express delivery stopped and the industry balance was broken, which poured oil on the price war; 3。 Relying on the support of pinduoduo, Jitu entered the industry with high subsidies, and the homogeneous competition in the industry forced other companies to follow up.
This round of price war is extremely destructive to industry profits. In 19, major express companies were able to maintain a gross profit of more than 30 cents per piece, but by the second half of 20, except Zhongtong, the gross profit per piece had fallen to less than 20 cents, and the situation was very serious.
The strengthening of supervision is an important turning point of price competition at this stage: this round of price war reached a white hot in Yiwu, an important express delivery Town, in March this year, and triggered the direct intervention of Yiwu postal administration. Two weeks later, Zhejiang Province passed the regulations on the promotion of express industry in Zhejiang Province (Draft), requiring operators not to dump at low prices, consolidating the previous regulatory results.
The core idea of regulatory intervention is to prevent business level competition from being alienated into capital level competition: we believe that the core idea running through a series of recent regulatory actions is to prevent normal business competition from being alienated into the competition of capital reserves behind. The main reason for the strong intervention of the regulatory authorities is that the express companies try to seize the market with strong capital as the backing, rely on low-price dumping, and seriously affect the normal business order of the express industry.
Maintaining the reasonable income of couriers is the priority goal of Supervision: the continuous price war leads to the drop of express delivery fees, and the most serious damage is the majority of front-line couriers. Therefore, the follow-up regulatory behavior and policy preference also focus on giving priority to solving the problem of low distribution fee. At the end of August, Tongda is a group of couriers who raised the delivery fee by 10 cents. It is required that it must be implemented to the couriers and shall not be stopped halfway. The data from September to October show that the price increase has been well implemented, marking the easing of the uncertainty of the price war.
The acquisition of Baishi by Jitu will continue to cool the price war: by acquiring Baishi and inheriting its logistics network and customer resources, Jitu will stably rank among the top four express companies in China, access Taoxi e-commerce platform and truly gain a firm foothold in China. However, the acquisition of Baishi can not solve the problem of weak hard power of Jitu. After the acquisition, the main goal will change from expanding share to making up for weaknesses. If the most radical extreme rabbit in the price war slows down the pace of expansion, it will drive the price war to cool down significantly.
The existence of the regulatory red line will have a far-reaching impact on the development of the industry: we believe that this round of price war can be regarded as a landmark event in the history of China’s express industry. The regulatory power of the industry has been significantly enhanced after the current round of price war. The existence of the regulatory red line has a strong deterrent effect on the vicious price competition of the industry.
As an industry closely related to people’s livelihood, the establishment of industry norms and the strengthening of supervision are high probability events. After the price war, we expect that the public utility attribute of the express industry will be strengthened, the stability of enterprise profits will be improved, and we need to find a balance between our own profits and social benefits. When enterprises cannot rely on direct subsidies to eliminate competitors, they need to pay more attention to the competition between hard power (equipment performance, fleet scale, network location, etc.) and soft power (informatization degree, courier quality, franchisee stability, etc.), and the intensity of price war will be effectively controlled.
We have reason to believe that the express industry will open a silver era in which profitability and service quality will both rise.
Risk tip: policy change, negative impact of epidemic situation and decline in demand
（ Dongxing Securities Corporation Limited(601198) ）
