Dongxing's 2025 transportation industry investment outlook: steady progress, focusing on improving supply and demand sectors.

Dongxing released a research report stating that the noticeable trend in the transportation industry by 2024 will be increased volume and decreased prices. By 2025, it is necessary to address industry price competition, focus on marginal improvements in supply and demand, and policy regulation. Specifically, the price war in the express delivery sector is entering a new stage, with more pronounced performance differentiation; high-speed highways with high dividend stocks are expected to remain strong during a rate-cutting cycle; air travel demand is slowly recovering, with extremely low supply growth, and oversupply is expected to gradually ease. It is recommended to focus on sectors with marginal improvements in supply and demand or expectations for improvement, as well as sectors with high earnings certainty and benefiting from rate-cutting cycles. Key points from Dongxing: Industry review: Throughout the year, the transportation sector has seen an increase in volume and a decrease in prices, with the impact of reduced consumption being particularly noticeable As of December 24, 2024, the transportation sector has seen a rise of approximately 12.5% since the beginning of the year, compared to a 15.4% increase in the Shanghai and Shenzhen 300. Although slightly lower than the Shanghai and Shenzhen 300, the transportation sector continues to be relatively high in the first-level categories of the Shenwan Bureau. Among the sub-sectors, the market is more focused on sub-sectors with high certainty and sub-sectors with cyclical bottom reversals. Looking back at the whole year, the trend of increased volume and decreased prices was a noticeable trend in the transportation industry this year, and the downgrading of consumption played a crucial role in this change. The increase in volume implies that there is still untapped potential demand in the domestic market, while the decrease in prices indicates that incremental customers have higher requirements for cost performance. The importance of the downgraded market continues to be highlighted. Outlook for 2025: Face industry price competition, focus on marginal improvements in supply and demand, and policy regulation The trend of increased volume and decreased prices not only represents the current situation this year, but the potential inward competitive pricing it may bring will challenge the industry in 2025. The Central Economic Work Conference held in December clearly stated the need to comprehensively rectify "inward competition," regulate the behavior of local governments and enterprises, indicating that government departments have a full understanding of the possibility of intensified price competition next year. It also indicates that the country's attitude towards countering inward competition is more resolute, and will put more actions into effect. In this context, from the industry's point of view, it is recommended to focus on sectors with marginal improvements in supply and demand or expectations for improvement, as well as sectors with high earnings certainty and benefiting from rate-cutting cycles. For individual stocks, the bank focuses on industry leaders that can maintain high profit levels during a price downturn and stocks that specialize in specific sectors and have the ability to cross cycles. For industries with intense price competition, it is important to pay attention to the changes brought about by policy regulation. Countering inward competition may set a clearer bottom line for industry competition, thereby promoting a bottom-up recovery in the industry's fundamentals. Express Delivery: Price wars entering a new stage, performance differentiation may become more pronounced The continuous growth of low-priced parcels this year has exceeded market expectations, leading to the shift of express delivery leader ZTO Express from profit-oriented to market share-oriented. With ZTO re-entering the market share competition, the intensity of price wars in the express delivery industry in 2025 is likely to be higher than in 2024. Compared to this year's emphasis on reducing costs and increasing efficiency, industry competition is expected to return to the stability of franchisees in 2025. This is because the marginal returns of scale effects are diminishing. In a situation where capacity utilization rates have already significantly improved, there is limited room to further dilute unit costs. If industry prices continue to decline next year, it is easy to erode the profit space of franchisees. Therefore, express delivery companies with more stable franchisees will gain significant advantages in competition, as verified in the previous price war. In an environment of intensified competition, the performance differentiation of companies in the industry will be more pronounced than in normal years, with leading companies likely to increase their profits and market share. ZTO Express and YTO Express have a significant advantage in franchisee stability and have the ability to maintain profit stability during a downturn, making them key targets of the bank's focus. High-Speed Highways: During a rate-cutting cycle, high dividend stocks may continue to be strong The high-speed highway sector, benefiting from its abundant cash flow, stable profits, and high dividend characteristics, continues to attract market attention. With the increasing market focus on high dividend concepts, high-speed highway stocks are paying more attention to dividends. At the same time, the anchoring effect of dividend yields on stock prices is increasing, and it can be observed that the dividend yield curve of key companies in the industry is gradually approaching the LPR curve. Rate cuts directly affect the market's requirements for enterprise dividend yields. The demand for stable returns from the market is not a short-term change but a long-term trend; the rate-cutting cycle further increases the safety margin of high-speed highway stocks. Therefore, in the new year, the strong performance of high dividend stocks in the high-speed highway sector is expected to continue. Key targets to focus on include Anhui Expressway (600012.SH), Jiangsu Expressway (600377.SH), and YUEXIUTRANSPORT(01052) among high dividend stocks. Aviation: Slow demand recovery, extremely low supply growth, oversupply expected to gradually ease This year, the overall performance of the aviation industry is characterized by high volume and low prices. In terms of passenger load factors, both domestic and international flight load factors in the fourth quarter were significantly higher than the same period in 2019, but prices remained lower than in 2019, especially below the same period in 2023. The aviation industry is currently facing the dual impacts of insufficient demand and oversupply, making it difficult to balance volume and prices. Looking ahead to 2025, the supply-demand relationship in the industry is expected to gradually improve. On the demand side, the structural overcapacity of international routes is expected to improve as North American routes recover. On the supply side, the actual introduction of airplanes by the three major airlines in recent years has been significantly lower than their plans. Due to the more conservative introduction of airplanes by the three major airlines, it is expected that the industry's supply growth in 2025 will remain very low. It is expected that the industry will gradually shift from oversupply to a supply-demand balance next year, with profit elasticity expected to gradually release. Compared to the three major airlines, medium-sized carrier stocks that have significantly exceeded pre-pandemic levels of net cash flow have more upside potential in their stock prices. Therefore, compared to the three major airlines, the bank has a relatively better outlook for the stock price performance of medium-sized airlines next year. Risk factors: Industry policy changes, slowdown in macroeconomic growth, significant fluctuations in oil prices and exchange rates, geopolitical risks, etc.