Full Truck Alliance: Positive On Strong Q2 Growth And Favorable Volume Guidance (NYSE:YMM)

Justin Paget Full Truck Alliance Co. Ltd.’s (NYSE:YMM) shares are still awarded a Buy rating based on my assessment of the company’s performance and prospects. YMM achieved top line and bottom-line growth rates of over +30% YoY in the recent quarter. Looking forward, the company anticipates that its order volume will increase by at least +20% for the full-year FY 2024. My previous May 24, 2024, update evaluated YMM’s shareholder yield and key Q1 2024 financial metrics. In the current write-up, I look at Full Truck Alliance’s second quarter results and full-year outlook. Q2 2024 Financial Performance Was Good YMM’s revenue and normalized net profit attributable to shareholders grew strongly by +34% YoY and +33% YoY to RMB 2,764 million and RMB 954 million, respectively in the second quarter of this year. These numbers were revealed in Full Truck Alliance’s latest quarterly earnings release. The company’s actual Q2 2024 top line and normalized earnings beat their respective consensus estimates by +2% and +1% according to S&P Capital IQ data. With my earlier May 24, 2024, article, I noted that YMM “is likely to report a similarly good set of results for the second quarter with these actions it has taken to boost transaction service revenue” like introducing the “commission model” in additional Chinese cities and leveraging “big data analytics.” I was right, as Full Truck Alliance’s transaction service revenue surged by +63% YoY to RMB 952 million for Q2 2024. In its corporate presentation slides, YMM explains that its transaction service revenue stream refers to the “monetization from truckers related to our freight matching service” in the form of “commission charged by the transaction.” The proportion of Full Truck Alliance’s orders that were charged commissions rose from 67% in Q2 2023 to 81% in the most recent quarter, as disclosed by the company at its Q2 2024 earnings call. This suggests that the company had success with expanding the geographical coverage of the “commission model” as mentioned above, which has translated to a substantial increase in transaction service revenue. The company’s operating margin improved by +340 basis points YoY from 21.9% in Q2 2023 to 25.3% for Q2 2024. At its second quarter results briefing, YMM attributed the profitability improvement for the latest quarter to “revenue optimization and operating leverage.” The top-line contribution (as a percentage of total revenue) for Full Truck Alliance’s transaction service revenue stream increased from 28% for the second quarter of last year to 34% in the second quarter of this year. I previously mentioned in my May 24, 2024 write-up that “YMM’s transaction service revenue stream boasts relatively higher margins than its other revenue streams.” Therefore, a positive change in Full Truck Alliance’s top-line mix has boosted its profit margins in Q2 2024. On the other hand, YMM’s revenue growth accelerated from +24% in Q2 2023 and +33% in Q1 2024 to +34% for Q2 2024. A faster pace of top-line expansion on a fixed cost base translated into positive operating leverage effects, which had a favorable impact on the company’s second quarter profitability. In summary, Full Truck Alliance performed well for the second quarter of the current year. Order Volume Growth Is Expected To Remain Strong For Full-Year FY 2024 The number of fulfilled orders for Full Truck Alliance rose by +22% YoY to 49.1 million in Q2 2024, and YMM has guided for at least a +20% expansion in fulfilled order volume for the full year at its second quarter earnings briefing. An “expanding shipper user base” was cited as a key driver of YMM’s second quarter order volume increase, as per the company’s Q2 2024 earnings call commentary. In specific terms, Full Truck Alliance’s shipper Monthly Active Users or MAUs grew by +33% YoY to 2.7 million in the recent quarter. How YMM Alleviates The “Pain Points” For Shippers Full Truck Alliance’s Corporate Presentation Slides It is reasonable to think that Full Truck Alliance can continue to grow the number of shippers on its digital freight platform. As highlighted in the chart presented above, YMM’s digital freight platform provides multiple solutions to deal with the challenges that shippers face. It is also worth highlighting that the number of new shippers which completed their first transaction on YMM’s platform hit a new historical peak in Q2 2024. (Source: results briefing.) As per S&P Capital IQ’s consensus data, the sell-side analysts currently expect that YMM’s top line will increase by +25% to RMB 10,538 million in FY 2024. This is the same as the company’s actual FY 2023 revenue growth of +25%. In a nutshell, Full Truck Alliance is well-positioned to maintain a strong pace of top-line expansion for the current year, which is comparable to its actual revenue increase from last year. This is realistic, considering YMM’s growing number of shippers, which provides support for its full-year order volume expansion guidance of +20% or better. Variant View A slower-than-expected increase in the percentage of Full Truck Alliance’s orders which were charged commissions going forward might negatively affect YMM’s transaction service revenue growth and top-line mix. Weaker-than-expected order volume growth resulting from a more moderate pace of increase in the number of shippers could impact Full Truck Alliance’s future order volume unfavorably. These are the two major risk factors that will impact my bullish thesis for the stock. Conclusion Full Truck Alliance is now trading at 13 times the consensus next twelve months’ normalized P/E based on S&P Capital IQ valuation data. In contrast, YMM’s non-GAAP net income attributable to shareholders grew by +33% YoY, and the sell side sees the company’s normalized net profit expanding at a +25% CAGR for the FY 2023-2027 time frame. YMM’s good Q2 results and positive outlook suggest that the stock could potentially trade at a more demanding P/E of 20 times or better. This would be closer to its actual Q2 earnings growth (+33%) and its expected forward four-year bottom-line growth rate (+25%) for the next few years. As such, I stick to a Buy rating for Full Truck Alliance.

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