20211119-招银国际-中通快递-SW-02057.HK-Upbeat_guidance_on_profitable_growth_in_2022E__raising_earnings_forecast_and_TP_8页_1mb

ZTO Express (2057 HK) Company Update Summary

Core Content and Key Insights

ZTO Express has been highlighted in a recent equity research update from CMB International Securities, with the firm reiterating a BUY recommendation and raising its Target Price (TP) from HK$306 to HK$342, representing a +42% upside from the current price of HK$240.2. The update emphasizes ZTO's focus on profitable growth, with a clear message from management that net profit growth will outpace revenue growth in the future.

Key Financial Highlights for 3Q21

• Pretax profit grew 17% YoY to RMB1.38bn
• Revenue increased 11% YoY to RMB7.39bn
• Gross margin expanded 0.3ppt YoY to 21.2%
• SG&A expenses rose only 4% YoY, indicating strong cost control
• Net profit slightly declined 3% YoY to RMB1.17bn, attributed to the absence of a tax refund in 3Q21 (a one-off event in 3Q20)

Performance in Context

• Parcel volume grew 23% YoY to 5.7bn units, in line with the industry average
• ASP (Average Selling Price) dropped 7% YoY to RMB1.24/unit, but increased 2.5% QoQ
• The ASP reduction was better than the industry average, driven by lower parcel weight and incentives to support network partners

Cost Efficiency

• Unit cost dropped 6.7% YoY in 3Q21
• Sorting hub cost fell 2% YoY to RMB0.29/unit, attributed to increased automation (370 sets in 3Q21 vs. 300 in 3Q20)
• Transportation cost decreased 6% YoY to RMB0.5/unit, due to high-capacity trucks (81% of self-owned trucks are 15-17 meters long)
• Total unit cost is expected to drop 4% YoY in 2022E

Earnings Forecast (Revised)

• 2021E/2022E/2023E earnings have been revised up by 1% / 8% / 5%, based on improved ASP assumptions and offsetting lower volume projections
• Core net profit is forecasted to increase from RMB4.786bn (2021E) to RMB8.201bn (2023E)
• Core EPS is expected to rise from RMB5.73 (2021E) to RMB9.82 (2023E)

Valuation Update

• EV/EBITDA for FY22E is 13.3x
• P/E for FY22E is 24.8x
• P/B for FY22E is 2.9x
• Target multiple has been updated to 35x, reflecting ZTO's market share expansion and profitability recovery

Market Share and Industry Position

• ZTO's market share in China's parcel delivery market stood at 20.8% in 3Q21
• The firm is confident of further market share expansion through continuous capex spending
• ZTO is positioned as a long-term winner in the express delivery industry due to strong execution and cost advantages

Risk Factors

• Further slowdown in online retail sales
• Volatile ASP trends
• Rising diesel prices

Shareholder Structure

• Meisong Lai holds 25.6% of shares with 76.8% of voting rights
• Alibaba holds 8.6% of shares
• Others hold 65.8%

Stock Performance

• 1-month return: -8.1% (Absolute), -9.3% (Relative)
• 3-month return: +12.0% (Absolute), +12.4% (Relative)
• 6-month return: -5.9% (Absolute), +3.4% (Relative)

Financial Summary (FY19A to FY23E)

Key Ratios

Earnings Sensitivity

• 2022E net profit is sensitive to changes in ASP and unit cost:
  • ASP increase leads to higher net profit
  • Unit transportation cost decrease also contributes to improved profitability

Analyst Certification

• The analyst certifies that the views expressed in this report accurately reflect their personal opinions and that there is no direct or indirect compensation link to the specific views

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• SELL: Stock with potential loss of over 10% over next 12 months
• NOT RATED: Stock not rated by CMBIS
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Conclusion

ZTO Express is positioned for profitable growth in 2022E, with a strong focus on cost efficiency, market share expansion, and ASP recovery. The firm's strong execution capability and cost advantage are expected to drive long-term profitability and market leadership. Despite risks such as slower online retail growth and volatile ASP, the company's revised earnings forecast and higher target price suggest continued positive outlook.