20220318-招银国际-Solid_4Q21_results__Expect_strong_earnings_recovery_in_2022E_8页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content

This report provides an update on ZTO Express (ZTO US), highlighting its 4Q21 financial results and future outlook for 2022E and beyond. The analysis includes key financial metrics, performance trends, and valuation insights.

Key Highlights

• 4Q21 Results:

  • Net profit grew by 37% YoY to RMB1.76bn, in line with expectations.
  • Revenue increased by 12% YoY to RMB9.218bn.
  • Gross margin expanded by 1.9ppt YoY to 24.4%.
  • Other income surged by 120% YoY to RMB2.75bn.
  • SG&A expenses rose by 13% YoY, closely matching revenue growth.
  • Full-year net profit increased by 10% YoY to RMB4.76bn.

• Parcel Volume Growth:

  • 4Q21 parcel volume reached 6.3bn units, up 17% YoY.
  • This growth rate slightly outperformed the industry average of 16%.
  • Market share was 20.1%, a minor decline from 20.8% in 3Q21.

• ASP and Unit Cost:

  • Resilient ASP: Only dropped 1.3% YoY to RMB1.39/unit, but increased 12% QoQ.
  • Unit cost: Decreased 3% YoY to RMB0.96/unit.
  • Transportation cost: Dropped 3% YoY to RMB0.53/unit, attributed to high-capacity trucks.
  • Sorting hub cost: Increased 4% YoY to RMB0.32/unit, due to higher labor costs.
  • Unit gross margin: Increased 4% YoY and 30% QoY to RMB0.35/unit.

• Earnings and Valuation:

  • Revised Earnings: The analyst revised down 2022E and 2023E earnings by 8% / 3%, due to increased sorting center and transportation costs.
  • Target Price (TP): Trimmed from US$44 to US$41, based on an unchanged target multiple of 35x.
  • Current Price: US$24.94, which is near the 17x forward P/E level, close to the 2018 trough valuation.
  • Expected Catalyst: Net profit in 1Q22E is expected to double YoY to ~RMB1.06bn.

• Financial Summary:

  • Revenue Growth: Projected to increase by 18% in 2022E and 21% in 2023E.
  • Gross Margin: Expected to rise to 24.5% in 2022E and 27.5% in 2024E.
  • EBITDA Margin: Projected to increase to 28.2% in 2022E and 31.9% in 2024E.
  • Net Profit: Expected to grow to RMB6.196bn in 2022E and RMB9.27bn in 2024E.

• Free Cash Flow:

  • ZTO is expected to generate positive free cash flow in 2022E, driven by volume growth and good capex discipline.

• Shareholding Structure:

  • Meisong Lai: 25.6% of shares.
  • Alibaba: 8.6% of shares.
  • Others: 65.8% of shares.
  • Under a weighted voting rights structure, Meisong Lai holds 76.8% of total voting rights.

• Stock Performance:

  • 1-month return: -18.3% (Absolute) and -18.9% (Relative).
  • 3-month return: -10.4% (Absolute) and -6.2% (Relative).
  • 6-month return: -19.1% (Absolute) and -18.7% (Relative).

• Valuation Metrics:

  • EV/EBITDA: Projected to decrease from 18.8x in FY20A to 12.0x in FY22E.
  • P/E: Projected to decrease from 33.3x in FY20A to 22.4x in FY22E.
  • P/B: Projected to decrease from 3.1x in FY20A to 2.6x in FY22E.

• Earnings Sensitivity:

  • Net Profit Sensitivity: Earnings are sensitive to changes in ASP and unit line-haul transportation cost.
  • 2022E Net Profit: Expected to be between RMB4,444mn and RMB7,285mn based on different assumptions for ASP and sorting hub cost.

Analyst Ratings

• Ratings: BUY (Maintain).
• Potential Return: Over 15% over the next 12 months.

Risk Factors

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

Key Figures and Assumptions

• Unit cost breakdown:

  • Line-haul transportation cost: RMB0.53/unit.
  • Sorting hub cost: RMB0.32/unit.
  • Total unit cost: RMB0.96/unit.

• Operating Assumptions for 2022E:

  • Shipment volume: Expected to grow by 2.3%.
  • ASP: Expected to remain at RMB1.33/unit.
  • Unit cost: Expected to increase slightly.

Conclusion

ZTO Express is showing strong performance in 4Q21, with profitable growth and market share gains. The company is expected to achieve positive free cash flow in 2022E and strong earnings recovery. Despite the trimmed target price, the company remains a BUY recommendation due to its gradual market share gain and strong profitability recovery. The analyst emphasizes the resilient ASP and good capex discipline as key drivers of future performance.