20220818-招银国际-Record-high_market_share__Good_cost_control__Earnings_raised_on_better_margin_8页_1mb

ZTO Express (ZTO US) Company Update Summary

Core Content Overview

ZTO Express (ZTO US) has reported strong financial performance in 2Q22, with a 40% YoY increase in net profit to RMB1.8bn. This growth is attributed to 18% YoY revenue growth, a 2.6ppt YoY gross margin expansion to 25.4%, and improved SG&A expense ratios. The company also achieved a record-high market share of 23%, driven by 7.5% YoY parcel volume growth and a 10.5% YoY increase in ASP (Average Selling Price). Despite rising diesel prices, ZTO managed to control unit costs effectively, with a 6% YoY increase in unit cost for transportation and a 9% YoY increase for sorting hubs, while maintaining a 25% YoY growth in unit gross margin to RMB0.35/unit.

The report highlights that ZTO's parcel volume growth has consistently outpaced the industry average since 4Q21. The company maintains its full-year parcel volume growth guidance of 12–16% for 2022, with a model of 12% considering the weak macroeconomic environment. As a result, the 2022E earnings are revised upward by 11%, and 2023E and 2024E earnings are raised by 4%. The target price (TP) is updated from US$37.3 to US$39.1, based on an unchanged 35x target multiple, which is the mid-point between the peak (45x) and the historical average (26x). The rating is maintained as BUY, reflecting the company's strong market position and profitability recovery.

Key Highlights from 2Q22 Results

• Net profit increased by 40% YoY to RMB1.8bn.
• Adjusted net profit (excluding FX gain) grew by 28% YoY to RMB1.69bn.
• Revenue grew by 18.2% YoY to RMB8.657bn.
• Gross profit increased by 31.6% YoY to RMB2.203bn.
• Unit cost rose by 6% YoY to RMB0.49/unit, outperforming the industry in cost control.
• Unit gross margin increased by 25% YoY to RMB0.35/unit.
• ASP increased by 10.5% YoY to RMB1.34/unit, though less than other "Tongda" players.
• SG&A expense ratio improved, contributing to the net profit growth.

Financial Summary

Valuation and Earnings Sensitivity

• Target Price (TP) is raised to US$39.1 from US$37.3.
• Earnings sensitivity analysis shows that the net profit is sensitive to both ASP and unit costs. The company’s unit gross margin is expected to continue expanding, which supports the upward revision in earnings forecasts.
• P/E and P/B multiples are also provided, showing a trend of decline over the forecast period, with P/E decreasing from 34.0x to 16.9x and P/B from 3.1x to 2.3x.

Shareholding and Performance

• Shareholding structure:
  • Meisong Lai: 25.6%
  • Alibaba: 8.6%
  • Others: 65.8%
• Voting rights: Meisong Lai holds 76.8% of the total voting rights.
• Share performance:
  • 1-month: +1.8%
  • 3-month: +3.1%
  • 6-month: -13.1%
  • 12-month: -11.0%

Risk Factors

• Continuous lockdowns
• Slowdown of online retail sales
• Further increase in diesel prices

Analyst Certification and Ratings

• The analyst certifies that the views expressed are personal and not influenced by compensation.
• CMBIGM ratings:
  • BUY: Potential return of over 15% over next 12 months.
  • OUTPERFORM: Industry expected to outperform the relevant market benchmark.

Contact Information

• Analyst: Wayne Fung, CFA, Katherine Ng
• Phone: (852) 3900 0826 / (852) 3761 8725
• Email: waynefung@cmbi.com.hk / katherineng@cmbi.com.hk

Important Disclosures

• The report is for informational purposes only.
• No individual investment advice is provided.
• Past performance does not guarantee future results.
• Investors are advised to consult a professional financial advisor.

Summary of Key Metrics

• Market share: 23% (record high)
• Parcel volume growth: 7.5% YoY
• ASP growth: 10.5% YoY
• Unit cost growth: 6% YoY
• Unit gross margin: 25% YoY
• TP: US$39.1
• Current price: US$26.53
• P/E band: 34.0x to 16.9x
• P/B band: 3.1x to 2.3x
• ROE: 14.2% (forecast)
• Net gearing: Net cash
• Current ratio: 1.4x (FY22E) to 1.8x (FY24E)

This summary highlights ZTO's strong financial performance, strategic cost control, and continued market share growth, along with the updated valuation and key risk factors.