20210319-招银国际-中通快递-SW-02057.HK-Market_share_gain___profitability_7页_1mb

ZTO Express (2057 HK) Company Update Summary

Core Content Overview

ZTO Express is a leading player in China's express delivery sector, with a focus on expanding its market share through volume growth rather than immediate profitability. The company is expected to maintain its growth trajectory, with a target of delivering parcel volume growth of 35-40% YoY in 2021E and increasing its market share to 22% in 2021E and 25% in 2022E (compared to 20.4% in 2020). Despite not providing specific net profit guidance, ZTO continues to prioritize scale expansion.

The company's earnings forecast was revised downward by 14% for 2021E and 9% for 2022E, primarily due to reduced assumptions about average selling price (ASP). However, the target price was adjusted to HK$278, reflecting a 36x 2021E P/E ratio, which is a 50% premium over the historical average of 24x.

ZTO is expected to benefit from market consolidation, with ongoing cost reduction measures and investments in network and capacity. Additionally, expansion into the time-definite segment, less than load (LTL), and cold chain business is anticipated to serve as potential growth drivers.

Key Financial Highlights

• Revenue Growth:

  • FY18A: RMB17,604 million
  • FY19A: RMB22,110 million
  • FY20A: RMB25,214 million
  • FY21E: RMB33,036 million
  • FY22E: RMB41,715 million
  • YoY growth: 35% (FY18A), 26% (FY19A), 14% (FY20A), 31% (FY21E), 26% (FY22E)

• Net Profit:

  • FY18A: RMB4,383 million
  • FY19A: RMB5,674 million
  • FY20A: RMB4,312 million
  • FY21E: RMB5,375 million
  • FY22E: RMB7,127 million
  • YoY growth: -45.0% (FY18A to FY19A), -14.5% (FY19A to FY20A), 18.6% (FY20A to FY21E), 32.6% (FY21E to FY22E)

• Earnings per Share (EPS):

  • FY18A: RMB6.44
  • FY19A: RMB8.54
  • FY20A: RMB5.43
  • FY21E: RMB6.44
  • FY22E: RMB8.54
  • YoY growth: 32.6% (FY18A to FY19A), -14.1% (FY19A to FY20A), 18.6% (FY20A to FY21E), 32.6% (FY21E to FY22E)

• Key Ratios:

  • P/E: 30.5 (FY21E), 23.0 (FY22E)
  • P/B: 3.1 (FY21E), 2.8 (FY22E)
  • ROE: 10.5% (FY21E), 12.8% (FY22E)
  • Gross Margin: 22.0% (FY21E), 23.4% (FY22E)
  • EBITDA Margin: 26.1% (FY21E), 27.9% (FY22E)
  • Net Profit Margin: 16.3% (FY21E), 17.1% (FY22E)

• EPS Sensitivity Analysis:

  • Earnings are sensitive to ASP and unit line-haul transportation cost, with a revised target price based on updated assumptions.

Market Performance and Shareholding

• Market Cap: HK$201,851 million

• Shareholding Structure:

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

• Share Performance:

  • 1-month: -16.0% (absolute), -12.6% (relative)
  • 3-month: +9.4% (absolute), -1.5% (relative)

• 12-Month Price Performance: Data available from Bloomberg.

Risk Factors

• Prolonged price war in the sector.
• Slowdown in online retail sales.
• Lack of effective control over network partners.

Auditor and Related Reports

• Auditor: Deloitte
• Related Reports:
  • ZTO Express (2057 HK, BUY) - Volume growth to remain the top priority - 20 Nov 2020
  • China Express Delivery Sector - Bloody battle to end soon; War for market share to continue; BUY winners in the respective playing fields - 14 Oct 2020

Investment Recommendation

• CMBIS Rating: BUY
• Target Price: HK$278 (previous: HK$292)
• Price Target Upside/Downside: +18% (from current price of HK$236.0)

Financial Summary

• Operating Cash Flow:

  • FY18A: RMB4,003 million
  • FY19A: RMB5,719 million
  • FY20A: RMB4,508 million
  • FY21E: RMB7,292 million
  • FY22E: RMB10,090 million

• Net Capex on PP&E:

  • FY18A: RMB3,324 million
  • FY19A: RMB4,636 million
  • FY20A: RMB7,853 million
  • FY21E: RMB10,000 million
  • FY22E: RMB10,000 million

• Balance Sheet:

  • Shareholders' Equity: RMB53,000 million (FY21E), RMB58,460 million (FY22E)
  • Current Ratio: 1.8 (FY21E), 1.6 (FY22E)

Analyst Certification

The analyst certifies that:

1. The views expressed accurately reflect his or her personal views about the subject securities or issuer.
2. No part of his or her compensation was, is, or will be related to the specific views expressed in this report.

Disclosure

• CMBIS or its affiliates have investment banking relationships with the issuers covered in this report within the preceding 12 months.

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.

Industry Outlook

• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Summary

ZTO Express is a key player in China's express delivery sector, aiming for market share expansion over profitability. Despite a revised earnings forecast, the company remains a BUY with a target price of HK$278, reflecting a 18% upside. ZTO's volume growth remains strong, with a 47% YoY increase in 4Q20, outpacing industry growth. The company has implemented cost reduction measures and network investments, which are expected to benefit from market consolidation. Expansion into time-definite, LTL, and cold chain segments is a key growth driver. The analyst certification and disclosure emphasize the independence of the report, while the CMBIS ratings provide investment guidance.