20210319-招银国际-Market_share_gain___profitability_7页_1mb

ZTO Express (ZTO US) Equity Research Summary

Core Content

ZTO Express is a leading player in the China express delivery sector, with a focus on expanding its market share through volume growth rather than immediate profitability. The company has shown strong parcel volume growth and is actively pursuing cost reductions and network expansion to strengthen its competitive position.

Key Highlights

• Market Share: ZTO aims to increase its market share to 22% in 2021E and 25% in 2022E, compared to 20.4% in 2020.
• Volume Growth: In 4Q20, ZTO achieved a 47% YoY parcel volume growth, outperforming the industry average of 30%.
• Revenue Growth: ZTO's revenue increased by 21% YoY to RMB8.3bn in 4Q20.
• Profitability: Net profit for 4Q20 dropped 45% YoY to RMB1.29bn, but excluding a one-off gain, the decline was 21%. Full-year net profit for 2020 was RMB4.3bn, down 24% on reported basis and 13% on recurring basis.
• Cost Reduction: ZTO reduced its unit transportation cost by 16% YoY and sorting hub cost by 12% YoY in 4Q20, driven by higher use of self-owned and high-capacity trucks, and more automated sorting equipment.
• ASP (Average Selling Price): ZTO's ASP dropped 20% YoY to RMB1.41/unit, but less than its peers, with a 6% QoQ increase.
• Earnings Forecast: Earnings for 2021E and 2022E were revised down by 14% and 9%, respectively, due to lower ASP assumptions. The target price was revised to HK$279, based on a 36x 2021E P/E.
• Financial Metrics:
  • EBITDA for 2021E is forecasted at RMB8,628mn, and for 2022E at RMB11,659mn.
  • Net profit for 2021E is forecasted at RMB5,375mn, and for 2022E at RMB7,127mn.
  • EPS for 2021E is RMB6.44, and for 2022E is RMB8.54.
  • P/E ratio for 2021E is 30.5x, and for 2022E is 23.0x.
  • P/B ratio for 2021E is 3.1x, and for 2022E is 2.8x.
• Shareholding: Meisong Lai holds 25.6% of shares, Alibaba holds 8.6%, and others hold 65.8%. Under the weighted voting rights structure, Meisong Lai has 76.8% of the total voting rights.
• Stock Performance: Over the past 12 months, the stock has underperformed, with a -3.8% absolute return and -18.5% relative to the market.
• Ratings: CMBIS maintains a BUY rating with a target price of US$36 (a +22% increase from the previous target price of US$37.7).
• Key Risks: Prolonged price wars, slowdown in online retail sales, and lack of effective control over network partners.

Key Growth Drivers

• Expansion into new segments: ZTO is expanding into time-definite, less than load (LTL), and cold chain businesses, which are expected to drive future growth.
• Network and capacity investment: Continuous investment in network and capacity is expected to help ZTO benefit from market consolidation.
• Cost efficiency: On-track cost reduction measures and increased use of self-owned and high-capacity trucks are expected to improve unit cost efficiency.

Financial Summary

• Revenue: Expected to grow from RMB33,036mn in 2021E to RMB41,715mn in 2022E.
• Gross Margin: Expected to be 22.5% in 2021E and 23.4% in 2022E.
• Net Profit: Expected to increase from RMB5,375mn in 2021E to RMB7,127mn in 2022E.
• EBITDA: Expected to grow from RMB8,628mn in 2021E to RMB11,659mn in 2022E.
• Cash Flow: Operating cash flow is expected to increase from RMB7,292mn in 2021E to RMB10,090mn in 2022E.

Key Ratios

• Gross Margin: 22.0% in 2021E, 23.4% in 2022E.
• EBITDA Margin: 26.1% in 2021E, 27.9% in 2022E.
• EBIT Margin: 17.8% in 2021E, 19.4% in 2022E.
• Net Profit Margin: 16.3% in 2021E, 17.1% in 2022E.
• ROE: Expected to be 12.8% in 2022E, showing improved profitability.

Analyst Certification

• The analyst certifies that all views reflect personal opinions and that compensation is not tied to the report's content.
• No trading activity occurred in the past 30 days, and no trading is planned for the next 3 business days.
• No financial interest in the covered companies.

Disclosure

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

Conclusion

ZTO Express is expected to continue its focus on volume growth and market share expansion, which will likely drive long-term profitability. While profitability has declined in recent quarters, the company's cost reduction measures, network expansion, and diversification into new segments are viewed as positive factors for future growth. The BUY rating reflects confidence in the company's potential for strong returns over the next 12 months.