20220527-招银国际-中通快递-SW-02057.HK-Lower_parcel_volume_guidance_but_largely_expected__ASP_story_well_intact_8页_1mb

ZTO Express (2057 HK) Company Update Summary

Core Content

ZTO Express reported strong financial performance in 1Q22, with a 70% YoY increase in reported net profit to RMB906mn, and an adjusted net profit growth of 35% YoY to RMB1bn. This performance was driven by a 22% YoY revenue growth, a 3.5ppt YoY gross margin expansion to 20.5%, and stable SG&A expenses. Despite this, the company revised its full year parcel volume growth guidance downward to 12–16% from 18–24%, primarily due to ongoing impact of COVID-related lockdowns.

ZTO's parcel volume grew 17% YoY to 5.2bn units, with a market share increase of 1.5ppt to 21.6%, indicating successful competition against BEST, which is part of J&T Express. The ASP (Average Selling Price) increased by 8% YoY to RMB1.45/unit, reflecting a focus on profitability by major players in the industry. The company also noted a 3.6% YoY increase in unit cost, with transportation costs remaining stable due to efficiency gains and sorting hub costs rising due to higher salaries and depreciation.

Main Points

• 1Q22 Performance:

  • Adjusted net profit grew 35% YoY to RMB1bn.
  • Revenue increased 22% YoY to RMB7,904mn.
  • Gross margin expanded 3.5ppt YoY to 20.5%.
  • Unit cost increased 3.6% YoY to RMB1.00/unit.
  • ASP increased 8% YoY to RMB1.45/unit.
  • Market share rose 1.5ppt to 21.6%.

• Earnings and Forecast:

  • The company trimmed its target price from HK$317 to HK$292, based on unchanged target multiple of 35x, with +52% upside from the current price of HK$192.1.
  • Earnings for FY22E were revised down by 7–8% due to conservative assumptions on parcel volume and sorting center costs.
  • Revenue is forecasted to grow 19% in FY22E, 17% in FY23E, and 14% in FY24E.
  • Net profit is expected to increase from RMB5,718mn in FY22E to RMB8,618mn in FY24E.

• Financial Trends:

  • EBITDA is projected to grow significantly, from RMB10,043mn in FY22E to RMB14,882mn in FY24E.
  • Gross margin is expected to rise from 24% in FY22E to 26.8% in FY24E.
  • Net profit margin is forecasted to increase from 15.5% in FY22E to 17.9% in FY24E.
  • Operating cash flow is expected to grow from RMB7,998mn in FY22E to RMB12,188mn in FY24E.

• Valuation and Ratios:

  • EV/EBITDA is projected to decline from 11.5x in FY22E to 7.7x in FY24E.
  • P/E is forecasted to drop from 24.0x in FY22E to 16.2x in FY24E.
  • P/B is expected to decrease from 2.6x in FY22E to 2.1x in FY24E.
  • ROE is projected to rise from 11.3% in FY22E to 13.9% in FY24E.
  • Current ratio is expected to remain stable, with a midpoint of 1.4–1.6x across the forecast period.

Key Information

• Market Share Gain: ZTO gained market share from BEST, contributing to its improved performance.
• Cost Management: Efficiency improvements helped offset rising fuel costs, keeping transportation costs stable.
• ASP Trends: The company continues to benefit from a favorable industry landscape, which supports higher ASP.
• Risks: Ongoing lockdowns, slowdown in online retail sales, and rising diesel prices remain key risks.
• Auditor: Deloitte.
• Shareholding Structure:
  • Meisong Lai: 25.6% (with 76.8% of voting rights).
  • Alibaba: 8.6%.
  • Others: 65.8%.
• Stock Performance:
  • 1-month return: +10.9% (vs. +9.2% relative to the market).
  • 3-month return: -16.1% (vs. -5.3% relative to the market).
  • 6-month return: -21.2% (vs. -3.4% relative to the market).
• Key Financial Metrics (FY20A–FY24E):
  • Revenue grows from RMB25,214mn to RMB47,774mn.
  • Net profit increases from RMB4,312mn to RMB8,618mn.
  • EPS is projected to rise from RMB5.43 to RMB10.32.
  • Pretax profit is forecasted to grow from RMB5,016mn to RMB10,719mn.

Conclusion

Despite the downward revision in parcel volume growth due to external factors, ZTO Express maintains a BUY rating, supported by its strong financial performance, continued market share gain, and improved profitability. The company's favourable industry conditions and cost management strategies are expected to drive ASP growth and profitability improvements in the coming years. The trimmed target price reflects a more conservative outlook but still indicates positive potential for the stock.