I continue to assign my investment rating to Hold ZTO Express (Cayman) Inc. (New York Stock Exchange: ZTO) [2057:HK] stock.
In my previous update to ZTO Express written on February 9, 2023, I mentioned that ZTO’s stock has outperformed since the beginning of the year. I thought part of this year was unsustainable. It is worth noting that ZTO Express share price fell -2.3% (source: looking for alpha Pricing data for the 4 months since my previous article was published).
This latest article analyzes recent industry data and the company’s latest guidance. I have concluded that ZTO Express has a mixed outlook and a Hold rating on the stock is warranted.
Recent industry data shows a mixed picture
JP Morgan (JPM) recently released a research report (not public) titled “China Express Parcels: April Data” on May 22, 2023. express delivery industry from sources such as state post office and Wind (Chinese equivalent bloomberg).according to JPM’s According to a recent May 22 report, China’s parcel industry witnessed both volume growth and ASP (Average Selling Price) compression in April.
In April 2023, China averaged 340 million express parcels per day. This means that his daily express parcel growth in the Chinese market has accelerated from +23% year-on-year in March to +37% year-on-year in April. On a month-over-month or month-over-month basis, his average express parcels per day in China increased by +0.6% from his 338 million in March 2023. In my February article on ZTO, I highlighted that the “tailwinds are starting again” for his ZTO Express and China. China express industry. So it’s no surprise that China’s express delivery market has grown both month-over-month and year-over-year over the past month.
Conversely, the fact that China’s express delivery industry is recovering (quantitatively) means that the recurrence of price competition is inevitable, and industry players are paying attention to the expansion of the volume share. there is As shown in, China’s express delivery market’s ASP per parcel shrank to his 9.06 RMB in April 2023, down -8.5% year-on-year. JP Morgan’s This is the report of may 22th. In contrast, ASP in the express delivery market in March of this year was down 3.2% year-on-year. The parcel industry ASP also fell -2.4% month-on-month in his April.
In a nutshell, the outlook for China’s express delivery market is mixed, with a drop in ASP to offset some of the volume growth.
Financial guidance and management commentary also send mixed signals
ZTO Express’s updated full-year 2023 guidance and management’s comments during its first quarter 2023 earnings call are consistent with recent industry data discussed in the previous section.
When ZTO recently released its first quarter financial results in mid-May, it raised the midpoint of its freight volume growth guidance from +20% to +22%. “The Chinese economy is showing signs of a gradual recovery, and we expect consumer confidence to continue to improve,” the company said in its first-quarter earnings call. As such, favorable ‘market conditions’ have given ZTO Express the confidence to raise its parcel volume growth guidance.
But the sell-side analysts’ consensus financial projections aren’t exactly in line with ZTO’s bullish volume growth projections.
Based on market consensus estimates for ZTO Express. Here is the source: S&P Capital IQ, ZTO’s consensus top-line forecast for 2023 increased only +1% from RMB 41.327 billion earlier this year to RMB 41.811 billion now. Moreover, analysts’ consensus earnings forecast of RMB 41.811 billion translates to +18.2% growth this year, which is the company’s 2023 sales volume growth guidance of +22. significantly lower than %.
In my view, ZTO Express’ FY23 full-year actual ASP may be lower compared to FY22, which explains why ZTO’s sell-side consensus revenue growth is slower than its volume growth guidance. will help you.
There are three factors worth considering when evaluating ZTO’s 2023 ASP outlook.
First, recent industry data outlined in the previous section suggests that there is currently a price war going on in China’s express delivery industry.
Second, ZTO Express has offered customers higher levels of volume rebates in the most recent quarter. ZTO’s express delivery business ASP contracted -3.7% year-on-year in the first quarter of 2023, with the company stressing that “increase in volume incentives” in the first quarter was the main factor.
Third, the company’s share of the China express delivery market in Q1 2023 increased by +1.8 percentage points year-on-year. This is in line with the company’s target of at least +1.5 percentage points market share for the full year. It will be a difficult balance for ZTO Express to gain market share while maintaining ASP. ZTO will probably have to sacrifice ASP in exchange for gains in market share. ZTO Express said in its Q1 2023 earnings report that “unit prices will remain relatively stable throughout the year,” suggesting flat ASP in 2023 could already be a favorable outcome. .
In summary, ZTO has positive signals related to volume growth and market share gains, but price pressure is an important negative signal that cannot be ignored.
I maintain a hold rating for ZTO Express. Recent updates to industry data and the company’s volume guidance do not change my neutral view of ZTO.