CMSC has issued a research report stating that it estimates ZTO Express-W (02057) will record net profit attributable to shareholders of RMB 10.65 billion, RMB 12.05 billion, and RMB 13.25 billion for 2026, 2027, and 2028 respectively, and maintains its "Strong Buy" rating on the stock. The investment bank believes that industry competition is trending toward rationality, and combined with ZTO's scale advantages, improved transportation and sorting efficiency, and an improved business mix, profitability is expected to grow steadily, while share buybacks and cash dividends are expected to continue strengthening shareholder returns.
Key takeaways from CMSC
The company released its second-quarter results, with net profit (including minority interests) of RMB 3.08 billion in Q2, up 56.7% year on year; adjusted net profit was RMB 3.09 billion, up 50.3% year on year.
Steady parcel volume growth with market share up year on year
Second-quarter express parcel volume reached 10.5 billion pieces (10.486 billion pieces), up 6.5% year on year, 2.3 percentage points faster than the industry growth rate of about 4.2%; market share was 19.9%, up about 0.4 percentage points year on year and down about 0.3 percentage points quarter on quarter. The company adjusted its full-year parcel volume growth guidance to 6%-10%, corresponding to 40.8 billion to 42.4 billion pieces.
Benefiting from business mix improvement and anti-involution, unit price rose sharply year on year
Core revenue per parcel was RMB 1.37, up slightly by about RMB 0.01 quarter on quarter and up 15.5% year on year; express service revenue per parcel was RMB 1.30, up 17.0% year on year and up slightly by about RMB 0.01 quarter on quarter. The price increase was mainly driven by a higher mix of high-value key account parcels and reverse logistics, with direct customer business revenue generated by direct sales agencies up 63.6% year on year.
Transportation and sorting costs per parcel continued to decline
Core cost per parcel was about RMB 1.01, down slightly by about RMB 0.01 quarter on quarter, of which trunk line transportation cost was RMB 0.32, down about RMB 0.04 quarter on quarter and down about RMB 0.01 year on year; sorting cost was RMB 0.24, down slightly by about RMB 0.01 quarter on quarter and down about 2.6% year on year; core operating cost combining trunk line transportation and sorting was RMB 0.56, down about RMB 0.06 quarter on quarter and down about RMB 0.02 year on year.
Gross profit per parcel rose sharply year on year, with gross margin improving year on year
Overall gross profit per parcel in Q2 was about RMB 0.36, up about RMB 0.02 quarter on quarter and up about RMB 0.06 year on year; overall gross profit was RMB 3.73 billion, up RMB 790 million or 26.8% year on year, with a gross margin of 25.7%, up 0.8 percentage points year on year and up 1.3 percentage points quarter on quarter.
Expenses fell year on year, with the expense ratio improving significantly
Second-quarter selling, administrative, and general expenses were RMB 560 million, down 10.7% year on year, mainly because a RMB 40 million credit loss provision was recognized in the same period last year, with an expense ratio of 3.8%, compared with 5.3% in the same period last year and 6.1% in the previous quarter. Net other operating income was RMB 51 million, compared with RMB 154 million in the same period last year.
Q2 results surged on improved pricing, lower expenses, and an income tax refund
Second-quarter net profit attributable to shareholders was RMB 3.05 billion, up 57.4% year on year; adjusted net profit was RMB 3.09 billion, up 50.3% year on year; adjusted net profit per parcel was about RMB 0.29, up about 41% year on year. The profit elasticity mainly came from improved pricing, a lower expense ratio, and an income tax refund, with the overall income tax rate at 7.7% this quarter, mainly due to a RMB 344 million income tax refund. Excluding this refund, adjusted net profit was about RMB 2.74 billion, up about 33.6% year on year, or about RMB 0.26 per parcel, up about 25% year on year.
Risk factors
A decline in industry demand growth, intensified industry competition, a sharp rise in fuel prices, changes in industry regulatory policy, and workplace safety incidents.
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