ZTO Express: A Mix Of Positives And Negatives

seekingalpha11-06

I am anticipating mixed results for ZTO in Q3 2024; my view is that ZTO would have registered faster revenue growth and margin contraction for the recent quarter.ZTO Express' long-term prospects are ...

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my view is that ZTO would have registered faster revenue growth and margin contraction for the recent quarter.ZTO Express' long-term prospects are ...</p>\n\n<a href=\"https://seekingalpha.com/article/4733676-zto-express-a-mix-of-positives-and-negatives\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4535","symbol_name":"淡马锡持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4733676-zto-express-a-mix-of-positives-and-negatives","article_id":"2481933051","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1365749410/image_1365749410.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481933051","pubTimestamp":1730905531,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I am anticipating mixed results for ZTO in Q3 2024; my view is that ZTO would have registered faster revenue growth and margin contraction for the recent quarter.ZTO Express' long-term prospects are a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4535":"淡马锡持仓","BK4502":"阿里概念","LU0348825331.USD":"ALLIANZ CHINA EQUITY \"A\" (USD) INC","ZTO":"中通快递","IE00B5MMRT66.SGD":"NEUBERGER BERMAN CHINA EQUITY \"A\" (SGDHDG) ACC","LU0417516902.SGD":"Allianz China Equity Cl AT Acc SGD","BK4505":"高瓴资本持仓","BK4585":"ETF&股票定投概念","BK4503":"景林资产持仓","IE00B543WZ88.USD":"NEUBERGER BERMAN CHINA EQUITY \"A\" (USD) ACC","BK4526":"热门中概股","BK4588":"碎股","BK4131":"航空货运与物流","BK4558":"双十一"},"translate_title":"中通快递：利弊参半","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ZTO":0.9},"content_text":"I am anticipating mixed results for ZTO in Q3 2024; my view is that ZTO would have registered faster revenue growth and margin contraction for the recent quarter.ZTO Express' long-term prospects are also mixed, as the Chinese express delivery sector is still expected to grow in the future, albeit at a more modest pace.I retain a Hold rating for ZTO stock, as there is a mix of positives and negatives associated with the stock.   AsiaVision I continue to rate ZTO Express (Cayman) Inc. (NYSE:ZTO) [2057:HK] stock as a Hold. I think that ZTO's third quarter performance will be mixed, with the company reporting top line growth acceleration and weaker profitability. Looking beyond the near term, the Chinese express delivery market should continue to expand, but the industry's future growth is likely to be slower than what it was previously. I still have a Neutral view of ZTO, considering the company's short-term and long-term prospects. The preview of ZTO's financial performance for the final quarter of 2023 was the subject of my earlier February 19, 2024 write-up. Anticipating Faster Revenue Expansion And Operating Margin Compression For Q3 2024 ZTO's financial results for the third quarter of 2024 will be disclosed in two weeks' time on November 19. I expect ZTO Express to deliver faster top line growth in Q3 2024, but this could be potentially offset by weaker operating profitability. ZTO's third quarter bottom line growth comparison is also expected to be affected by non-recurring factors. ZTO Express' revenue growth in local currency or RMB terms is projected to accelerate from +10.1% YoY for Q2 2024 to +15.0% YoY in Q3 2024 based on S&P Capital IQ data. A potential acceleration in ZTO's top line growth from around +10% YoY in the second quarter to the mid-teens percentage level for the third quarter seems pretty reasonable. Mainland China's express delivery market as a whole witnessed a +20% YoY volume increase for Q3 2024, as indicated in an October 24 news article (translated using Google) published on Chinese media platform Sina. Separately, ZTO Express stuck to its existing +15%-18% volume expansion outlook for FY 2024 as per its Q2 earnings call commentary. As a comparison, ZTO's actual 1H 2024 volume growth was approximately +12% YoY, which implies that the company will likely prioritize volume over pricing to meet its full-year volume target. On the flip side, the analysts see ZTO's EBITDA margin contracting by -5.7 percentage points QoQ and -3.1 percentage points YoY to 34.8% as per data sourced from S&P Capital IQ. It is fairly realistic to think that ZTO Express will report a lower operating profit margin in the third quarter of the current year. According to a Caixin Global news report (translated using Google) published on October 30, 2024, the Average Selling Price or ASP for the Chinese express delivery sector declined by -11% YoY to RMB 7.97 for Q3 2024. Apart from competitive pressures leading to a decrease in industry ASP, ZTO will likely be compelled to lower the pricing for its express delivery services to achieve the company's volume growth guidance for FY 2024. The sell side is forecasting that ZTO Express' EBITDA and EPS in RMB terms will rise by +5.7% YoY and +0.4% YoY, respectively in Q3 2024 according to S&P Capital IQ data. In comparison, the company's actual EBITDA and EPS grew by +11.7% YoY and +10.1% YoY, respectively for the second quarter of the current year. There is a non-recurring item for Q3 2023 which will lead to an unfavorable bottom line growth comparison for ZTO in Q3 2024. In its Q3 2023 earnings release, ZTO Express indicated that it received \"an income tax refund of RMB 207.1 million\" for one of its subsidiaries which \"qualified for a preferential tax rate of 10%.\" This one-off tax benefit is unlikely to be repeated in the third quarter of this year. To sum things up, I think that ZTO will announce a mixed set of results for Q3 2024 with my expectations of a faster pace of top line growth and a deterioration in profitability. China Express Delivery Market Is Expected To Continue Growing, Albeit At A Slower Pace ZTO Express is the biggest player in the Mainland China express delivery industry, boasting a market share of close to 23% at the end of last year as disclosed in its investor presentation slides. Therefore, ZTO's top line outlook will be significantly correlated with the growth prospects for the express delivery market in its home market, China. On the bright side, there is third-party market research supporting the thesis that the express delivery sector in China will continue to grow. Market research firm Frost & Sullivan has forecasted that China's express delivery volume will expand by a +10.7% CAGR from 125.1 billion last year to 188.0 billion for 2027. The key assumption behind Frost & Sullivan's express delivery volume forecast is an increase in China's e-commerce penetration rate from 29.1% for 2023 to 35.7% in 2027. As a comparison, Boston Consulting Group is projecting that the worldwide e-commerce penetration rate will rise to 41% by 2027, so Frost & Sullivan's estimates for the Chinese market seems realistic. In Frost & Sullivan's research, \"social e-commerce including short video and live streaming\", is identified as a faster-growing sub-segment of China's e-commerce market. Specifically, Frost & Sullivan estimates that the social e-commerce penetration rate in the Chinese market could be as high as 56.1% in 2027, or much higher than the country's overall e-commerce penetration of 35.7% mentioned earlier. On the flip side, the Chinese express delivery market is unlikely to grow as fast as it did in the past. Although an expected +10.7% 2023-2027 CAGR for China's express delivery market is decent, it is worth highlighting that the country's express delivery volume grew twice as fast with a +21.5% CAGR for the 2018-2022 time frame. The slower growth for the Chinese express delivery market is also reflected in ZTO Express' top line numbers. ZTO's actual FY 2018-2022 top line CAGR was +19%, but the sell-side analysts are now anticipating a +8% revenue CAGR for the company in the FY 2023-2027 time period as per S&P Capital IQ data. In ZTO's investor presentation slides, the company highlighted that the combined market share of the six biggest Chinese express delivery companies increased from 71.4% in 2011 to 87.1% for 2023. While industry consolidation is good for incumbents like ZTO, this serves as an indication that the Chinese express delivery market has become more mature which implies slower growth ahead. The market is currently valuing ZTO Express at a consensus next twelve months' normalized P/E multiple of 13 times based on valuation data taken from S&P Capital IQ. ZTO's historical five-year average P/E ratio was comparatively higher at 22 times. It will be fair to think that ZTO Express' P/E multiple has compressed in recent years to reflect the more modest growth prospects for the industry and the company. Conclusion  I maintain my existing Hold rating for ZTO. After previewing ZTO Express' Q3 2024 results and looking at the long-term growth outlook for China's express delivery market, my Neutral view of the stock is unchanged.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481933051"}