ZTO Express (ZTO) EBIT grew 17% YoY to RMB2.8bn, which is in line with our expectation. Reported net profit in 3Q24 grew only 1% YoY to RMB2.46bn, but this was largely due to one-off tax refunds in 3Q23. Unit gross margin expanded 6.5% YoY to RMB0.38/parcel in 3Q24 amid industry price competition. ZTO revised down the full-year parcel volume growth guidance to 11.6-12.3% (from 15-18% in Aug), which implies 7.5-10% growth in 4Q24E. That said, we think the lower target is aligned with ZTO's strategic focus of profitable growth. We trim our 2024E-26E earnings forecast by 5-9%, due to lower volume and unit gross margin. Accordingly, our TP for ZTO US/2057 HK is revised down to US$34.5/HK$271, based on 22x 2024E P/E (previously 23x), equivalent to the historical average. We continue to like ZTO's strong free cash flow capability.
Maintain BUY.
Key highlights in 3Q24 results:
EBIT grew 17% YoY to RMB2.8bn, driven by an 18% YoY increase in revenue and 1.4ppt gross margin expansion, partially offset by a 25% increase in SG&A and reduction of other income. Pretax net income increased only 12% YoY to RMB2.9bn, due to FX loss.
Parcel volume +16% YoY to 8.72bn units. Market share in 3Q24 was20%, down 2.4ppt YoY but slightly up 0.4ppt QoQ, as ZTO focused on profitable parcel volume growth instead of volume.
ZTO's parcel delivery ASP increased YoY while major players saw ASPreduction. ASP in 3Q24 increased RMB0.03/parcel (or 1.8%) YoY to RMB1.20/unit (breakdown: reverse parcels +RMB0.07, parcel weight - RMB0.02, volume incentives -RMB0.02). This is much better than other key players such as Yunda (-10%), YTO (-6%) and STO (-5%).
Unit cost was stable (YoY) at RMB0.82/parcel. Unit cost of transportationdecreased RMB0.04 (or -10% YoY) to RMB0.39/unit, helped by economies of scale and improved load rate. Unit cost of sorting hubs dropped 6% YoY to RMB0.25/unit, helped by the standardization in operating procedures and an increase in automation level. Other unit cost increased RMB0.05/unit (or 56%) to RMB0.15/unit, due to a low base.
Major risk factors: (1) a prolonged price war; (2) further slowdown of overall consumption.
