ZTO EXPRESS(ZTO.US)：3Q22 RESULTS SLIGHTLY BEAT;MARKET SHARE AND ASP CONTINUE TO IMPROVE

　　3Q22 results slightly beat our expectations
　　ZTO Express （ZTO） announced 3Q22 results: Revenue grew 21% YoY or 3% QoQ to Rmb8.94bn, attributable net profit rose 70% YoY or 10% QoQ to Rmb1.99bn, and non-GAAP net profit increased 63% YoY or 6% QoQ to Rmb1.87bn. The firm’s results beat our expectations, due to higher-than-expected revenue per parcel.
　　In 3Q22, parcel volume grew 12% YoY （vs. industry average growth of 5% YoY）。 Market share expanded by 1.3ppt YoY to 22.1%, thanks to enhanced comprehensive capabilities in the end market. Revenue per parcel rose 10% or Rmb0.12 YoY （up Rmb0.02 QoQ）， benefiting from the continued improvement in competitive landscape and client structure since 3Q21. Cost per parcel rose 1% or Rmb0.01 YoY due to reduced economies of scale amid the COVID-19 resurgence, but declined 1% or Rmb0.01 QoQ thanks to lower transportation cost driven by the improved loading rate and route optimization. Non-GAAP net profit per parcel in 3Q22 was Rmb0.29, up 46% or Rmb0.09 YoY, and up 4% or Rmb0.01 QoQ. Despite the pressure on the sector’s parcel volume growth from the COVID-19 resurgence, the firm’s profit has been increasing steadily YTD, thanks to its high-quality services and upgrades in lean management.
　　Trends to watch
　　Optimizing policies on outlets to consolidate industry leading position. The firm continued to optimize the network policies on direct network partners and adjust the client structure to increase revenue per parcel at its service outlets. Meanwhile, the firm is committed to improving the visibility of the operating data at its outlets, and refining the management of business volume, costs and profits through digitalized and intelligent platform, so as to enhance its operational efficiency. We believe that the firm will continue to consolidate its leading position through improving the network policies and we see growth potential in its market share. We think the resurgence of COVID-19 in 4Q22 may weigh on the firm’s parcel volume in the near term. The firm has lowered its full-year guidance for parcel volume, but has maintained the guidance for market share gains of at least 1ppt in 2022. The firm expects 4Q22 parcel volume to grow 3-9% YoY, and the profit per parcel to remain solid. We expect the firm to gain larger market shares rapidly in 2023 supported by its comprehensive network, as the impact of COVID-19 may gradually ease and the parcel volume may recover driven by the release of demand.
　　Plan on dual primary listing in Hong Kong SAR likely to expand investor base and improve valuation. On November 17, 2022, the firm announced its plan to pursue the voluntary conversion to dual-primary listing on the Main Board of the Hong Kong Stock Exchange. We believe that the firm’s possible inclusion in southbound trading may attract the attention of investors on the Chinese mainland. We think this could enhance the liquidity of the stock and improve the valuation. In addition, the firm upsized its share repurchase program, which we believe demonstrates its confidence. The firm announced an increase to the aggregate value of shares that may be repurchased from US$1bn to US$1.5bn, and extend the effective time by one year through June 30, 2024. We believe this shows management's confidence in business development and continued improvement in profitability.
　　Financials and valuation
　　Considering the stabilizing revenue per parcel in the sector, the firm’s upgraded services and better-than-expected cost control, we raise our 2022 and 2023 net profit forecasts 11% and 3% to Rmb6.75bn and Rmb8.03bn. The stock is trading at 17.3x and 14.5x 2022e and 2023e P/E. We maintain OUTPERFORM and TP of US$34.20, implying 27x 2022e P/E and 23x 2023e P/E with 58.9% upside.
　　Risks
　　Parcel volume growth misses expectations; cost pressure from fuel price rises.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。