YTO EXPRESS(600233)：PER-PARCEL NET PROFIT CONTINUES TO RISE AMID SWEEPING DIGITAL EMPOWERMENT

Core views:

In 3Q22, YTO achieved per-parcel attributable net profit (ANP)/recurring ANP of Rmb0.22/0.21 (both up by Rmb0.01 QoQ), exceeding our and market expectations. During the same period, its parcel volume rose to 4.59bn units, a rise of 8.5% YoY, up 6ppts from 2Q22 and 3.4ppts higher than the industry average. We estimate YTO's market share by express parcel volume increased by 0.5ppts YoY to 16.0% in 3Q22, and its gap with ZTO in market share narrowed by 0.9ppts from that in 2Q22. We estimate that YTO's per-parcel transportation and distribution center operating costs stood at Rmb0.48 and Rmb0.29 in 3Q22, both flat YoY, and YTO may do even better on the cost side next year. We believe the peak season in 4Q and toll exemption & reduction mean strong visibility of high per-parcel net profit in 4Q22. The investment rationale for YTO has changed from "gaps in expectations" to "growth visibility". In 2H22, YTO will continue to deepen its comprehensive digital transformation and promote the application of digital systems in franchisee financing and customer services. YTO's Outlet Manager and Customer Manager apps will help refine management granularity and accelerate terminal empowerment.

Abstract:

YTO posted stellar per-parcel net profit (Rmb0.22) in 3Q, with ~Rmb60mn in net profit from its air freight & freight forwarding businesses.
In addition, YTO will continue to promote comprehensive digital transformation and accelerate terminal empowerment, leading to a shift in the investment rationale from "gaps in expectations" to "growth visibility". In 1-3Q22, YTO's operating revenue increased by 27.1% YoY to Rmb38.83bn; its ANP/recurring ANP grew by 190.5%/201.2% YoY to Rmb2.77bn/2.67bn; its net operating cash flow increased by 203.6% YoY to Rmb4.98bn. In 3Q22 alone, the Company's operating revenue increased by 24.6% YoY to Rmb13.76bn; its gross profit margin (GPM) grew by 4.2ppts YoY to 10.7%; its gross profit increased by 104.9% YoY; its financial expense ratio decreased by 0.3ppts YoY to 2.4%; its ANP/recurring ANP grew by 223.4%/229.0% YoY to Rmb998mn/0.96bn, equivalent to per-parcel ANP/recurring ANP of Rmb0.22/0.21 (both up by Rmb0.01 QoQ), exceeding expectations. The investment rationale for YTO has changed from "gaps in expectations" to "growth visibility". In 2H22, YTO will continue to deepen its comprehensive digital transformation and promote the application of digital systems in franchisee financing and customer services. The Company’s Outlet Manager and Customer Manager apps will help refine management granularity and accelerate terminal empowerment.

YTO recorded stronger parcel volume growth and market share expansion in 3Q22.
Specifically, YTO's parcel volume climbed to 4.59bn units in 3Q22, increasing by 8.5% YoY, up 6ppts from 2Q22 and 3.4ppts higher than the industry average; we estimate that YTO's market share increased by 0.5ppts YoY to 16.0% in 3Q22, and its gap with ZTO in market share narrowed by 0.9ppts from that in 2Q22. In 1-3Q22, YTO’s parcel volume increased by 8.9% YoY to 12.68bn units, leaving the growth at +8.5% YoY in 3Q22 alone. In Aug 2022, the Company's parcel volume growth rate was still 6ppts higher than that in 2Q22 despite the resurgence of Covid-19 in Yiwu, highlighting its resilience. State Post Bureau's "Report on the Development Index of China's Express Delivery Industry" estimates that the industry's parcel volume increased by 2.6% YoY to 9.7bn in Sep 2022. Based on this, we calculate that the industry's parcel volume growth rate reached 5.1% in 3Q22, with YTO beating the industry average by 3.4ppts. We expect the parcel volume to resume normal growth in the coming peak season. We estimate that YTO’s market share by express parcel volume increased by 0.5ppts YoY to 16.0% in 3Q22, and its gap with ZTO in market share narrowed by 0.9ppts from that in 2Q22.

Net operating cash flow surged by 203.6% in 1-3Q22; peak season prices may rise QoQ; a slowdown in capex and deepening digital empowerment may bring continuous profit growth.
Benefiting from the further refinement of management granularity and the improvement of service quality brought by digital empowerment, YTO’s per-parcel revenue increased by 18.1% YoY to Rmb2.53 in 3Q22. In 1-3Q22, the Company's net operating cash flow surged by 203.6% YoY to Rmb4.98bn, equivalent to per-parcel net operating cash flow of Rmb0.39, up by 179% YoY. In 1-3Q22, YTO's capex totaled Rmb3.61bn (-14.9% YoY), leaving its 3Q22 capex at Rmb1.29bn (-29.1% YoY), showing an obvious trend of slowing down. After nearly two years of large capex, the Company has consistently promoted the ownership of the vehicle fleet, automation equipment and distribution centers. We estimate that its capex may fall below Rmb5bn in 2022 and decline further in 2023. Going forward, YTO will further optimize its network structure and adopt such digital means as Outlet Manager, Customer Manager and Management Cockpit apps to refine the operating granularity of headquarters, network outlets and individuals, all of which may continuously improve the Company’s comprehensive competitiveness.

We estimate that YTO’s per-parcel transportation and distribution center operating costs stood at Rmb0.48 and Rmb0.29 in 3Q22, both flat YoY, and YTO may do even better on the cost side next year.
We believe the peak season in 4Q and toll exemption and reduction mean strong visibility of high per-parcel net profit in 4Q22. Our estimates show that YTO's per-parcel transportation cost was flat YoY at Rmb0.48 in 3Q22, down by Rmb0.03 QoQ. During the same period, the Company's per-parcel distribution center operating cost was flat YoY at Rmb0.29, down by Rmb0.01-0.02 QoQ. As the 4Q peak season approaches, YTO's refined management may further improve its loading rate and labor efficiency, which, coupled with the 10% toll relief, may keep YTO's per-parcel net profit at a high level (we estimate that this toll relief policy may increase the Company's per-parcel net profit by about 5%). We believe that YTO may continue to deepen its comprehensive digital transformation and promote the application of digital systems in franchisee financing and customer services in 4Q22. The continuous empowerment of franchisees and the promotion of digitalization across the network and refined management may further boost the Company's high-quality development.

Potential risks: A decline in macroeconomic growth; the resurgence of Covid-19 in some localities; intensified competition; rising oil prices and labor costs.

Investment recommendation: YTO's ANP/recurring ANP grew by 223.4%/229.0% YoY to Rmb998mn/0.96bn, equivalent to per-parcel ANP/recurring ANP of Rmb0.22/0.21 (both up by Rmb0.01 QoQ), exceeding our and market expectations. During the same period, YTO's parcel volume rose to 4.59bn units, an increase of 8.5% YoY, up 6ppts from 2Q22 and 3.4ppts higher than the industry average. We estimate that YTO's market share by express parcel volume increased by 0.5ppts YoY to 16.0% in 3Q22, and its gap with ZTO in market share narrowed by 0.9ppts from that in 2Q22. We estimate that YTO's per-parcel transportation and distribution center operating costs stood at Rmb0.48 and Rmb0.29 in 3Q22, both flat YoY, and the Company may do even better on the cost side next year. We believe the peak season in 4Q and toll exemption and reduction mean strong visibility of high per-parcel net profit in 4Q22. The investment rationale for YTO has changed from "gaps in expectations" to "growth visibility". In 2H22, YTO will continue to deepen its comprehensive digital transformation and promote the application of digital systems in franchisee financing and customer services. The Company’s Outlet Manager and Customer Manager apps will help refine management granularity and accelerate terminal empowerment. Factoring in the latest quarterly earnings, we upgrade our 2022E/23E/24E EPS forecast to Rmb1.09/1.31/1.46 (from Rmb0.94/1.22/1.31), estimating that the Company will achieve net profit of Rmb3.7bn-3.8bn in 2022E. Based on the valuation of comparable peers, with Yunda Holding (002120.SZ) and ZTO Express (02057.HK) currently trading at 25x 2022E TTM PE, we assign 25x 2022E PE to derive a 1-year target price of Rmb28 and reiterate the “BUY” rating.
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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。