ZTO Express: Expecting Accelerating Volume Growth In H2_老虎社区_美港股上老虎

ZTO Express: Expecting Accelerating Volume Growth In H2

seekingalpha08-23

ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024....

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dafeige1982
·08-26
$中通快递(ZTO)$ $中通快递(ZTO)$ 站点有任务，靠刷单才能完成业务量，分拣工人假外包靠压榨员工社保公积金，降低成本，完成的分拣成本降低。各级管理人员腐败黑暗，（所谓的反腐部门）成为当权者排除异己的工具，这样的企业还能涨。
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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nZTO Express: Expecting Accelerating Volume Growth In H2\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-23 02:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4716549-zto-express-expecting-accelerating-volume-growth-h2><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024....</p>\n\n<a href=\"https://seekingalpha.com/article/4716549-zto-express-expecting-accelerating-volume-growth-h2\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"02057","symbol_name":"中通快递-W","start_time":0,"source_url":"https://seekingalpha.com/article/4716549-zto-express-expecting-accelerating-volume-growth-h2","article_id":"2461378956","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2461378956","pubTimestamp":1724352950,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024.","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"02057":"中通快递-W","ZTO":"中通快递"},"translate_title":"中通快递：预计下半年量将加速增长","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"02057":1,"ZTO":1},"content_text":"ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024.Financial projections indicate ZTO is undervalued, but short-term risk of margin decline due to an aggressive pricing strategy.J Studios/DigitalVision via Getty Images I last wrote about ZTO Express in an article published in June of this year. Back then, I was concerned about ZTO's market share loss and the ongoing price war in China's express delivery industry. Unfortunately, the trend continued in Q2 of 2024 as evidenced by ZTO's earnings results, which were released on August 20th after the bell. Faced with another quarter of market share loss, ZTO's management is determined to fight back. At the same time, management is also committed to maintaining a stable profitability level. I think ZTO Express is likely to catch up in the second half of 2024. As the stock is still trading significantly below my fair value estimate, I am maintaining my long-term \"buy\" rating for ZTO Express. Q2 Earnings Results Highlights According to ZTO's Q2 results earnings press release, highlights of the quarter include:   Revenues increased 10.1% year-over-year. Gross profit increased 9.6% year-over-year. Adjusted net income increased 10.9% year-over-year. Adjusted diluted EPS increased 10.1% year-over-year. Parcel volume increased 10.1% year-over-year. ZTO's market share contracted by 2% to 19.6% year-over-year.   In Q2 2024, China's express delivery market's growth rate was very strong as more consumers chose to shop online and as major e-commerce platforms spent heavily to subsidize consumers. ZTO's Chairman Meisong Lai disclosed during the earnings call that parcel volumes for China's express delivery industry \"increased 21.3%, exceeding expectations. However, the proportion of low price parcel volume continues to trend up and price competition further intensified.\" As I pointed out in my previous article, as the market share leader, ZTO chose to sacrifice market share rather than profitability during one of the most intense price wars of China's express delivery industry. As a recap, during Q1 of 2024, ZTO's parcel volume growth rate of 13.9% was already significantly lower than the 25% industry growth rate. In Q2, ZTO continued to significantly underperform the industry as ZTO's parcel volume only grew 10.1% versus the industry's 21.3% parcel volume growth rate. ZTO's market share fell below 20% again after dipping below the 20% level for the first time since 2020. ZTO Express During the earnings call, when asked about the market share loss by Goldman Sachs' analyst Ronald Keung, Mr. Lai explained that \"price competition intensified and the portion of non-profitable volume has increased. Therefore, ZTO Express voluntarily gave up some loss-making parcels. Although ZTO's market share in terms of parcel volume has decreased, the market share in terms of profit has further increased.\" Based on management's comment, it looks like ZTO's management simply cannot handle the loss of market share anymore. For instance, ZTO's CFO Huiping Yan specifically stated that \"volume is not unimportant because it enables scale-leverage.\" This is a clear change of tone in terms of strategic priorities. Previously, ZTO was prioritizing profits over volume. Starting from Q3, ZTO is shifting its priority back to volume and market share gain. ZTO's management is guiding \"volume growth of 15% to 18% in 2024\", indicating a growth rate of at least 18% in the second half of 2024. This growth rate is significantly above the 10% growth rate of Q2. ZTO's management is \"very confident to achieve this 18% growth rate target based on current trend and business conditions\". I think ZTO Express can achieve the 18% growth rate in two ways. The first is to follow its competitors' aggressive price strategy, or even out-price its competitors. However, doing so will hurt ZTO's profitability unless ZTO can dramatically decrease its cost per unit. The second option is to grow ZTO's market share outside of the e-commerce market. This means ZTO will have to take market share from SF Express and JD Logistics in the business parcel and retail parcel market. As the ASP is much higher for the business and retail segment, but the cost per unit is almost the same, ZTO doesn't need to cut its price too much. If ZTO chooses the second option, the company will need to spend more on sales and marketing to attract mid and high-end customers to switch. Obviously, this is not easy. We'll see which option ZTO chooses in Q3 and Q4. Financial Projections and Valuation I have updated my financial projections for ZTO to account for the latest quarterly results and management's guidance. I've increased my growth rate for China's express delivery market for 2024 while lowering my estimate of ZTO's market share. I lowered my margin estimate for ZTO by a little bit due to the fact that ZTO might have to cut its price aggressively to win back market share. Author's Estimate In terms of valuation, I am still applying 15 times P/E multiple, which is a discount of more than 40% of the sector median to account for the China risk and near-term margin pressure. Author's Estimate Based on my financial projections and valuation estimate, ZTO is still undervalued. Risk Discussion I have discussed ZTO's long-term risks in my previous articles. Based on the Q2 results, I am adding a short-term risk, which is the potential decline of gross margin and net margin. As I have stated in the above section, ZTO only has two options to grow its market share in Q3 and Q4. If ZTO chooses to follow its competitors and aggressively price its products and services, its gross and net margins will have to decline unless ZTO can achieve significant cost reduction. While ZTO has a track record of best-in-class operation efficiency, I wouldn't rule out the possibility of significant margin erosion in the near term. Conclusion  ZTO's Q2 2024 results are largely in line with my expectations. I have mixed feelings about management's decision to shift ZTO's priority back to volume growth. I think the pursuit of volume growth during a period of intense competition can be a double-edged sword, depending on ZTO's execution. In the past, ZTO has a track record of excellent execution. This is why I am mildly optimistic that ZTO can grow its market share in the second half of 2024 without materially sacrificing profitability. At the current price, ZTO has almost 50% upside from my 2025 fair value estimate. Therefore, I am maintaining my \"buy\" rating for ZTO.","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":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":342487630184704,"gmtCreate":1724635694051,"gmtModify":1724636140153,"author":{"id":"3524635322208905","authorId":"3524635322208905","name":"dafeige1982","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3524635322208905","authorIdStr":"3524635322208905"},"htmlText":"$中通快递(ZTO)$ $中通快递(ZTO)$ 站点有任务，靠刷单才能完成业务量，分拣工人假外包靠压榨员工社保公积金，降低成本，完成的分拣成本降低。各级管理人员腐败黑暗，（所谓的反腐部门）成为当权者排除异己的工具，这样的企业还能涨。","listText":"$中通快递(ZTO)$ $中通快递(ZTO)$ 站点有任务，靠刷单才能完成业务量，分拣工人假外包靠压榨员工社保公积金，降低成本，完成的分拣成本降低。各级管理人员腐败黑暗，（所谓的反腐部门）成为当权者排除异己的工具，这样的企业还能涨。","text":"$中通快递(ZTO)$ $中通快递(ZTO)$ 站点有任务，靠刷单才能完成业务量，分拣工人假外包靠压榨员工社保公积金，降低成本，完成的分拣成本降低。各级管理人员腐败黑暗，（所谓的反腐部门）成为当权者排除异己的工具，这样的企业还能涨。","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/342487630184704","repostId":2461378956,"repostType":2,"repost":{"id":"2461378956","pubTimestamp":1724352950,"share":"https://www.laohu8.com/m/news/2461378956?lang=&edition=full","pubTime":"2024-08-23 02:55","market":"sg","language":"en","title":"ZTO Express: Expecting Accelerating Volume Growth In H2","url":"https://stock-news.laohu8.com/highlight/detail?id=2461378956","media":"seekingalpha","summary":"ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024.","content":"<html><body><ul><li><a href=\"https://laohu8.com/S/ZTO\">ZTO Express</a>' Q2 earnings show market share loss and focus on volume growth.</li><li>Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024.</li><li>Financial projections indicate ZTO is undervalued, but short-term risk of margin decline due to an aggressive pricing strategy.</li></ul><p><figure><picture><img fetchpriority=\"high\" height=\"987px\" sizes=\"(max-width: 768px) calc(100vw - 36px), (max-width: 1024px) calc(100vw - 132px), (max-width: 1200px) calc(66.6vw - 72px), 600px\" src=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w750\" srcset=\"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg?io=getty-c-w240 240w\" width=\"1536px\"/></picture><figcaption><p>J Studios/DigitalVision via Getty Images</p></figcaption></figure></p> <p>I last wrote about ZTO Express in an article published in June of this year. Back then, I was concerned about ZTO's market share loss and the ongoing price war in China's express delivery industry. Unfortunately, the trend continued<span> in Q2 of 2024 as evidenced by ZTO's </span>earnings results<span>, which were released on August 20th after the bell.</span></p> <p>Faced with another quarter of market share loss, ZTO's management is determined to fight back. At the same time, management is also committed to maintaining a stable profitability level. I think ZTO Express is likely to catch up in the second half of 2024. As the stock is still trading significantly below my fair value estimate, I am maintaining my long-term \"buy\" rating for ZTO Express.</p> <h2>Q2 Earnings Results Highlights</h2> <p>According to ZTO's Q2 results earnings press<span> release, highlights of the quarter include:</span></p> <blockquote> <ul> <li>Revenues increased 10.1% year-over-year.</li> <li>Gross profit increased 9.6% year-over-year.</li> <li>Adjusted net income increased 10.9% year-over-year. Adjusted diluted EPS increased 10.1% year-over-year.</li> <li>Parcel volume increased 10.1% year-over-year.</li> <li>ZTO's market share contracted by 2% to 19.6% year-over-year.</li> </ul> </blockquote> <p>In Q2 2024, China's express delivery market's growth rate was very strong as more consumers chose to shop online and as major e-commerce platforms spent heavily to subsidize consumers. ZTO's Chairman Meisong Lai disclosed during the earnings call that parcel volumes for China's express delivery industry <em>\"increased 21.3%, exceeding expectations. However, the proportion of low price parcel volume continues to trend up and price competition further intensified.\"</em></p> <p>As I pointed out in my previous article, as the market share leader, ZTO chose to sacrifice market share rather than profitability during one of the most intense price wars of China's express delivery industry. As a recap, during Q1 of 2024, ZTO's parcel volume growth rate of 13.9% was already significantly lower than the 25% industry growth rate. In Q2, ZTO continued to significantly underperform the industry as ZTO's parcel volume only grew 10.1% versus the industry's 21.3% parcel volume growth rate. ZTO's market share fell below 20% again after dipping below the 20% level for the first time since 2020.</p> <p><figure contenteditable=\"false\"><picture><span><img contenteditable=\"false\" height=\"295\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/22/6011681-1724333661978661.png\" width=\"640\"/></span></picture><figcaption><p>ZTO Express</p></figcaption></figure></p> <p>During the earnings call, when asked about the market share loss by Goldman Sachs' analyst Ronald Keung, Mr. Lai explained that <em>\"price competition intensified and the portion of non-profitable volume has increased. Therefore, ZTO Express voluntarily gave up some loss-making parcels. Although ZTO's market share in terms of parcel volume has decreased, the market share in terms of profit has further increased.\"</em></p> <p>Based on management's comment, it looks like ZTO's management simply cannot handle the loss of market share anymore. For instance, ZTO's CFO Huiping Yan specifically stated that <em>\"volume is not unimportant because it enables scale-leverage.\"</em> This is a clear change of tone in terms of strategic priorities. Previously, ZTO was prioritizing profits over volume. Starting from Q3, ZTO is shifting its priority back to volume and market share gain. ZTO's management is guiding <em>\"volume growth of 15% to 18% in 2024\"</em>, indicating a growth rate of at least 18% in the second half of 2024. This growth rate is significantly above the 10% growth rate of Q2. ZTO's management is <em>\"very confident to achieve this 18% growth rate target based on current trend and business conditions\".</em></p> <p>I think ZTO Express can achieve the 18% growth rate in two ways. The first is to follow its competitors' aggressive price strategy, or even out-price its competitors. However, doing so will hurt ZTO's profitability unless ZTO can dramatically decrease its cost per unit. The second option is to grow ZTO's market share outside of the e-commerce market. This means ZTO will have to take market share from SF Express and JD Logistics in the business parcel and retail parcel market. As the ASP is much higher for the business and retail segment, but the cost per unit is almost the same, ZTO doesn't need to cut its price too much. If ZTO chooses the second option, the company will need to spend more on sales and marketing to attract mid and high-end customers to switch. Obviously, this is not easy. We'll see which option ZTO chooses in Q3 and Q4.</p> <h2>Financial Projections and Valuation</h2> <p>I have updated my financial projections for ZTO to account for the latest quarterly results and management's guidance. I've increased my growth rate for China's express delivery market for 2024 while lowering my estimate of ZTO's market share. I lowered my margin estimate for ZTO by a little bit due to the fact that ZTO might have to cut its price aggressively to win back market share.</p> <p><figure contenteditable=\"false\"><picture><span><img contenteditable=\"false\" height=\"400\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/22/6011681-1724333484790642.png\" width=\"640\"/></span></picture><figcaption><p>Author's Estimate</p></figcaption></figure></p> <p>In terms of valuation, I am still applying 15 times P/E multiple, which is a discount of more than 40% of the sector median to account for the China risk and near-term margin pressure.</p> <p><figure contenteditable=\"false\"><picture><img contenteditable=\"false\" height=\"267\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2024/8/22/6011681-17243339450505714.png\" width=\"602\"/></picture><figcaption><p>Author's Estimate</p></figcaption></figure></p> <p>Based on my financial projections and valuation estimate, ZTO is still undervalued.</p> <h2>Risk Discussion</h2> <p>I have discussed ZTO's long-term risks in my previous articles. Based on the Q2 results, I am adding a short-term risk, which is the potential decline of gross margin and net margin. As I have stated in the above section, ZTO only has two options to grow its market share in Q3 and Q4. If ZTO chooses to follow its competitors and aggressively price its products and services, its gross and net margins will have to decline unless ZTO can achieve significant cost reduction. While ZTO has a track record of best-in-class operation efficiency, I wouldn't rule out the possibility of significant margin erosion in the near term.</p> <h2>Conclusion</h2> <div></div> <p>ZTO's Q2 2024 results are largely in line with my expectations. I have mixed feelings about management's decision to shift ZTO's priority back to volume growth. I think the pursuit of volume growth during a period of intense competition can be a double-edged sword, depending on ZTO's execution. In the past, ZTO has a track record of excellent execution. This is why I am mildly optimistic that ZTO can grow its market share in the second half of 2024 without materially sacrificing profitability. At the current price, ZTO has almost 50% upside from my 2025 fair value estimate. Therefore, I am maintaining my \"buy\" rating for ZTO.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>ZTO Express: Expecting Accelerating Volume Growth In H2</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nZTO Express: Expecting Accelerating Volume Growth In H2\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-23 02:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4716549-zto-express-expecting-accelerating-volume-growth-h2><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024....</p>\n\n<a href=\"https://seekingalpha.com/article/4716549-zto-express-expecting-accelerating-volume-growth-h2\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2067052594/image_2067052594.jpg","relate_stocks":{"02057":"中通快递-W","ZTO":"中通快递"},"source_url":"https://seekingalpha.com/article/4716549-zto-express-expecting-accelerating-volume-growth-h2","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2461378956","content_text":"ZTO Express' Q2 earnings show market share loss and focus on volume growth.Management shifts priority to volume growth to regain market share, aiming for an 18% growth rate in the second half of 2024.Financial projections indicate ZTO is undervalued, but short-term risk of margin decline due to an aggressive pricing strategy.J Studios/DigitalVision via Getty Images I last wrote about ZTO Express in an article published in June of this year. Back then, I was concerned about ZTO's market share loss and the ongoing price war in China's express delivery industry. Unfortunately, the trend continued in Q2 of 2024 as evidenced by ZTO's earnings results, which were released on August 20th after the bell. Faced with another quarter of market share loss, ZTO's management is determined to fight back. At the same time, management is also committed to maintaining a stable profitability level. I think ZTO Express is likely to catch up in the second half of 2024. As the stock is still trading significantly below my fair value estimate, I am maintaining my long-term \"buy\" rating for ZTO Express. Q2 Earnings Results Highlights According to ZTO's Q2 results earnings press release, highlights of the quarter include:   Revenues increased 10.1% year-over-year. Gross profit increased 9.6% year-over-year. Adjusted net income increased 10.9% year-over-year. Adjusted diluted EPS increased 10.1% year-over-year. Parcel volume increased 10.1% year-over-year. ZTO's market share contracted by 2% to 19.6% year-over-year.   In Q2 2024, China's express delivery market's growth rate was very strong as more consumers chose to shop online and as major e-commerce platforms spent heavily to subsidize consumers. ZTO's Chairman Meisong Lai disclosed during the earnings call that parcel volumes for China's express delivery industry \"increased 21.3%, exceeding expectations. However, the proportion of low price parcel volume continues to trend up and price competition further intensified.\" As I pointed out in my previous article, as the market share leader, ZTO chose to sacrifice market share rather than profitability during one of the most intense price wars of China's express delivery industry. As a recap, during Q1 of 2024, ZTO's parcel volume growth rate of 13.9% was already significantly lower than the 25% industry growth rate. In Q2, ZTO continued to significantly underperform the industry as ZTO's parcel volume only grew 10.1% versus the industry's 21.3% parcel volume growth rate. ZTO's market share fell below 20% again after dipping below the 20% level for the first time since 2020. ZTO Express During the earnings call, when asked about the market share loss by Goldman Sachs' analyst Ronald Keung, Mr. Lai explained that \"price competition intensified and the portion of non-profitable volume has increased. Therefore, ZTO Express voluntarily gave up some loss-making parcels. Although ZTO's market share in terms of parcel volume has decreased, the market share in terms of profit has further increased.\" Based on management's comment, it looks like ZTO's management simply cannot handle the loss of market share anymore. For instance, ZTO's CFO Huiping Yan specifically stated that \"volume is not unimportant because it enables scale-leverage.\" This is a clear change of tone in terms of strategic priorities. Previously, ZTO was prioritizing profits over volume. Starting from Q3, ZTO is shifting its priority back to volume and market share gain. ZTO's management is guiding \"volume growth of 15% to 18% in 2024\", indicating a growth rate of at least 18% in the second half of 2024. This growth rate is significantly above the 10% growth rate of Q2. ZTO's management is \"very confident to achieve this 18% growth rate target based on current trend and business conditions\". I think ZTO Express can achieve the 18% growth rate in two ways. The first is to follow its competitors' aggressive price strategy, or even out-price its competitors. However, doing so will hurt ZTO's profitability unless ZTO can dramatically decrease its cost per unit. The second option is to grow ZTO's market share outside of the e-commerce market. This means ZTO will have to take market share from SF Express and JD Logistics in the business parcel and retail parcel market. As the ASP is much higher for the business and retail segment, but the cost per unit is almost the same, ZTO doesn't need to cut its price too much. If ZTO chooses the second option, the company will need to spend more on sales and marketing to attract mid and high-end customers to switch. Obviously, this is not easy. We'll see which option ZTO chooses in Q3 and Q4. Financial Projections and Valuation I have updated my financial projections for ZTO to account for the latest quarterly results and management's guidance. I've increased my growth rate for China's express delivery market for 2024 while lowering my estimate of ZTO's market share. I lowered my margin estimate for ZTO by a little bit due to the fact that ZTO might have to cut its price aggressively to win back market share. Author's Estimate In terms of valuation, I am still applying 15 times P/E multiple, which is a discount of more than 40% of the sector median to account for the China risk and near-term margin pressure. Author's Estimate Based on my financial projections and valuation estimate, ZTO is still undervalued. Risk Discussion I have discussed ZTO's long-term risks in my previous articles. Based on the Q2 results, I am adding a short-term risk, which is the potential decline of gross margin and net margin. As I have stated in the above section, ZTO only has two options to grow its market share in Q3 and Q4. If ZTO chooses to follow its competitors and aggressively price its products and services, its gross and net margins will have to decline unless ZTO can achieve significant cost reduction. While ZTO has a track record of best-in-class operation efficiency, I wouldn't rule out the possibility of significant margin erosion in the near term. Conclusion  ZTO's Q2 2024 results are largely in line with my expectations. I have mixed feelings about management's decision to shift ZTO's priority back to volume growth. I think the pursuit of volume growth during a period of intense competition can be a double-edged sword, depending on ZTO's execution. In the past, ZTO has a track record of excellent execution. This is why I am mildly optimistic that ZTO can grow its market share in the second half of 2024 without materially sacrificing profitability. At the current price, ZTO has almost 50% upside from my 2025 fair value estimate. Therefore, I am maintaining my \"buy\" rating for ZTO.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":0,"commentSize":1,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}