ZTO Earnings: We Lift Fair Value Estimate by 4% On Higher Unit Express Revenue; Shares Fairly Valued

Narrow-moat ZTO Express' third-quarter revenue and operating profit are tracking slightly ahead of our full-year expectations. However, the company revised down its 2024 parcel volume year-over-year growth guidance to a range of 11.6%-12.3% from 15%-18% previously. We increase ZTO’s fair value estimate by 4% to USD 21.20 per ADS and HKD 163 per share after fine-tuning our forecasts. Slightly lower parcel volume forecasts over 2024-26 are more than offset by higher unit express revenue assumptions following better numbers in the third quarter, which lead to a 1%-5% increase in our EBIT estimates over the same period. We think ZTO is fairly valued now and project ZTO’s net income to grow at a 6% compound annual growth rate in the next five years.