Company Reports

The network partner model-based companies in China have gained parcel volume share from direct operation-based companies, with share rising to 76% in 2022 from 66% in 2011. The six largest express delivery companies controlled around 86% of China’s parcel deliveries by volume in 2022, based on data from the companies and China’s State Post Bureau. With share already high, we think further volume share gain is limited for the network partner model-based companies.

While STO Express's 2023 full-year revenue and gross profit were 3% and 7% better than our estimates, operating profit excluding noncash and nonrecurring items was broadly in line. Meanwhile, STO's first-quarter results are ahead of our expectations. Revenue grew 16% year over year in the quarter, thanks to a strong volume growth of 37%. Gross margin rose a single percentage point year over year to 5.88% in the quarter. Operating profit excluding noncash and nonrecurring items and recurring net profit to shareholders surged 85% and 49%, respectively, year over year. These beat our expectations due to higher-than-expected cost savings and economies of scale. As such, we increased our revenue assumptions in the next three years by an average of 4% to factor in the high volume achieved. We also raised our 2024-26 operating profit excluding noncash and nonrecurring items by 0%-5%. However, the better earnings were more than offset by the increased net debt position in 2023, and therefore we cut STO's fair value estimate by 4% to CNY 9.20 per share. We think STO's shares are fairly valued currently, as we still expect intense competition in the sector.

We initiate wide-moat SF Holding, or SF, with a fair value estimate of CNY 54.00; narrow-moat ZTO Express with a fair value estimate of USD 14.70 per ADS and HKD 115.00 per share; no-moat Yunda Holding with a fair value estimate of CNY 10.00; no-moat YTO Express with a fair value estimate of CNY 7.80; no-moat STO Express with a fair value estimate of CNY 9.60; no-moat Kerry Logistics Network, or KLN, with a fair value estimate of HKD 11.90; and no-moat JD Logistics, or JDL, with a fair value estimate of HKD 10.70. We think SF and KLN are undervalued; Yunda, STO, and JD Logistics are fairly valued; and ZTO and YTO are overvalued.

The network partner model-based companies in China have gained parcel volume share from direct operation-based companies, with share rising to 76% in 2022 from 66% in 2011. The six largest express delivery companies controlled around 86% of China’s parcel deliveries by volume in 2022, based on data from the companies and China’s State Post Bureau. With share already high, we think further volume share gain is limited for the network partner model-based companies.