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.

We maintain narrow-moat ZTO’s fair value estimate at USD 14.70 per ADS and HKD 115.00 per share. Our 2024-26 EBIT forecasts increase by 6% as we assume better cost control. We forecast revenue to increase by a 5% compound annual growth rate during 2023-33. We assume a 5% CAGR for express delivery services business revenue—92% of total revenue in 2023—in the coming 10 years. While we think ZTO is a quality economy express company, the shares are overvalued due to the threat of the current price war in the industry.

Narrow-moat ZTO Express' fourth-quarter revenue increased 7.6% year on year, 6% higher than our estimate, thanks to stronger-than-expected express delivery industry parcel volume growth. Operating profit grew 14% year on year and beat our estimate by 11%, as ZTO's cost control measures surpassed our expectation. However, ZTO's parcel volume market share in the quarter was 22.4%, flat compared with the third quarter, and below our estimate of 23.5%. Our USD 14.70 fair value estimate on ZTO is unchanged. We think ZTO is overvalued, as we believe price competition will eventually weigh on ZTO's profitability.

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.