ZTO EXPRESS(2057.HK)：SOLID 4Q21 RESULTS; EXPECT STRONG EARNINGS RECOVERY IN 2022E-格隆汇

机构：招银国际
研究员：Wayne Fung

ZTO’s 4Q21 net profit growth (37% YoY) is in line with our expectation. ZTO targets to achieve 18-24% YoY parcel volume growth in 2022E. We expect profitable growth to continue, driven by resilient ASP and solid market share.
What’s more, we expect ZTO to start generating positive free cash flow in 2022E, on the back of volume growth and good capex discipline. With regard to the listing status, ZTO has started formulating different plans, and we expect dual primary listing is a possible solution. We revised down our 2022E/23E earnings by 8%/3% as we revised up our assumptions on sorting center cost and transportation cost due to potentially higher labour cost and diesel price. We trimmed our TP to HK$317 from HK$342, based on unchanged target multiple of 35x. The recent market sell-off sent ZTO to only 17x forward P/E, close to the trough valuation in 2018. We expect net profit in 1Q22E to double YoY to ~RMB1.06bn, which will serve as the next catalyst.
Key highlights in 4Q21 results:
Net profit in 4Q21 grew 37% YoY to RMB1.76bn (in line with our expectation), driven by (1) 12% YoY revenue growth, (2) 1.9ppt gross margin expansion YoY to 24.4%, and (3) 120% YoY increase in other income. SG&A expense increased by 13% YoY, largely in line with the revenue growth. The full year net profit grew 10% YoY to RMB4.76bn.
Parcel volume in 4Q21 grew 17% YoY to 6.3bn units (growth rate slightly higher than the industry average of 16%). Market share was 20.1%, slightly dropped from 20.8% in 3Q21.
Resilient ASP. Parcel delivery ASP only dropped 1.3% YoY (or RMB0.02/unit) but increased 12% QoQ to RMB1.39/unit in 4Q21 (breakdown: RMB0.04 for incentives to support network partners, and RMB0.01 due to lower parcel weight).
Unit cost dropped 3% YoY in 4Q21. Unit cost of transportation decreased 3% YoY to RMB0.53/unit, due to continuous investment in high-capacity trucks (83% of self-owned trucks were 15-17 meters long). However, sorting hub cost increased 4% YoY (10% QoQ) to RMB0.32/unit, due to higher labour cost. Unit gross margin increased 4% YoY and 30% QoQ to RMB0.35/unit.
Major risk factors: (1) further slowdown of online retail sales; (2) volatile ASP trend; (3) further increase in diesel price.