Core Viewpoint - ZTO Express is set to report its fourth-quarter 2023 results on March 19, with a history of outperforming earnings estimates, averaging a 17.31% beat over the last four quarters [1]. Group 1: Q4 Expectations - Fourth-quarter 2023 revenues for ZTO Express are anticipated to benefit from strong performance in the express delivery services unit [2]. - However, rising operating expenses, particularly in selling, general and administrative expenses (SG&A), are expected to negatively impact ZTO's profitability, with SG&A costs driven up by increases in compensation, benefits, and office expenditures [2]. - The Zacks Consensus Estimate for ZTO's fourth-quarter 2023 earnings has been revised downward by 7.5% over the past 90 days [2]. Group 2: Earnings Prediction Model - The current model does not predict a definitive earnings beat for ZTO Express, as it has an Earnings ESP of 0.00% and a Zacks Rank of 4 (Sell) [3]. - A combination of a positive Earnings ESP and a Zacks Rank of 1 (Strong Buy), 2 (Buy), or 3 (Hold) typically increases the likelihood of an earnings beat, which is not applicable in this case [3]. Group 3: Highlights of Q3 - In the third quarter of 2023, ZTO Express reported earnings of 39 cents per share, surpassing the Zacks Consensus Estimate of 36 cents, and showing year-over-year improvement [4]. - Total revenues for Q3 were $1,244 million, which fell short of the Zacks Consensus Estimate of $1,452.5 million [4].

Investment Rating - The report maintains a "Buy" rating for ZTO Express (2057.HK) [1][5] Core Views - ZTO Express is a leading player in the express delivery industry with a market share of 22.9%, significantly ahead of its closest competitor by 6.8 percentage points, indicating a strong market position [5] - The company is expected to achieve stable earnings growth, with a projected PE ratio of only 12 times for 2024, suggesting good investment value [5] - The inclusion of ZTO in the Hong Kong Stock Connect is anticipated to improve stock liquidity and catalyze a revaluation of its stock price [5] Financial Summary - Total shares outstanding: 824 million [2] - Circulating shares: 617 million [2] - Market price: HKD 165.4 [2] - Market capitalization: HKD 136.2 billion [2] - Revenue projections for 2023E to 2025E are HKD 41.19 billion, HKD 46.57 billion, and HKD 52.81 billion respectively, with growth rates of 16%, 13%, and 13% [4] - Net profit forecasts for the same period are HKD 9.16 billion, HKD 10.43 billion, and HKD 12.23 billion, with growth rates of 34%, 14%, and 17% respectively [4] - The diluted earnings per share (EPS) are projected to be HKD 11.07, HKD 12.61, and HKD 14.79 for 2023E, 2024E, and 2025E respectively [4] Competitive Advantages - ZTO Express benefits from significant economies of scale, which reduce average unit costs and allow for competitive pricing [5] - The company has maintained a strong management capability, which has been crucial in stabilizing its franchise network and facilitating expansion [5] - ZTO's capital expenditures from 2016 to 2022 totaled HKD 40.7 billion, with substantial investments in infrastructure, ensuring it remains competitive in the industry [5]

Investment Rating - The report maintains a "Buy" rating for ZTO Express (02057.HK) [4] Core Views - ZTO Express has been included in the Hong Kong Stock Connect program effective March 4, 2024, which is expected to enhance liquidity and valuation [2] - The company has a solid industry position, high earnings certainty, and a strong balance sheet, making it an attractive investment opportunity [2] - Historical performance of other companies after being included in the Stock Connect indicates potential positive stock price movements [2] Financial Data and Earnings Forecast - Revenue projections for ZTO Express are as follows: - 2023: 43.35 billion RMB, 2024: 50.92 billion RMB, 2025: 56.87 billion RMB, with year-on-year growth rates of 23%, 17%, and 12% respectively [6] - Adjusted net profit forecasts are: - 2023: 9.31 billion RMB, 2024: 12.04 billion RMB, 2025: 14.69 billion RMB, with year-on-year growth rates of 34%, 29%, and 22% respectively [6] - The company’s price-to-earnings (PE) ratios are projected to be 12.5x for 2023, 9.6x for 2024, and 7.9x for 2025 [6]

Investment Rating - The report maintains a "Buy" rating for ZTO Express (02057) [1] Core Views - ZTO Express's successful inclusion in the Hong Kong Stock Connect is expected to enhance stock liquidity and potentially lead to a valuation recovery as it attracts more mainland investors [3][9] - The company has demonstrated strong fundamentals and has been a leader in the express delivery industry since 2017, but its current valuation is at a low point compared to historical averages [9][10] - The "Build and Share" philosophy is seen as a cornerstone for ZTO's long-term sustainability and competitive advantage in the express delivery sector [19][24] Summary by Sections Recent Developments - On March 1, 2024, ZTO Express was added to the Hong Kong Stock Connect list, effective from March 4, 2024 [2][8] Investment Highlights - The inclusion in the Stock Connect is anticipated to improve stock liquidity and attract new investors, which may lead to a valuation recovery [3][9] - ZTO Express has a solid performance record, with a historical annual growth rate of 25% since its listing, and a 41.11% increase in net profit for the first three quarters of 2023 [9][10] - The current price-to-earnings (P/E) ratio is 13.43, significantly lower than its historical average of 27.83, indicating potential for valuation recovery [9][10] Business Strategy and Competitive Advantage - ZTO Express's "Build and Share" strategy has been pivotal in its growth, focusing on cost reduction and efficiency improvements across its network [19][24] - The company has implemented three key decisions: the launch of inter-provincial express services, the introduction of a paid delivery fee system, and the establishment of a shareholding system, which have collectively strengthened its market position [12][19] - The company aims to achieve a balance of volume, price, cost, and profit, with expectations for upward breakthroughs in performance metrics [31][32] Financial Projections - Revenue forecasts for ZTO Express are projected at CNY 38.514 billion, CNY 45.213 billion, and CNY 52.342 billion for 2023, 2024, and 2025 respectively, with net profits expected to be CNY 9.075 billion, CNY 10.711 billion, and CNY 12.690 billion [32] - The corresponding P/E ratios for the same years are estimated to be 12.80, 10.85, and 9.16, indicating a favorable outlook for the company's financial performance [32]

Core Viewpoint - ZTO Express (Cayman) Inc. is set to release its unaudited financial results for Q4 and the fiscal year 2023 on March 19, 2024, after U.S. market closure [1] Group 1: Financial Results Announcement - The unaudited financial results for the fourth quarter ended December 31, 2023, and the annual results for the fiscal year ended December 31, 2023, will be announced after the U.S. market closes on March 19, 2024 [1] - An earnings conference call will be hosted by ZTO's management team at 8:30 P.M. U.S. Eastern Time on March 19, 2024, which corresponds to 8:30 A.M. Beijing Time on March 20, 2024 [1] Group 2: Conference Call Details - Dial-in details for the earnings conference call include numbers for the United States, Hong Kong, Singapore, Mainland China, and international callers [2] - A replay of the conference call will be available until March 26, 2024, with specific numbers provided for different regions [2] - A live and archived webcast of the conference call will be accessible on the Company's investor relations website [2] Group 3: Company Overview - ZTO Express is recognized as a leading and fast-growing express delivery company in China, providing express delivery and value-added logistics services through a nationwide network [3] - The company operates a scalable network partner model to support the growth of e-commerce in China, focusing on pickup and last-mile delivery services while managing critical line-haul transportation and sorting [3]

Core Insights - ZTO Express held its National Network Conference on January 23, 2024, to review 2023 achievements and outline 2024 goals, focusing on high-quality development of its network [1][3] Company Performance - In 2023, ZTO achieved a parcel volume of 30.2 billion, marking a year-on-year growth of 23.8% and capturing a market share of 22.9%, further solidifying its leadership position [2] Strategic Focus for 2024 - The conference emphasized the need to integrate "development" and "security," with key tasks including prioritizing safety, enhancing capabilities, strengthening services, improving efficiency, ensuring transparency, activating potential, promoting collaboration, and building a strong team [3] Industry Outlook - The chairman highlighted the potential of the Chinese express delivery market and ZTO's advantages in scale, cost, foundation, brand, and network, aiming for excellence in core business, ecological expansion, and channel building [4] Business Model - ZTO operates a scalable network partner model, which supports the growth of e-commerce in China by leveraging network partners for pickup and last-mile delivery while controlling critical line-haul transportation and sorting [5]

Group 1 - Subscribers to Schaeffer's Options Advisor publication achieved over 100% profit from the recommendation to buy ZTO Express (Cayman) Inc February 21 put options [1] - At the time of the recommendation on December 21, ZTO Express stock had just crossed below $21.50, a significant resistance level from 2018 and 2019, and was experiencing a technical weakness [1] - Despite a positive outlook from analysts, with 20 out of 21 rating it a "buy" or better, ZTO Express stock faced a 30% drop in short interest between October and November, indicating a lack of upward momentum [1] Group 2 - ZTO Express stock has seen a decline of 10.7% over the last month, despite analysts maintaining positive ratings and a further 11.8% drop in short interest [2] - The stock is down more than 15% three weeks into 2024, with a brief 7.3% gain immediately following the recommendation, followed by two consecutive weekly losses [2] - By the time subscribers exited their positions, ZTO shares were at $18.01, having touched a low of $17.55, marking the lowest level since November 2022, resulting in a 110% profit for subscribers [2]

ZTO Express (ZTO) is currently mired in multiple headwinds, which, we believe, have made it an unimpressive investment option.Let’s delve deeper.Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for fourth-quarter 2023 earnings has been revised 16% downward over the past 90 days. For 2023, the consensus mark for earnings has moved 1.3% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.Weak Zacks Rank: ZTO Express currently ca ...

Financial Data and Key Metrics Changes - In Q3 2023, ZTO's parcel volume increased by 18.1% to 7.52 billion, with an adjusted net profit of RMB2.34 billion, representing a 25% year-over-year growth [4][5][15] - Total revenue rose by 1.5% to RMB9.1 billion, while the average selling price (ASP) for the core express delivery business decreased by 13.5% [15][16] - Gross profit increased by 10.7% to RMB2.7 billion, with a gross profit margin of 29.8% [16][17] - Operating cash flow was RMB2.94 billion, and EBITDA was RMB3.45 billion [17] Business Line Data and Key Metrics Changes - The total cost of revenue was RMB6.4 billion, which decreased by 2%, while the combined unit cost of sorting and transportation decreased by 11% [15][16] - The unit cost of line haul transportation decreased by 11.4% to RMB0.43, and unit sorting costs decreased by 10.4% to RMB0.25 [16] Market Data and Key Metrics Changes - ZTO's market share rose slightly by 0.3 points to 22.4% [15] - The express delivery industry in China grew by 16.7% year-over-year [5] Company Strategy and Development Direction - ZTO aims to maintain high service quality while focusing on long-term growth and operational effectiveness [5][12] - The company plans to enhance its network foundation, expand product offerings, and improve operational efficiency through digitization [9][10] - ZTO is committed to diversifying its services, including increasing non-e-commerce volume and enhancing last-mile delivery capabilities [10][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the competitive landscape and emphasized the importance of maintaining service quality and customer satisfaction to capture market share [22][23] - The company is optimistic about achieving a parcel volume of 29.27 billion to 30.24 billion for 2023, representing a 20% to 24% increase year-over-year [18] Other Important Information - During the Double 11 shopping festival, ZTO achieved a peak daily parcel volume of over 160 million [11] - The company is focused on improving reverse logistics capabilities and expanding last-mile facilities [40][41] Q&A Session Summary Question: What is the competition strategy for 2024? - ZTO will continue to focus on long-term growth, maintaining a balance between profitability and market share, and will not engage in loss-making businesses [22][23] Question: What is the visibility on dividend payout? - ZTO intends to increase the dividend payout ratio gradually as the business operates optimally and generates healthy free cash flow [24] Question: How does ZTO view the competitive landscape moving forward? - ZTO believes that maintaining high-quality services and operational efficiency will strengthen its market position despite competitive pressures [28][30] Question: What is the current state of reverse logistics and last-mile facilities? - ZTO is actively improving its reverse logistics capabilities and currently operates over 10,000 last-mile facilities, with plans for further expansion [40][41]

Company Overview and Competitive Advantages - ZTO is a leading express delivery company in China, utilizing a distinct Network Partner Business Model (NPM)[5,6] - The company's core competitive advantages include significant market growth opportunities, a "shared-success" philosophy, superior scale and reach, best-in-class operational capabilities, experienced leadership, and consistent strategic focus[7] - ZTO has achieved 90% digital waybill adoption and became No 1 in China by parcel volume[15] - The Network Partner Model (NPM) allows for rapid geographic coverage expansion and localized decision-making, with 66% market share in 2011 increasing to 76% in 2022, contrasting with the Direct Model's decrease from 34% to 24%[19] Market Growth and Strategies - China has 1079 million internet users and 884 million online shoppers as of June 2023, presenting significant market opportunities[26] - The express delivery market in China is becoming more consolidated, with the CR6 (top 6 companies) market share increasing from 714% in 2011 to 863% in 2022[29] - ZTO aims to achieve continuous market share expansion and profit targets while maintaining high service quality and customer satisfaction[90] Operational Capabilities and Cost Efficiencies - ZTO has a large self-owned line-haul fleet of approximately 10,000 vehicles and 482 automated sorting lines as of 3Q23[41,48] - The company is focused on decreasing cost per parcel through line-haul transportation and sorting technologies[48] - ZTO has approximately 110,000 last-mile posts covering all provinces and around 300 cities in China as of 3Q2023[42] Financial Performance - In Q3 2023, the Non-GAAP Operating Profit was $032 per unit, and the Non-GAAP Adjusted Net Income was $032 per unit[97] - The ASP (excluding freight forwarding business) in Q3 2023 was RMB 117, while the Unit Cost of Revenue was RMB 082[102] - The company completed a US $1 billion convertible senior notes offering in August 2022[15,37]