Investment Rating - The report maintains a "Buy" rating on ZTO Express (ZTO US, TP USD22.00) and STO Express (002468 CH, TP RMB14.10), while J&T Express (1519 HK, Hold, TP HKD9.00) is seen as having upside potential [6][10][49]. Core Insights - The express delivery sector in China is expected to benefit from new policy guidance aimed at preventing aggressive price competition, which has previously led to an 8% decline in average revenue per parcel (ARPP) despite a 20% increase in volume [2][10]. - Historical trends indicate that the sector has re-rated positively following government interventions to stabilize pricing, with a notable 48% rally in September 2021 after delivery fee increases [4][10]. - The current consensus has cut ZTO's earnings estimates by 15% due to intensified price competition, resulting in a forward PE multiple of 10.4x, significantly below its historical average of 19.2x, suggesting potential downside protection for the stock [3][10]. Summary by Sections Policy Impact - The State Post Bureau's recent conference emphasized tighter regulations to curb aggressive pricing strategies, which has already led to a 5-10% increase in share prices for express delivery companies [2][10]. - The report anticipates that if express delivery companies respond to the new policy with price hikes, a sustainable re-rating of the sector could occur [4]. Financial Projections - ZTO is projected to achieve 9% earnings growth by 2025, with a 21% increase in volume, despite an expected 11% decline in ARPP [5]. - A sensitivity analysis indicates that a 1 percentage point improvement in ARPP could lead to a 3 percentage point increase in net profit growth [5]. Company Ratings and Targets - ZTO Express is highlighted as the domestic leader with a target price of USD22.00, while STO Express is also rated as a "Buy" with a target price of RMB14.10, benefiting from potential regulatory interventions [6][10]. - J&T Express is rated as a "Hold" with a target price of HKD9.00, reflecting its position as a laggard in the market but with potential upside as competition eases [6][10].

Core Insights - J&T reported strong operating data for 2Q25, with parcel volume increasing by an average of 24% YoY, primarily driven by a remarkable 66% YoY growth in the Southeast Asia (SEA) market [1][2] - The earnings forecast for 2025E/26E has been revised, with an increase of 18% for 2025E and a slight decrease of 2% for 2026E, reflecting an upward adjustment in parcel volume forecasts despite a minor reduction in pricing assumptions [1] - The target price (TP) has been raised to HK$10 from HK$6.9, indicating a positive outlook for J&T in the Hong Kong market due to its market share gains in the SEA region [1] Southeast Asia Market - The SEA volume surged by 66% YoY to 1.69 billion units, with growth accelerating from 50% in 1Q25, benefiting from strong sales growth from platforms like Temu, Shein, and TikTok [2] - Management believes that J&T has further strengthened its competitive advantage over major peers in terms of parcel volume growth in the SEA market [2] China Market - In China, parcel volume grew by 15% YoY to 5.6 billion units, although the growth rate slowed from 27% in 1Q24 [3] - The largest customer in China is PDD, followed by Douyin and Alibaba, with reverse parcels and individual orders accounting for 7% of total volume [3] - Management expressed a conservative outlook due to uncertainties from intense price competition [3] New Markets - New markets experienced a 24% YoY increase in volume to 89 million units, driven by growth in the Brazilian market [4] - J&T has initiated cooperation with Mercado Libre this year, and the entry of more e-commerce platforms into Brazil presents additional growth opportunities [4]

July 10, 2025 06:18 PM GMT China Musings | Asia Pacific Supply-Side Reform Returns... But This Time It's More Complicated China's capacity consolidation campaign may be returning – but we see this as new wine in an old bottle. The industrial landscape and macro environment are fundamentally more difficult than in 2015-18, meaning implementation will likely be slower. We maintain a persistent deflation baseline into 2026. 1. Introduction: "anti-involution" returns In recent years, the concept of "involution" ...

Investment Rating - The report assigns a "Buy" rating to J&T, STO, ZTO, and YTO, while Yunda is rated as "Sell" [5]. Core Viewpoints - The report suggests that pricing dynamics in China's parcel industry are stabilizing, with expectations of a 12% earnings CAGR for the sector from 2024 to 2027, driven by a 14% volume CAGR and a 3% annual drop in average selling price (ASP) [2][8]. - Smaller companies like J&T and STO are expected to outperform larger competitors in terms of market share and margin expansion due to their cheaper offerings and operational leverage [2][4]. Summary by Sections Pricing Dynamics - Delivery prices are believed to have bottomed out, with many franchisees reporting losses and expecting price hikes in the latter half of the year [3][11]. - The average ASP for Tongda companies fell approximately 7% year-over-year from January to May, but a stabilization is anticipated [8][11]. Earnings Forecasts - The report forecasts significant earnings growth for J&T and STO, with expected EPS CAGRs of 92% and 15% respectively from 2024 to 2027 [2][4]. - Adjustments to earnings estimates for 2025-2027 reflect a reduction of 0%-54% across Tongda companies, primarily due to pricing pressures [4]. Market Share and Competitive Landscape - J&T and STO are projected to gain a total of 4 percentage points in market share from 2025 to 2027, while other Tongda companies are expected to lose 2 percentage points [4][8]. - The report indicates that lower-tier firms are likely to capture more market share as they improve unit economics and pricing strategies [8][94]. Valuation Insights - Current PE multiples for J&T and STO are considered undervalued at 9x and 12x for 2026E, respectively, compared to the expected industry average of 15x [2][5]. - The report highlights that Tongda firms are trading near historical lows, suggesting that a stabilizing pricing environment could lead to a re-rating of multiples [8][110]. Demand Drivers - The parcel volume in China is expected to grow at a CAGR of 10% from 2024 to 2029, driven by consumption downtrading and government initiatives to stimulate domestic consumption [62][84]. - The report anticipates a 16.5% year-over-year growth in parcel volume for the current year, with strong growth momentum continuing [62][63].

Core Viewpoint - The Dazhu District of Chongqing has emerged as a leading example in the city's "Postal Transport" pilot program, showcasing effective integration of transportation and postal services to boost rural e-commerce and support the rural revitalization strategy [1] Group 1: E-commerce Empowerment - Dazhu District has rich agricultural products, but previously faced limited sales channels. The district has developed a rural e-commerce model through its e-commerce industrial park, which has been operational since 2017 [2] - As of 2024, the e-commerce industrial park has 147 resident enterprises and 279 registered companies, with 645 merchants conducting transactions on the Dazhu Cloud Smart Market. The total e-commerce transaction volume reached 6.279 billion yuan, with online retail sales of 3.212 billion yuan [2] - The district has utilized live streaming as a marketing tool, with 335,300 live broadcasts generating sales of 970 million yuan. This has significantly increased the visibility and sales of local products [4] Group 2: Logistics Solutions - Dazhu District has addressed logistics challenges by integrating transportation and postal resources, creating an efficient rural logistics network. The China Post Dazhu Branch has upgraded logistics facilities to enhance service delivery [5] - The district has implemented a "passenger and cargo postal" model, allowing passenger transport vehicles to also serve as delivery vehicles, thus improving logistics efficiency [5][7] Group 3: Integration and Development - The "Postal Transport + Rural E-commerce" model has significantly reduced delivery costs and improved logistics efficiency. Delivery costs for agricultural products have decreased from 12 yuan to 5 yuan within the district, and from 12 yuan to 8 yuan citywide, representing reductions of 58% and 33% respectively [8] - The development of e-commerce has created job opportunities in rural areas, with 619 individuals trained in e-commerce skills in 2024 alone [8] - Dazhu District has developed a comprehensive logistics management system and is promoting digital integration across transportation, commerce, and postal services, enhancing service efficiency for residents [8] Group 4: Economic Impact - The rural economy in Dazhu District has seen significant growth, with express delivery volume reaching approximately 26.727 million packages in 2024, a year-on-year increase of 47.3%. The online retail sales of agricultural products reached 620 million yuan [9] - The district's case study on rural e-commerce development has been recognized as a typical case for high-quality rural logistics development by the Ministry of Transport and the State Post Bureau [9]

About this content About Angela Harmantas Angela Harmantas is an Editor at Proactive. She has over 15 years of experience covering the equity markets in North America, with a particular focus on junior resource stocks. Angela has reported from numerous countries around the world, including Canada, the US, Australia, Brazil, Ghana, and South Africa for leading trade publications. Previously, she worked in investor relations and led the foreign direct investment program in Canada for the Swedish government ...

Core Viewpoint - Fred Smith, the founder of FedEx, emphasized the importance of free trade as a means for the U.S. to achieve wealth while allowing global prosperity, criticizing the neglect of U.S. industry in favor of financial and tech sectors [1] Group 1 - Smith's belief that free trade has made the U.S. the only global power to get rich while enabling global prosperity [1] - Criticism of U.S. administrations for prioritizing financial and tech sectors over industrial growth, leading to increased populism [1] - The perception of global trade as a villain due to the neglect of U.S. industry [1]

Investment Rating - The report maintains a "Buy" rating for integrated players such as SF Holding, JD Logistics (JDL), and the leader ZTO, while adopting a "Neutral" rating for others like STO, Yunda, and J&T, and a "Sell" rating for YTO and Sinotrans-A/H [7][21]. Core Insights - The express delivery sector in China is experiencing intense price competition, leading to a decline in average selling prices (ASPs) and profitability across franchise-based players, while integrated logistics providers show resilience [1][21]. - The report revises the expected industry volume growth for 2025E from 18% to 20% year-on-year, driven by a shift towards lightweight and small parcels, and the growth of emerging eCommerce platforms [2][21]. - The report highlights that the competitive landscape will depend on strategic adjustments by incumbents and potential policy interventions to stabilize pricing [1][21]. Summary by Sections Industry Overview - The express delivery sector concluded 1Q25 with a 22% year-on-year volume growth but faced a 6-10% decline in ASPs across major players [21][22]. - The ongoing price competition is attributed to a trade-down trend in eCommerce goods and the need for express players to maintain capacity utilization [22][23]. Financial Performance - The report indicates that the group operating profit for Tongda players is expected to decline by approximately 12% year-on-year in 2025E, with SF being the only player projected to see double-digit profit growth [6][7]. - Adjusted net profit forecasts for franchise-based players are revised downwards by 9% to 19% below Bloomberg consensus [7][21]. Company-Specific Insights - SF Holding is noted for its strong performance, with a 20% year-on-year EBIT growth in 1Q25, benefiting from cost optimization and a diversified revenue stream [1][40]. - ZTO is highlighted as the only Buy-rated franchise-based express delivery name, expected to stabilize its market share despite near-term earnings weakness [7][21]. - Yunda and YTO are projected to experience low-to-mid teens year-on-year profit declines, while STO and J&T China are expected to see flat earnings [6][7]. Market Dynamics - The report anticipates continued competition in 2Q-3Q25, with potential for strategic adjustments or industry consolidation to mitigate pricing pressures [1][21]. - The ASP for express delivery services is forecasted to decline by 6% to 8% across major players in 2Q25E, reflecting a slightly easier base compared to 1Q [22][23]. Volume and Revenue Estimates - The report raises the industry volume estimate for 2025E to 20% year-on-year, factoring in strong growth momentum and a shift in parcel mix [2][21]. - Revenue estimates for ZTO are cut by 6% due to less-than-expected impacts from gross revenue bookings, while Yunda and YTO see slight revenue increases [2][6]. Valuation - The report continues to value China express delivery companies based on a 1-year forward EV/EBITDA multiple, which remains unchanged at an average of 7X [13][15].

Core Insights - ZTO Express reported first-quarter 2025 earnings of 37 cents per share, matching the previous year's quarter, while total revenues of $1.50 billion fell short of the Zacks Consensus Estimate of $1.67 billion but showed year-over-year improvement [1] Financial Performance - The core express delivery business revenue increased by 9.8% year over year, driven by a 19.1% growth in parcel volume, despite a 7.8% decrease in parcel unit price [3] - Adjusted net income for the quarter was $2.3 billion, with retail volume increasing by 46% year over year [2] - Gross profit decreased by 10.4% from the year-ago quarter, with gross margin falling to 24.7% from 30.1% [4] Operational Highlights - ZTO achieved a parcel volume of 8.5 billion during the first quarter [2] - KA revenues, generated by direct sales organizations, surged by 129.3%, attributed to an increase in e-commerce return parcels [3] - Revenue from freight forwarding services declined by 11.6% year over year due to falling cross-border e-commerce pricing [3] Cash and Share Repurchase Program - As of the end of the first quarter, ZTO had cash and cash equivalents of $1.71 billion, down from $1.84 billion at the end of the previous quarter [5] - The board approved an increase in the share repurchase program to $2 billion, extending the effective period through June 30, 2025 [5][6] Guidance - ZTO reaffirms its 2025 parcel volume guidance of 40.8 billion to 42.2 billion, indicating a year-over-year growth of 20-24% [7]

Investment Rating - The report assigns a "Buy" rating to ZTO Express (Cayman) Inc. with a 12-month price target of US$27 or HK$210, indicating a potential upside of approximately 54% from the current price levels [2][19]. Core Insights - ZTO Express is experiencing solid share gains in reverse parcels, despite intense competition in the express delivery industry. The company aims for above-industry volume growth while maintaining service quality for sustainable long-term growth [1][2]. - The competitive landscape is characterized by increasing price competition and a higher mix of low-weight small parcels, which are putting pressure on the industry-wide average selling price (ASP). However, ZTO believes there is limited downside to ASP due to the profitability challenges faced by competitors [3][9]. - ZTO plans to invest between Rmb5.5 billion and Rmb6 billion in capital expenditures to ensure that the majority of its land is self-owned, with expectations for a reduction in capex levels by FY26 [1]. Competitive Landscape - The company notes that the competitive landscape remains intense, particularly during peak seasons like the June 18 shopping festival, where ASP is expected to remain pressured as players focus on higher asset utilization [11]. - ZTO has observed increasing pressure on network partners across the industry, which is a key factor in tracking the progress of price competition [9]. Operating Strategies - ZTO is focusing on regaining order volume share while balancing service quality and profitability. The company emphasizes ecosystem sustainability by improving the financial health and efficiency of network partners [1][16]. - The company is also working on cost optimization potentials, particularly in labor costs and automation, to enhance last-mile efficiency [13]. Financial Performance - In the first quarter of FY25, ZTO reported parcel volumes of 8.539 million, representing a year-over-year growth of 19%. However, net revenues were Rmb10.892 million, which was 11% lower than expected [15]. - The revenue per parcel decreased to Rmb1.25, down by Rmb0.11 compared to the previous year, indicating pressure on profitability [15][17]. EBIT Outlook - The EBIT per order is expected to face continued pressure from competition, although the positive contribution from reverse parcels is noted as a mitigating factor [14].