Amidst intensified price war, the major players suffered from subdued profitability in 1H19, as we expected. There is no upturn signal observed as YTO/STO recorded double-digit ASP decrease to maintain robust volume growth in Aug. We expect the competition to continue and culminate in 2020E, and suggest to watch for consolidation beneficiaries, such as ZTO (ZTO US, BUY, TP: US$21.76), backed by solid share gains and prominent cost control capability.
- Dampened profitability amid accelerated consolidation. We saw further bifurcation between volume and revenue growth from major players’ 1H19 results. “Tongda”s recorded volume/revenue growth of 43%/35% YoY on average in 1H19. We maintain our conservative outlook toward margins afterwards, as all players are sprinting to carve up e-commerce parcel shares with aggressive pricing tactics and the growth divergence continues to widen. In Aug, we witnessed SF/YTO/STO ASP decline expand to 8%/17%/14% YoY in return for 33%/49%/56% volume YoY growth. We believe ASP accelerated downward trend bodes the upcoming culmination of price war in 2020E, based on our prudent ASP forecasts (-10% in 2020E for “Tongda”s).
- SF’s impact to low-end market landscape is limited. We view that SF’s recent volume recovery is largely due to penetration into e-commerce parcels with preferential products rollout. However, we believe it will barely menace “Tongda”s’ leadership in low-end market. In view of the trade-off between volume contribution and ASP dilution of e-commerce parcels, we believe SF’s e-commerce parcels will increase modestly from 1.7mn shipments per day to 2.5mn, implying upside of 24mn shipments per month which is equiv. to less than 1% market volume. Therefore, we expect low-end market landscape to be barely affected by SF, given its limited exposure.
- New business to be spotlighted in foreseeable future. State Council promulgated Planning on global competitiveness enhancement in transport(《交通强国建设纲要》) last week to encourage development of comprehensive logistic services (e.g. cold chain, heavy cargo and cross-border delivery). We expect new business to fuel LT growth against the backdrop of e-commerce inevitable slowdown, despite their little revenue contribution and loss-making condition at current stage.
- Prefer consolidation beneficiaries with high e-commerce exposure. We reiterate ZTO as our top pick, and believe it, as leader in mid/low-end market, will benefit from accelerated sector consolidation, backed by 1) continued share gains, 2) solid cost control capability and 3) high e-commerce parcel exposure.
