SF/YTO/STO/Yunda’s operational data in Sep suggested fiercer competition in low-end e-commerce parcel market, given greater ASP decline and aggressive volume growth. We view that the heated sector consolidation will see completion in 2020E, due to limited room for cost cut and further market growth slowdown. Suggest to pay attention to STO (002468 CH) for Alibaba’s possible volume diversion and ZTO (ZTO US) for prominent cost control capability during the upcoming “Double 11” e-commerce carnival.
- Pitched battle on e-commerce parcels under way. SF/YTO/STO achieved 38%/42%/51% YoY volume growth in Sep, along with 11%/18%/14% YoY decline, in contrast to market volume/ ASP 25%/-2% YoY change. Yunda’s volume/ASP grew 41%/84% YoY. Excluding impact from Yunda’s change on revenue recognition, we saw the price war in low-end e-commerce parcel market heat up. Considering 1) the limited room for further dramatic cost cut based on current technical level, and 2) inevitable market growth slowdown in 2020E (CMBI forecasts: volume +21% YoY), we reaffirm that the showdown of ongoing sector consolidation will occur in 2020E.
- Eyes on upcoming “Double 11” e-commerce carnival. Although we saw “Tongda”s sequentially raise ASP to offset margin pressures caused by volume peak during “Double 11” e-commerce carnival (ZTO, YTO officially announced already), we deem that it cannot be regarded as price war truce. SF/JD Logistics have confirmed that they would maintain aggressive pricing tactics in low-end market, and we believe the heightened competition will continue. Meanwhile, we suggest watching for STO (002468), as it is the first “Double 11” after Alibaba’s investment in STO. In addition, the players with advantage on automation and capacity, like ZTO, will edge out, in our view.
- Large restricted share circulation to shadow sector in near term. As YTO/Yunda/SF went public on A-share market through restructuring three years ago, their restricted shares issued in restructuring placement will be circulated in the following three months. We worry that the sector will tremble upon lock-up expiration in the near term, and prefer US-listed ZTO which is free from this share-selling brunt.
- Reiterate ZTO as our top pick. We think the sector will be volatile in the near term, in view of 1) “Double 11” as catalyst and 2) impact from large restricted share circulation. That said, we are bullish on ZTO, due to 1) accelerated sector consolidation, 2) its advantage on automated sorting and transportation capacity, and 3) limited share-selling risk in the near term.
