SF delivered solid 3Q19 results backed by improved OPM, while adj net profit increased 62% YoY (55% higher than our forecast). We believe e-commerce parcels will continue to boost volume growth, but the accelerated ASP downward trend make us prudent about revenue outlook in FY19/20E. That said, we expect rigorous cost control to secure margins amid the heightened price war. Maintain BUY. We lifted FY19/20E adj EPS by 9%/2% respectively, and raised TP to RMB47.52 based on 36x/33x FY19/20E P/E.
- Strong beat in 3Q19 due to Opex improvement. Adj net profit grew 62% YoY, 55% higher than our forecast backed by tight cost control, while revenue increased 26% YoY, 11% below our forecast, mainly due to larger-than-expected ASP plump in Sep (i.e. -14% YoY). As SF will maintain aggressive pricing tactics in the coming “Double 11” amid intensified price war, we are cautious about ASP trend, but expect continued rigorous cost control will significantly benefit EPS growth despite GPM pressure. Hence, we lifted FY19/20E EPS by 9%/3%.
- E-commerce parcels to weigh on growth outlook. In sharp contrast to lackluster business parcels and start-up new business, we believe share gains in e-commerce parcel market will continue to act as SF’s growth pillar in near term. We expect robust volume growth to continue in FY19/20E, but are concerned about ASP accelerated downward trend as ASP was down by 3%/7%/11% YoY in Jul/Aug/Sep respectively. Considering heated price war during the e-commerce carnival and afterwards, we anticipate 8% YoY ASP in 4Q19E, and thus lower FY19/20E revenue estimates by 2%/5%.
- Tight cost control to secure margins. In 3Q19, the Company’s Opex margin ratcheted up by 1ppt QoQ/YoY thanks to strict cost management. Mgmt guided that SF would carry out RMB3bn cost saving plan in 2H19E, and we believe the continued cost cut will secure margins, given foreseeable GPM pressure brought by further exposure in e-commerce parcel market.
- Maintain BUY with TP RMB47.52. In view of 1) strong volume growth, 2) ASP downward trend, and 3) improved operating leverage, we revised up our FY19-21E adj. EPS by 2-9%. Therefore, we maintained BUY rating and raised TP to RMB47.52, based on same 33x FY20E P/E. Key risks include greater-than expected ASP decline and large restricted share circulation.
