ZTO targets to deliver parcel volume growth of 35-40% YoY in 2021E, and to achieve market share of 22%/25% in 2021E/22E (versus 20.4% in 2020). Given that no guidance on net profit is provided, we believe ZTO will continue to pursue scale instead of profitability in the foreseeable future. We took our 2021E/22E earnings forecast down by 14%/9%, after revising down our ASP assumptions. We revised our TP to HK$278 from HK$292, based on 36x 2021E P/E (50% premium to the historical average of 24x, on the back of market share gain). On the positive side, we believe ZTO’s on-track cost reduction measures and continuous investment in network and capacity will make it a beneficiary of market consolidation. Besides, expansion in time-definite segment, less than load (LTL) and cold chain business will serve as potential growth drivers going forward.
- Earnings highlight. ZTO’s reported net profit in 4Q20 dropped 45% YoY to RMB1.29bn. Excluding the one-off gain of ~RMB700mn in 4Q19, net profit in 4Q20 would drop only 21% YoY. For the full year, net profit was RMB4.3bn, down 24%/13% on reported/recurring basis. ZTO recognized RMB127mn of FX loss in 2020, due to the depreciation of USD-denominated deposits against RMB.
- Volume growth remained strong in 4Q20. ZTO’s revenue increased by 21% YoY to RMB8.3bn in 4Q20, driven by parcel volume growth of 47% YoY (similar to YTO [600233 CH] and Yunda [002120 CH], but outpaced the industry growth of 30%). In terms of parcel volume, ZTO’s market share reached 19.9% in 4Q20.
- ASP dropped less than “Tongda” players. ZTO’s parcel ASP dropped 20% YoY (or RMB0.36/unit) to RMB1.41/unit in 4Q20 (breakdown: [1] RMB0.25 for incentives to support network partners, [2] RMB0.02 for the use of lower-priced waybills, and [3] RMB0.09 due to lower parcel weight). On QoQ basis, the ASP increased 6%.
- Unit cost down 12% YoY in 4Q20. ZTO’s unit cost of transportation and sorting hub dropped 16% YoY and 12% YoY, respectively, to RMB0.55 and RMB0.31. The transportation cost reduction was driven by higher portion of volume transported by self-owned trucks (88%, vs 69% in 4Q19) and higher portion of the use of high-capacity trucks (81%, vs 72% in 4Q19). For sorting hub cost, the reduction was mainly by the use of more sets of automated sorting equipment (339 sets, vs 265 sets in 4Q19).
