< Earnings First Take> ZTO Express (ZTO US, 2057 HK): Market expansion on track with improving cost productivity
Strong market share expansion and stabilizing parcel unit price to support revenue growth. Total revenue rose 20.6% y-o-y to Rmb30.4bn in FY21, in-line with our estimate, of which core express delivery business remained as the largest revenue contributor and increased 23.7% y-o-y to Rmb28.9bn (or 95% of total revenue), mainly backed by robust parcel volume expansion (+31% y-o-y) with its market share rising from 20.4% in FY20 to 20.6% in FY21, as well as parcel unit price stabilizing from Rmb1.37 in FY20 (-20% y-o-y) to Rmb1.30 in FY21 (-5.7% y-o-y).
Continuous cost productivity improvement amid fierce market competition to help safeguard margin. Gross margin narrowed from 23.1% in FY20 to 21.7% in FY21, slightly higher than our and market estimate, mainly resulted from competition-led ASP decline partially offset by cost productivity improvement. More specifically, line-haul transportation cost per parcel slightly rose 0.8% y-o-y to Rmb0.52 in FY21 (vs. Rmb0.51 in FY20), while sorting hub operating cost per parcel decreased 1.1% y-o-y to Rmb0.30 in FY21 (vs. Rmb0.31 in FY20), backed by higher utilization of automation equipment and enhanced economies of scale.
Expect to see profitability recovery ahead amid continuous policy regulation. Net income rose 10.3% y-o-y to Rmb4.8bn in FY21 with net margin narrowed from 17.1% in FY20 to 15.6% in FY21. Looking froward, given continuous policy regulation to help stabilize price competition and transform the market competition from pure price to high service quality, we expect to see gradual margin improvement in the coming future.
The company maintain net cash position in FY21, with net cash provided by operating activities recorded Rmb7.2bn in FY21 (+45.8% y-o-y), while capex remained stable at Rmb9.3bn in FY21 (+1% y-o-y). Looking forward, the company expect the cash generated from operating activities to exceed capex in FY22. Besides, the company announced a final dividend of US$0.25 per ADR and share in FY21 (the same as US$0.25 in FY20), with dividend pay-out ratio at 26% in FY21.
Looking forward, the company set the FY22 parcel volume target at the range of 26.30bn-27.64bn with estimated y-o-y growth of 18%-24%, strengthening its leading position as the largest express delivery company in China. Maintain BUY rating with TP under review.
