ZTO.US 2057.HK

The leading Chinese parcel delivery company’s revenue rose 12.5% in the second quarter, while its profit jumped 44%


By Doug Young

Parcel delivery company ZTO Express (Cayman) Inc. (ZTO.US; 2057.HK) on Tuesday reported its revenue grew 12.5% in the second quarter, while its profit grew at more than triple that rate as it improved its efficiencies and gained market share.

ZTO Express and its peers also benefited as demand for parcel delivery services in China returned to normal levels this year, following extreme disruptions in last year’s second quarter caused by the country’s severe Covid-control restrictions. The industry also benefited after the government stepped in to end an extreme price war that erupted in 2021.

ZTO reported revenue of 9.74 billion yuan ($1.34 billion) for the three months to June, up from 8.66 billion yuan in the year-ago period, according to its latest quarterly results released Tuesday after New York markets closed. Its net income rose by an even stronger 44% year-on-year to 2.53 billion yuan.

The strong revenue growth came as ZTO delivered 7.7 billion parcels during the quarter, up 24% from the 6.2 billion parcels delivered in the year-ago period when China was implementing strict Covid control measures. As part of those controls, China’s commercial capital of Shanghai was locked down for the entire months of April and May, with parcel deliveries into and out of the city severely restricted.

ZTO said that average prices for its core express delivery services fell 7.8% in the second quarter from a year earlier, as the company lowered prices to attract more lighter and smaller packages. But it reduced its package sorting and transportation costs by an even larger 15% through standardization and greater digitization.

ZTO also boosted its share of the China parcel delivery market during the quarter to 23.5% from 23% a year earlier. As its efficiencies improved, the company’s gross margin rose to 33.9% in the second quarter from 25.4% in the year-ago period.

ZTO’s shares fell 3.8% in Wednesday trade in Hong Kong after the results came out. Year to date the stock is down about 12%.

About a half dozen companies currently dominate China’s huge market for parcel delivery and related logistics services, led by ZTO, S.F. Holding (002352.SZ) and YTO Express (6123.HK; 600233.SH). ZTO’s shares trade at a current price-to-earnings (P/E) ratio of about 18, behind the 31 for S.F. Holding but ahead of the 5 for YTO’s Hong Kong-listed shares.

ZTO founder and Chairman Lai Meisong warned of an “overall soft economic environment” and “near-term uncertainties in the marketplace,” in his comments included in the report. Consumer sentiment in China has become weak in recent months, negating most of the positive impact of a strong rebound from the Covid pandemic at the start of the year.

Despite the uncertainties, ZTO reiterated its previous forecast that its parcel volume would rise 20% to 24% for all of 2023. It added it aims to boost its market share by 1.5 percentage points for the year from its 22.1% market share for all of 2022.

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