ZTO Earnings: Mixed Results; Raising Fair Value Estimate by 38%, With Shares Fairly Valued

While narrow-moat ZTO Express’ first-half revenue is tracking marginally ahead of our full-year expectation, operating profit trailed slightly. We raised our 2024-26 revenue estimates 3%-4%, due to ZTO’s focus on higher-priced retail and reverse parcels instead of low-price e-commerce parcels, and EBIT by negative 3% to positive 3%. ZTO’s parcel volume growth is tracking behind our 2024 estimate, but management kept 2024 volume guidance unchanged. We are confident that parcel volume year-on-year growth in the second half will be faster than the first half. However, we believe ZTO’s strategy to avoid loss-making low-price parcels is good for profitability but bad for parcel volume growth. Hence, we reduced our 2024-26 parcel volume estimates by 3%-8%. Our revised 2024 parcel volume growth forecast is 13%, lower than management's guidance of 15%-18%.