YTO Express Earnings: Shares Fairly Valued; Dragged by Freight Forwarding and Aviation Business

We maintain YTO Express' fair value estimate at CNY 15 per share and think the shares are fairly valued. YTO's unit express revenue was 12% higher than its peers STO Express and Yunda Holding in the second quarter. (We cannot make a comparison with ZTO Express' unit express revenue because of different reporting standards.) While YTO’s express revenue per parcel dropped 4% year on year in the second quarter, this was better than STO’s negative 10%, Yunda's negative 16%, but worse than ZTO's 0%. On the other hand, YTO's parcel volume share in the quarter was down 90 basis points year on year to 15.4%, more than the 30- and 10-basis-point reductions at STO and Yunda, respectively, but less than ZTO's 390-basis-point drop, based on the official data released in 2023 and the restated data in 2024. We think it is difficult for express players to maintain higher pricing and keep their market share at the same time. YTO is making continuous efforts to digitalize and standardize the operations of all franchisees, including the adoption of customer service and financial system applications by all franchisees. Although these measures should increase efficiency and service quality, we believe improving its parcel volume share will take time. We are maintaining our assumption that YTO can cut unit express costs by 2.9% in 2024, benefiting from digitalization.