Source: Beast Finance Author: Beast Finance
Wall Street analysts' short-term financial forecasts for ZTO Express
Wall Street analysts are currently predicting that ZTO Express (ZTO) will generate a decent financial performance for the full fiscal year 2023.
According to S&P Capital IQ data, in the past 6 months, Wall Street analysts have raised ZTO Express’ revenue forecast for fiscal year 2023 by 1.5%, from 41.308 billion yuan to 419.07 yuan. Express’s EBIT forecast for this year has been raised by 7.9%, from 9.627 billion yuan to 10.385 billion yuan.
Wall Street analysts' current consensus financial forecast for ZTO Express suggests that ZTO's fiscal 2023 revenue and EBIT will grow by 18.5% and 34.2%, respectively.
Beast Finance believes that Wall Street analysts' financial performance forecasts for ZTO Express in fiscal year 2023 are quite reasonable.
Because the recovery of China's express delivery industry and the increase in market share may be the main driver of ZTO Express's revenue growth in 2023. According to a report by "China Daily" on July 13, 2023, in the first half of this year, the number of express parcels delivered in China has increased by 17% year-on-year. In addition, the management of ZTO Express also expects that according to its first-quarter 2023 financial report, the company's share of China's express delivery market will increase from 22.1% last year to 23.6% this year.
Regarding the potential improvement in profitability, ZTO Express' current forecast for FY2023 EBIT is RMB 10.385 billion, implying that its EBIT margin is expected to expand by 290 bps to 24.8% in the current fiscal year . In the first quarter of 2023, although ZTO Express' revenue increased by 13.7% year-on-year, the company's profit margin in the first quarter of this year only increased by 2.8% year-on-year. In the earnings conference, ZTO Express attributed this to "digitalization" Driven operations "due to, inter alia, leverage and meaningful productivity gains."
Looking ahead, Boldbeast Finance believes that greater economies of scale and improved operational efficiency will be positive factors that will drive ZTO Express's profit margin growth in 2023.
The long-term competitive landscape of China's express delivery market will undergo major changes
ZTO Express is currently the largest player in China's express delivery market with a market share of 22.1% in 2022, which was also highlighted in the company's May 2023 financial report.
Although since last year, the market share of China's six major express delivery companies, including ZTO Express, has reached 86.3% in the domestic express delivery industry.
But judging from recent developments, ZTO Express may not be able to consolidate its market share in China's express delivery market, nor maintain its leadership position in China's express delivery market.
Because Cainiao Group, the logistics arm of Alibaba (BABA), has launched its own express delivery service, Cainiao Express, in June this year. As of early August, Cainiao Group has launched the company's express delivery service in eight cities in China, and plans to expand its delivery service to other cities in China soon. Backed by parent company Alibaba's deep financial resources as one of China's largest internet companies, Cainiao Group could pose a serious threat to China's leading delivery companies such as ZTO Express in the future.
In addition, China’s fifth largest express company, Jitu Express, is also planning to list on the Hong Kong Stock Exchange, and intends to “raise funds of 500 million to 1 billion US dollars” through listing. Jitu Express’s market share in 2022 will be 10.8%. If Jitu Express can be successfully listed on the Hong Kong Stock Exchange, the company will definitely use the US$500 million to US$1 billion raised from the listing to invest wildly in its further expansion in mainland China.
In short, with the entry of new competitors such as Cainiao Group, and the listing of companies such as Jitu Express, the landscape of China's express delivery market will undergo major changes, and the integration process may also take longer.
Therefore, it may be difficult for ZTO Express to gain meaningful market share in the future. In addition, in the long run, the increasing competition intensity of China's express delivery industry may also translate into price wars. Profit margins will also fall.
Conclusion
ZTO Express' short-term financial outlook is positive, but the company's long-term growth prospects are uncertain.
One of ZTO’s main rivals, Jitu Express, is planning to raise between $500 million and $1 billion through a listing on the Hong Kong Stock Exchange, while a new player, Cainiao Group, has recently been expanding wildly in China’s express delivery market.
Considering the potential changes in the competitive landscape of China's express delivery industry, Boldbeast Finance is currently not optimistic about ZTO Express stock.