Wenyu Hong Kong Stock Research Society

Since May, ZTO Express has been pushed to the forefront because of the problem of pet blind boxes, and the express delivery industry has also been questioned because of the problem of receiving and sending live animals. Meanwhile, on May 20th, ZTO Express released its performance report for the first quarter of 2021.

From a fundamental point of view, the total revenue and business volume of this financial report showed rapid growth, and the net profit growth also turned from negative to positive. Affected by the financial report, ZTO Express stocks opened higher with a gap, with a current increase of 4.17% and a price of HK$ 249.8.

Today’s express delivery industry has formed a head-concentrated advantage, including SF Express, which focuses on speed, JD.COM, which started its own business, and its all-in-one post, backed by Extreme Rabbit Express in Pinduoduo, and Tongda Department, in which Ali holds shares. As the largest domestic market share, ZTO Express now has a market value of US$ 25.571 billion in the US stock market, while its market value has reached HK$ 207.325 billion in less than one year since it was listed on the Hong Kong stock market, ranking only behind SF Express, and it is a veritable behemoth in the express delivery industry.

Now, let’s take a look at what propped up the market value of Zhongtong through this quarter’s financial report.

According to the financial report, ZTO Express continues to maintain rapid growth in revenue. The financial report for the first quarter of 2021 shows that Zhongtong achieved revenue of 6.472 billion yuan, up 65.3% year-on-year, exceeding the growth rate of 20.6% in the fourth quarter of 2020; The net profit was 534 million yuan, a year-on-year increase of 43.8%.

The high growth of revenue was first of all due to the reduction of revenue base last year due to the epidemic. In the same period last year, ZTO Express achieved revenue of 3.916 billion yuan, down 14.39% compared with Q1 in 2019. If we compare this year with Q1 revenue in 2019, it will increase by 41.56%.

Secondly, the good situation of the postal industry this year has also opened up the revenue situation of Zhongtong. According to the data of Forward-looking Industry Research Institute, in the first quarter of 2021, China’s postal business totaled 302.92 billion yuan, a year-on-year increase of 50.3%. Affected by this, Zhongtong’s revenue achieved a high growth rate.

In terms of breakdown, Zhongtong’s revenue is mainly divided into express service, freight forwarding service, material sales and other four parts, with the growth rates of the first three reaching 65.2%, 66.8% and 47.0% respectively. At the same time, the revenue contribution rate of express delivery service reached 87.6%, which played a leading role in promoting the growth rate of total revenue. The growth of express service income mainly comes from the growth of parcel volume.

During the quarter, Zhongtong’s parcel volume was 4.475 billion pieces, an increase of 88.5% compared with the same period of last year, 13.5 percentage points higher than the industry average, and the market share reached 20.4%. The increase in parcel volume was partly due to the decline in price, and the unit price of Zhongtong parcel decreased by 12.4% in the quarter.

It is worth noting that Zhongtong’s goal of achieving 22.95-23.80 billion packages this year has not changed. At present, it has not reached the average of the four seasons in the first quarter, and it is under great pressure in the later period.

However, while the revenue has achieved high growth, the operating costs of Zhongtong are also high. In the first quarter of this year, Zhongtong’s operating cost was RMB 5.376 billion, a year-on-year increase of 73.6%. Among them, the cost of trunk transportation and distribution center increased by 95.3% and 56.5% respectively.

According to this financial report, the high growth of trunk transportation cost is mainly due to the reduction of the base last year due to the toll exemption policy of the epidemic and the decline in diesel prices; The high cost increase of sorting center lies in the increase in the input of automation equipment.

Judging from the revenue and net profit of this quarter, Zhongtong has shown a good development trend. As the core package volume of the express delivery industry, it is also growing at a high speed, maintaining the first position in the industry. This is also the reason why the market value of Zhongtong ranks second in the industry. However, although Zhongtong ranks first in the number of parcels, it still faces a huge test in terms of revenue base.

Comparing the market, we will find that in terms of business volume, Zhongtong leads the industry and has become the first express delivery company with a market share of over 20% in 2020. However, in revenue, it still lags behind other companies.

By comparing the revenue and parcel quantity of SF Express and other Tongda departments, it is not difficult to see that Zhongtong is not dominant.

The disproportion between revenue and business volume reflects some problems of Zhongtong. In order to gain market share and increase business volume, Zhongtong keeps lowering the lower price limit, especially in the current fierce price war.

In mid-March this year, in Yiwu, the "capital of express delivery", Best announced that the delivery price was reduced directly from 1.6 yuan to 1.2 yuan, and then various express delivery companies followed suit.

Although the price war ended because of the postal administration’s suspension, it will not change the behavior of several head enterprises in the express delivery industry to reduce prices in order to share the market. Especially after the polar rabbit, backed by Pinduoduo, came in by express delivery, the price war had a new initiator.

The price competition has led to the continuous decline of single ticket income in the industry. According to the announcement, in April, the single ticket revenue of YTO Express express products was 2.15 yuan, down 8.28% year-on-year; The single ticket revenue of Yunda Express Service was 2.04 yuan, down 4.67% year-on-year; The single ticket revenue of Shentong Express Service was 2.13 yuan, down 16.47% year-on-year.

During this period, the single ticket price of Zhongtong dropped by 12.4%. According to the financial report of the first quarter of last year, after excluding cross-border business, the single ticket revenue was only 1.52 yuan, which was much lower than the price of competitors above 2 yuan.

On the other hand, in the express delivery industry, it has become a strategy to occupy the market at a low price, which is why the gross profit margin of Zhongtong has dropped from 20.9% last year to 16.9% in this period. Although Zhongtong has gained market scale in this process, at the same time, Zhongtong has fallen into a bigger trap. In the case that the single ticket income cannot be improved, the current revenue has already met the ceiling.

This requires Zhongtong to carry out internal changes and open a new express map. Obviously, Zhongtong is also using its own scale advantage to expand new subdivided tracks.

Since these years, the express delivery industry has undergone a reshuffle, and a number of express delivery companies such as Quanfeng, Express, Guotong and Rufengda have successively withdrawn. Wang Zhibin, a researcher at the National Engineering Laboratory of Logistics Information Sharing Technology and Application, said that the concentration of CR5 in the express delivery industry is close to 80%. This also indicates that the express delivery industry will gradually enter the oligopoly era. In a long-term stage, no one can kill anyone, but it is slowly consumed. The competition in the express delivery industry will also extend from the previous price competition, and gradually increase its market share by providing new services and new content.

Based on the current business volume, Zhongtong’s market share reached 20.4% in this quarter, still leading the industry, and it plans to reach 25% in 2022, which still has some pressure according to the current growth rate. This is why Zhongtong started to be a rural market.

In May 2020, Zhongtong Yunnan Kunming Dounan cold chain warehouse was officially opened; In January of this year, the intelligent e-commerce headquarters industrial park in southwest ZTO Express started construction in Chongqing Highway Logistics Base. The project is intended to build a whole industry chain of "from factory to user, from farm to dining table"; Three months later, Zhongtong reached a strategic cooperation with China Eastern Airlines Logistics Yunnan Branch, opened freight services on more than 40 direct flights, and launched time-limited parts services for the first day and the second morning to provide transportation services for agricultural products and fresh goods.

Undoubtedly, it is impossible to decide the outcome only by relying on the existing express delivery business. The next clearing of the express delivery company will be based on the combination of supply chain, cold chain and logistics, constantly refining new express delivery services, combining logistics with new retail, and constantly creating new service contents.

However, driven by policy support and market demand, this track is also crowded. At present, JD.COM cold chain logistics has started the mode of "cooperative warehouse of origin", which puts the supply chain ahead; Just recently, it reached a cooperation with Lanxi government on "e-commerce+agricultural products". Coincidentally, in May, when cherries are ripe, SF Express will distribute cold chain cars in several producing areas, and will invest about 110 all-cargo transport routes in eastern Shandong. At present, SF’s upstream and downstream network of agricultural products has covered 335 prefecture-level cities, serving more than 4,000 fresh varieties.

Facing the long-term aging service of JD.COM and SF Express, Zhongtong faces more challenges in fresh food and agricultural products, one is speed, and the other is service. In terms of speed, Zhongtong relies on its own cold chain trunk line. With the investment in these years, the problem is not big. In terms of service, it can be predicted that Zhongtong still faces some problems. For example, if we borrow the existing distribution system, the last mile problem can’t be solved well.

However, at present, agricultural products, fresh goods, etc. are still a huge incremental market with vast development space, and the win or loss is uncertain. Zhongtong’s penetration at the county level is also its advantage (the coverage rate of county-level cities is over 99%). If it can match the supply chain and logistics well in the future, it will have great opportunities.

Generally speaking, as a courier company with the largest domestic market share, Zhongtong still maintains its own advantages in business volume, while its revenue basically maintains a high-speed growth trend. In the future, after the express delivery market gradually enters the stock stage, it will be impossible to gain a breakthrough in market share through price war. In order to achieve a 5% growth in two years or finally reach a domestic market share of 30%, Zhongtong must develop new express delivery services. At present, under the background of rural revitalization, rural fresh agricultural products are one of the best breakthroughs. However, on the track surrounded by giants, whether Zhongtong can get what it wants can only wait and see.