4Q24 results in line with our expectations
　　ZTO Express (ZTO) announced its 4Q24 results: Revenue rose 22% YoY and 21% QoQ to Rmb12.92bn, gross profit grew 20% YoY and 13% QoQ to Rmb3.76bn, net profit attributable to shareholders grew 9% YoY and fell 1% QoQ to Rmb2.38bn, and non-GAAP net profit grew 23% YoY and 14% QoQ to Rmb2.73bn, in line with our expectations.
　　In 4Q24, parcel volume rose 11% YoY to 9.67bn units, and market share (based on the new standard) fell 1.2ppt QoQ to 18.8%. 4Q24 per parcel (unit) data: Revenue per parcel (excluding freight forwarding) rose 10% or Rmb0.13 YoY to Rmb1.32, as the firm's optimization of direct customer structure offset the negative impact of lower per parcel weight and increased incremental subsidies.
　　Cost per parcel (excluding freight forwarding) grew10% or Rmb0.10 YoY to Rmb0.93, with transportation cost per parcel down 11% or Rmb0.06 YoY to Rmb0.40 and sorting cost per parcel largely flat YoY at Rmb0.26. We attribute this to continued efforts to reduce costs and improve efficiency.
　　Non-GAAP net profit per parcel rose 11% or Rmb0.03 YoY (up 3% or Rmb0.01 QoQ) to Rmb0.28. The firm expects parcel volume to grow about 15% in the sector in 2025. Based on market and operating conditions, the firm expects its parcel volume to grow 20-24% YoY in 2025, reaching 40.8- 42.2bn.
　　Trends to watch
　　Industry level: Demand has remained strong YTD; watch price changes in slack season. According to the State Post Bureau, parcel volume grew 22% YoY in 2M25. We expect express delivery demand to maintain double-digit growth this year, thanks to live-streaming e-commerce and the shift towards small parcels. We believe regulators still attach importance to the high-quality development of the industry. However, we suggest paying attention to potential changes in regional competitive landscape in the slack season in 2025, given rising proportion of small parcels and price-sensitive merchants.
　　Company level: Parcel volume growth to accelerate in 2025; further room for per-parcel cost optimization; per-parcel profit may decline due to price competition. As noted in our previous report, we expect the firm to shift from its relatively conservative market share strategy in 2024,　with parcel volume growth accelerating from 13% YoY last year to over 20% YoY.
　　We expect the firm’s capex to decline further as its site selection for sorting centers matures. With product mix optimization driven by industry-leading service quality and efficiency gains from digital-intelligent tools, we believe its costs should continue to decrease. However, given potential changes in sector-wide competition in 2025, we expect the firm's full-year profit per parcel to decline.
　　Financials and valuation
　　Considering potential changes in price competition in 2025, we lower our 2025 earnings forecast 5% to Rmb10.26bn. We introduce our 2026 earnings forecast of Rmb11.82bn. The stock is trading at 12.5x 2025e and 10.6x 2026e P/E. Maintain OUTPERFORM. Given changes in average sector valuation, we maintain our TP of US$25.7, implying 15x 2025e and 12x 2026e P/E with 18% upside.
　　Risks
　　Parcel volume growth disappoints; competition intensifies; fuel and labor costs surge.