ZTO Express (ZTO)’s 1Q25 core net profit grew 5% YoY to RMB1.96bn, based on our calculation. In particular, such increase was only supported by RMB407mn (+2.4x YoY) government subsidies and tax rebates, which are likely to be one-off in nature. With ASP dropping 8% YoY in 1Q25, ZTO’s parcel volume growth (19.1%) was still lagging behind the industry average (21.6%) and all the major players. We see further ASP pressure if ZTO has to achieve the full-year parcel volume of 40.8-42.2bn (20-24% YoY growth). We slash our 2025E-27E earnings forecast by 18-21%, largely due to lower parcel ASP assumptions. We lower our target multiple to 15x (previously 18x), based on 1SD below historical average (previously 0.5SD), in order to reflect the price competition and slowdown in earnings. Our TP for ZTO US/2057 HK is revised down to US$22.2/HK$174 (previously US$32.6/HK$256). That said, we still keep our BUY rating as we expect ZTO is still managed to generate strong free cash flow to support its semi-annual dividend payment and share buyback programme.
Key highlights in 1Q25 results:
Core net profit grew only 5% YoY to RMB1.96bn, driven by 9% revenue growth but offset by unit gross profit contraction of 25% YoY (to RMB0.31/parcel). EBIT was up 6% YoY but largely helped by government subsidies and tax rebates. Reported net profit grew 40% YoY to RMB1.99bn, due to a low base last year (impairment of RMB478mn in 1Q24). Excluding this item, the core net profit grew 5% only.
ZTO’s ASP dropped 8% YoY. ASP in 1Q25 dropped RMB0.11/parcel (or 8%) YoY to RMB1.25/unit (breakdown: KA +RMB0.12, parcel weight - RMB0.06, volume incentives -RMB0.16).
Parcel volume grew 19% YoY to 8.54bn units. Market share in 1Q25 was 18.9% (down 0.4ppts YoY and 0.1ppts QoQ). We believe that ZTO will need to take a more aggressive pricing approach to boost market share going forward.
Unit cost dropped 0.4% YoY to RMB0.94/parcel. Unit cost of transportation decreased RMB0.06 (or -13% YoY) to RMB0.41/parcel, helped by economies of scale, improved load rate and decrease in diesel prices. Unit cost of sorting hubs dropped RMB0.03 (or 10% YoY) to RMB0.27, helped by scale and the increase in automation level. Other unit cost surged RMB0.10/unit (or 61%) YoY to RMB0.25/unit, due to increase in KA cost.