We believe ZTO’s lower parcel volume growth guidance for the full year (14- 18%, vs. 20-24% previously) is a response to the government’s anti-involution campaign. While weak 2Q25 profit (-26% YoY) and lower guidance look unattractive, we see chances of an ASP surprise over the coming 6-12 months which will likely serve as a major share price catalyst. We only slightly fine-tune our 2025E-27E earnings forecast by 1-2%. We roll over our valuation base to 2026, and accordingly revise up our TP for ZTO US/2057 HK to US$23.9/HK$187 (previously US$22.2/HK$174) based on an unchanged target multiple of 15x 2026E P/E (1SD below historical average). Maintain BUY.
　　Key highlights in 2Q25 results:
　　Core net profit declined 26% YoY to RMB2bn in 2Q25, attributable to 10% revenue growth but offset by unit gross profit contraction of 30% YoY (to RMB0.3/parcel). In 1H25, the core net profit dropped 13% YoY to RMB3.98bn which accounted for 46% of our full-year estimate (run rate in 1H24: 48%).
　　Parcel volume grew 16.5% YoY to 9.8bn units. Market share in 2Q25 was 19.5% (-0.1ppts YoY and +0.6ppts QoQ). ZTO remained the largest player in term of express delivery parcel volume in 2Q, followed by YTO (16%) and Yunda (13.2%).
　　ASP dropped 4.7% YoY. ASP in 2Q25 dropped RMB0.06/parcel (or 4.7%) YoY to RMB1.18/unit (breakdown: KA +RMB0.17, parcel weight - RMB0.05, volume incentives -RMB0.18).
　　Unit cost increased 9% YoY to RMB0.89/parcel. Unit cost of transportation decreased RMB0.06 (or 14%) YoY to RMB0.33/parcel, helped by economies of scale, improved load rate and decrease in diesel prices. Unit cost of sorting hubs dropped RMB0.01 (or 7%) YoY to RMB0.25/parcel, helped by scale and the increase in automation level. Other unit cost unexpectedly surged RMB0.15/unit (or 102%) YoY to RMB0.29/unit, due to an increase in KA cost based on our understanding.