Over the last six months, each of China's five largest Express Parcel Delivery firms has completed a public listing: ZTO Express (ZTO US) listed in the US in late October, of course, and its four closest rivals all achieved listings in Shanghai or Shenzhen via 'backdoor' listings, the most recent being S.F. Holding Co Ltd (002352 CH) in February.
In our view, the recent 'backdoor' listings of ZTO's four rivals add to medium-term pressures on the company in three distinct ways:
- ZTO must now compete with four large, listed rivals for investors' attention and capital
- The generally rich valuations obtained on Chinese bourses give ZTO's four Chinese-listed rivals stronger 'currencies of acquisition' that can be exploited to fuel inorganic growth
- Quarterly financial reports from ZTO's newly-listed rivals will provide useful context for evaluating ZTO's performance
In this note we present preliminary 2016 results from the five listed Chinese express Parcel Delivery companies, plus a look at consensus sales and earnings expectations for 2017. We also show ZTO's weak share price performance against its Chinese peers, and describe what needs to occur before we can take a more positive view of the stock. For now, we continue to recommend investors avoid ZTO.
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