HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zto-express-cayman-inc" target="_blank" data-smartkarma-citation="entities:33488:1" rel="noopener">ZTO Express Cayman Inc (2057 HK)</a>'s 63.1% surge in 3Q22 adjusted net profit demonstrated its ability to thrive even amid the challenging operating environment.  </li>
<li>It is positive on FY23 outlook and believes industry volume can return to double-digit growth. ZTO is confident of market share gain, better cost management and stable pricing. </li>
<li>We think its premium valuations are highly justified by strong cash generating ability. The increase of US$500m and lengthening of one year in share repurchase are very welcomed.</li>
</ul>



ZTO Express Cayman Inc (2057 HK)'s 63.1% surge in 3Q22 adjusted net profit demonstrated its ability to thrive even amid the challenging operating environment.  
It is positive on FY23 outlook and believes industry volume can return to double-digit growth. ZTO is confident of market share gain, better cost management and stable pricing. 
We think its premium valuations are highly justified by strong cash generating ability. The increase of US$500m and lengthening of one year in share repurchase are very welcomed.


ZTO Express (2057 HK/​​ZTO US): Solid Upward Momentum Stays Intact

<ul>
<li>The Aug China Express Development Index points to further industry recovery; and as the leader with 23% (+2pp YoY) market share, <a href="https://www.smartkarma.com/entities/zto-express-cayman-inc" target="_blank" data-smartkarma-citation="entities:33488:1" rel="noopener">ZTO Express (2057 HK)</a> should ride on the uptrend. </li>
<li>Sustained volume outperformance, upside on pricing and excellent cost control capability are drivers in 2H22. We are also comfortable with its solid financial position. </li>
<li>ZTO Express has above-average earnings quality and enjoys benefits from industry consolidation. Its on par valuation with the industry makes the stock appealing.</li>
</ul>


The Aug China Express Development Index points to further industry recovery; and as the leader with 23% (+2pp YoY) market share, ZTO Express (2057 HK) should ride on the uptrend. 
Sustained volume outperformance, upside on pricing and excellent cost control capability are drivers in 2H22. We are also comfortable with its solid financial position. 
ZTO Express has above-average earnings quality and enjoys benefits from industry consolidation. Its on par valuation with the industry makes the stock appealing.


ZTO Express (2057 HK/​ZTO US): Quality Speaks for Itself

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Event-Driven

<ul>
<li>On 26th Aug 2022, PCAOB and CSRC announced that they had entered into an agreement granting US authorities access to investigate public accounting firms headquartered in China and HK.</li>
<li>On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.</li>
<li>In this note, we'll talk about the latest developments and its implications.</li>
</ul>


On 26th Aug 2022, PCAOB and CSRC announced that they had entered into an agreement granting US authorities access to investigate public accounting firms headquartered in China and HK.
On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
In this note, we'll talk about the latest developments and its implications.


China ADRs Delisting - Tide Is Turning - Non-HK Listed ADRs Are Already Outperforming

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zto-express-cayman-inc" target="_blank" data-smartkarma-citation="entities:33488:1" rel="noopener">ZTO Express Cayman Inc (2057 HK)</a> has outperformed industry volume growth in 1Q22 and such trend continues into 2Q22 with good ASP improvement and cost control. </li>
<li>Its strong operating cash flow and declining capex will lead to an accumulation of cash over the next few years, adding to the 1Q22 net cash position of Rmb4.1bn. </li>
<li>We think the stock's underperformance against peers not warranted. With a below-sector earnings multiple, leadership position and successful business model, we consider ZTO a "Growth at a reasonable price".</li>
</ul>



ZTO Express Cayman Inc (2057 HK) has outperformed industry volume growth in 1Q22 and such trend continues into 2Q22 with good ASP improvement and cost control. 
Its strong operating cash flow and declining capex will lead to an accumulation of cash over the next few years, adding to the 1Q22 net cash position of Rmb4.1bn. 
We think the stock's underperformance against peers not warranted. With a below-sector earnings multiple, leadership position and successful business model, we consider ZTO a "Growth at a reasonable price".


ZTO Express (2057 HK/ZTO US): Growth at a Reasonable Price

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/gogox-holdings" target="_blank" data-smartkarma-citation="entities:35556:1" rel="noopener">GoGoX Holdings (GOGO HK)</a> is a major online intra-city logistics platform in Asia. It has passed the listing hearing for an HKEx IPO to raise US$100-150 million.   </li>
<li>In <a href="https://www.smartkarma.com/insights/gogox-ipo-initiation-a-less-than-perfect-delivery" target="_blank" data-smartkarma-citation="insights:64922" rel="noopener">GOGOX IPO Initiation: A Less than Perfect Delivery</a>, we noted that as the losses are expected to persist over the next three years, we would avoid the IPO.</li>
<li>In this note, we examine the PHIP for the 2021 results and recent developments. The fundamentals remain unattractive and we would give the IPO a pass. </li>
</ul>



GoGoX Holdings (GOGO HK) is a major online intra-city logistics platform in Asia. It has passed the listing hearing for an HKEx IPO to raise US$100-150 million.   
In GOGOX IPO Initiation: A Less than Perfect Delivery, we noted that as the losses are expected to persist over the next three years, we would avoid the IPO.
In this note, we examine the PHIP for the 2021 results and recent developments. The fundamentals remain unattractive and we would give the IPO a pass. 


China

ZTO Express (Cayman) Inc. operates as an express delivery company. The Company provides express delivery service through their nationwide network, as well as other value-added logistics services. ZTO Express serves customers globally.

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ZTO Express Cayman (ZTO US)

ZTO Express (2057 HK/ZTO US): Solid Upward Momentum Stays Intact

ZTO's strong 3Q22 net profit growth and increased buyback program are both positive developments. It is also confident on the FY23 outlook as...

Osbert Tang, CFA

ZTO Express (2057 HK/ZTO US): Quality Speaks for Itself

Industry figures suggest express market to continue recover in Aug and ZTO Express is best benefited given its number one position. Upside of ASP...

Osbert Tang, CFA

China ADRs Delisting - Tide Is Turning - Non-HK Listed ADRs Are Already Outperforming

On 26th Aug 2022, PCAOB and CSRC announced that they had entered into an agreement granting US authorities access to investigate public accounting...

Sumeet Singh

ZTO Express (2057 HK/ZTO US): Growth at a Reasonable Price

ZTO Express has outperformed industry volume growth with healthy pricing levels so far into FY22. We anticipate it will continue to add net cash to...

Osbert Tang, CFA

GOGOX IPO: Growth at All Costs

GOGOX has passed the listing hearing for an HKEx IPO to raise US$100-150m. The fundamentals remain unattractive and we would give the IPO a pass.

Arun George

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52-week Range

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ZTO Express (2057 HK/​​ZTO US): Solid Upward Momentum Stays Intact

ZTO's strong 3Q22 net profit growth and increased buyback program are both positive developments. It is also confident on the FY23 outlook as...

Osbert Tang, CFA

ZTO Express (2057 HK/​ZTO US): Quality Speaks for Itself

Industry figures suggest express market to continue recover in Aug and ZTO Express is best benefited given its number one position. Upside of ASP...

Osbert Tang, CFA

China ADRs Delisting - Tide Is Turning - Non-HK Listed ADRs Are Already Outperforming

On 26th Aug 2022, PCAOB and CSRC announced that they had entered into an agreement granting US authorities access to investigate public accounting...

Sumeet Singh

ZTO Express (2057 HK/ZTO US): Growth at a Reasonable Price

ZTO Express has outperformed industry volume growth with healthy pricing levels so far into FY22. We anticipate it will continue to add net cash to...

Osbert Tang, CFA

GOGOX IPO: Growth at All Costs

GOGOX has passed the listing hearing for an HKEx IPO to raise US$100-150m. The fundamentals remain unattractive and we would give the IPO a pass.

Arun George

ZTO Express (2057 HK/ZTO US): Solid Upward Momentum Stays Intact

ZTO Express (2057 HK/ZTO US): Quality Speaks for Itself