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• The express delivery industry parcels grew 23% YoY in March, bringing C1Q20 full quarter to grow 3.2% YoY. Our tracking showed ZTO grew parcels by 9.2% YoY, with market share gaining 1.0ppt YoY and 0.3ppt QoQ;
• March marked the return to business as normal for T&D companies. Facing brightened outlook at home (pandemic) and success stories abroad (J&T), we believe the express delivery industry will put consolidation on hold, pick up price war again and mull about expansions overseas;
• We retain ZTO as our top pick with but with TP unchanged.

Industry rebound strongly in March but ASP reversed trend
Our tracking data showed ZTO’s C1Q20 parcel volume to be 2.41bn, up 9.2% YoY. After declining 10% YoY in January+February, industry parcel volume grew 23% YoY in March. Comparing to its T&D peers, ZTO resumed work earlier and suffered less in January+February, but its market shares actually declined in these two months, mainly, to SFE. ZTO’s strong rebound in March might signal what will follow for its T&D peers while we expect SFE’s March parcel market share to return to its pre-pandemic levels (~9%). We expect ZTO’s parcel ASP to decline 11% YoY in C1Q20 (Exhibit 6).
 
Competition rising=consolidation delay=overseas expansion
The success of J&T Express in South East Asia and the launch of JTE (极兔) in Guangdong showed there were ample opportunities to be had in providing logistics service outside of China. However, we don’t think JTE, which mostly composed of Oppo/Vivo distributors and Zhongyou Express (众邮), which inherited from UCE (优速) and has the backing of JD.com, will succeed given the enormous entry barrier today. The evident of the global pandemic only vindicated the importance of a comprehensive, flexible and low-cost logistic infrastructure. Chinese logistic company will view this opportunity as the same trend of global trade that has spurred the development of global express delivery Big Four: FedEx, UPS, DHL and TNT fifty years ago. The golden opportunity of expansion has just started, in our view. (TBC)

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