2020-09-16

(8 Pages, 13 graphs and tables)
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  • In 2019, ZTO exceeded SFE in US/PRC GAAP net incomes. This, however, overlooked the fact that SFE paid more interest expenses and taxes. SFE’s EBIT and EBITDA are still above ZTO’s. ZTO is catching up in fixed assets and land use rights (LUR) but SFE is refocusing;
  • ZTO represents a singular logistic model executed to its extreme. SFE represents multiple logistic models benefited from a singular brand. 
ZTO and SFE are different and are moving further apart
SFE as a corporate entity is both broader in scope and deeper in integration than ZTO. SFE’s comparable products to ZTO, namely Time, Economy, International, Supply Chain, Commercial Sales and Material Handling, contributed 91%, 88% and 85% of revenues in 2017-19, with the rising contributions from Freight (LTL), Cold chain & Medicine and Intracity filling the gap (Exhibit 7). ZTO also has freight (LTL) business of which the listco holds 18% with equity income consolidated into ZTO’s book. In 2019 it lost ~RMB(40mn).
 
Even in e-commerce packages the two are very different
Based on SFE’s product line breakdowns, we estimate SFE’s Freight (LTL), Cold chain and Intracity products contributed 8.5% of SFE’s parcel volume in 2019 (Exhibit 8). We estimate SFE’s split between Time (Courier) and Economy (E-commerce) parcels to be 3:1. This put SFE’s comparable-to-ZTO e-commerce package volume at ~10% and ASP at ~3.9x of ZTO’s, after adding back ZTO’s last mile and network subsidy cost. The disparity in scale explained the difference in ASP. In 2019, addition of Vipshop’s orders (minimum 640mn) should help SFE’s E-commerce package to grow >50%, which suggested SFE’s 1Q20 parcel growth of 76% YoY might not be totally related to the price war and pandemic. Meanwhile, collapse of Luckin Coffee will substantially cut SFE’s Intracity revenue.
 
ZTO is catching up with SFE in key fixed and intangible assets
Despite that ZTO leaves its last mile and LTL outside of the listco, its land use right, fixed assets and in particular machineries and vehicles, have already closed on to SFE (Exhibit 9). ZTO’s machinery PPE as percentage of SFE’s rose from 67% in 2017 to 106% in 2018 to 123% in 2019. Its vehicles rose from 34% to 44% to 66% over the same period. SFE persistently invested in airplanes (TBC)

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