On Thursday, HSBC made adjustments to its financial outlook for ZTO Express (NYSE:ZTO), a leading express delivery company. The firm's analyst has revised the price target downward to $30.00 from the previous $32.00, while still endorsing the stock with a Buy rating.
This change reflects a more conservative expectation for the company's net profits in the years 2024-2025, which the analyst estimates to decrease by 8-10%.
The revision comes amid an anticipation of robust volume growth for ZTO Express in 2024, which is projected to be around 17%, aligning with the upper half of the company's own forecasted range of 15-18%.
However, the adjusted price target takes into account heightened price competition and changes in the mix of services offered by ZTO, which are expected to impact the average selling price (ASP). These factors are somewhat balanced by a predicted reduction in unit costs.
HSBC's expectations for ZTO's earnings per share (EPS) in 2024 sit 7% below the consensus. Despite this, the firm has chosen to retain its Buy rating but has trimmed the target price to reflect the revised earnings estimates.
For the Hong Kong-listed shares of ZTO, HSBC has set a target price of HKD234, a decrease from the prior HKD250. This valuation is based on a steady HSBC forecasted USD/HKD exchange rate of 7.80 and a one-to-one conversion rate between American Depositary Shares (ADS) and Hong Kong-listed shares.
The analyst supports the positive outlook for ZTO Express by highlighting the company's competitive advantages, including economies of scale, network efficiency, and superior service quality. Furthermore, with its transparent dividend policy and an increased share buyback plan, ZTO is expected to offer an attractive combined yield of 7% in 2024.
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