ZTO Express (Cayman) Inc (NYSE: ZTO) stock falls on concerns over margins

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ZTO Express (Cayman) Inc (NYSE: ZTO) stock fell over 1.6% in the pre-market session of 19th November, 2019 (as of 7:05 am GMT-5; Source: Google finance) after the company’s third quarter of FY 19 update.  The gross margin rate declined by one percentage point to 30.3% from 31.3% year over year, driven by parcel volume growth, increase in volume incentives and cost productivity gains.

The firm reported 23.4% rise in the net income to RMB1,307.7 million (US$183.0 million) and 24.4% increase in the revenues to RMB5,265.8 million (US$736.7 million). The company has posted 20.5% rise in the Gross Profit to RMB1,596.9 million (US$223.4 million), from RMB1,325.3million in the same period last year.

Moreover, during the third quarter of FY 19, Income from operations increased by 28.3% to RMB1,400.5 million (US$195.9 million) from RMB1,091.7 million for the same period last year. Operating margin rate expanded by 0.8 percentage point to 26.6% year over year. The company has delivered the adjusted EBITDA of RMB1,887.5 million (US$264.1 million), compared to RMB1,473.1 million in the same period last year. Net cash provided by operating activities increased to RMB1,417.7 million (US$198.3 million), from RMB911.7 million in the same period last year.

There has been 26.8% growth in the revenue from express delivery services compared to the same period of 2018, mainly on the back of a 45.9% rise in parcel volume and partially offset by a 13.2% declne in unit price per parcel mainly for incremental volume incentives in response to competition. The company posted 5.8% fall in the revenue from freight forwarding services compared to the same period of 2018. There has been growth in revenue from sales of accessories, which was in-line with the increase in the sale of thermal paper used for the printing of digital waybills.

For FY 19, the company expects parcel volume to be in the range of 11.51 billion to 11.93 billion, which is  a 35% to 40% increase year over year, and the Company’s adjusted net income is  projected to be in the range of RMB4.8 billion to RMB5.2 billion, which means a 14.3% to 23.8% increase from the same period of 2018.

Additionally, in November 2019, ZTO has announced a new share repurchase programd to repurchase its own Class A ordinary shares in the form of ADSs of total value of up to US$500 million during an 18-month period thereafter. At the end of September, ZTO had purchased an aggregate of 7,716,436 ADSs at an average purchase price of US$17.33.

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