As China’s annual shopping frenzy—its equivalent of Black Friday—begins to unfold, a distinct shift in focus is emerging among analysts. Rather than primarily concentrating on the e-commerce giants driving sales, attention is now shifting toward logistics companies that facilitate delivery. This inclination stems from the recognition that these delivery firms are experiencing a steady rise in package volume, an indication that their performance is becoming increasingly decoupled from the average consumer’s spending behavior.
The most recent report from JPMorgan, dated October 30, underscores this trend by pointing out that the growth in express parcel volume has steadily outpaced the growth in online gross merchandise value (GMV) since 2019. Analysts attribute this phenomenon to a sustained decrease in average purchase amounts, reflective of a broader consumption downgrade among Chinese consumers. The implication is clear: regardless of fluctuations in consumer spending, logistics providers are poised to thrive as they capitalize on the rising volume of online transactions.
Particularly noteworthy is ZTO Express, a titan in China’s express parcel market, boasting more than 20% market share. Unlike its competitors, ZTO not only leads in volume but also in profitability. This edge has prompted JPMorgan to initiate coverage on ZTO’s U.S. shares with a price target set at $30—representing a potential upside of nearly 30% from its recent closing price.
The shopping festival known as Singles Day, celebrated on November 11, has become a significant part of the Chinese retail calendar, with Alibaba and JD.com launching promotional offers ahead of the date. However, in recent years, these companies have refrained from disclosing GMV figures, a move indicative of a cautious consumer sentiment. Insights into spending patterns reveal a marketplace under pressure, prompting analysts to reassess their outlook on how consumer behavior impacts logistics.
Moreover, the competitive landscape among China’s tech giants is evolving, as companies strive to mitigate previous criticisms of monopolistic practices. Their focus now includes facilitating mobile payment systems from rivals, thereby creating a less insular ecosystem that allows for more fluid competition.
Furthermore, China’s online shopping ecosystem has given rise to a burgeoning express delivery market. According to a Morgan Stanley report, logistics companies that adeptly leverage technology are likely to see substantial benefits in economies of scale. Their “AI Matrix” analysis ranks Chinese logistics players on their capacity and readiness to invest in artificial intelligence, alongside the extent of their proprietary data. ZTO has once again emerged as a frontrunner in this assessment, illustrating its commitment to tech-driven innovation.
Morgan Stanley highlighted the notion that an oligopolistic environment may be on the horizon in express delivery. The industry’s characteristics suggest that dominance by a few key players could become prevalent, with the largest, like ZTO, likely to retain a considerable advantage over smaller competitors due to their extensive infrastructure and technological advancements.
In tandem with the domestic market scenario, analysts are keenly aware of potential global expansion opportunities for logistics companies with Chinese affiliations. With companies like PDD’s Temu and ByteDance’s TikTok entering international markets, the logistics landscape could shift dramatically. Analysts at Nomura express optimism regarding J & T Global Express, which has established itself not only in China but also has a formidable presence in Southeast Asia, claiming 27.4% of that market. Such strategic positioning enables J & T to tap into significant parcel volumes, which could enhance its profitability and drive net profit growth.
Despite J & T’s promising outlook, Morgan Stanley maintains a more cautious stance. They highlight the competitive challenges both in China and Southeast Asia as a potential drag on performance. Their ratings suggest a nuanced understanding that while opportunities abound, the inherent risks must not be overlooked.
As the specter of economic uncertainty looms and consumer behavior evolves, the logistics sector in China emerges as a crucial player in this dynamic retail landscape. Companies that prioritize technological development and infrastructure scalability are better positioned for success. While the e-commerce giants compete for consumer spending, it is the logistics providers that may ultimately define the future trajectory of the industry. Understanding this shift will be pivotal for investors and stakeholders alike, as they navigate an increasingly complex landscape of opportunities and threats.
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