Stocks to play China’s shopping festival, even if consumers spend less
As China’s biggest shopping festival of the year gets underway, analysts are starting to favor Chinese logistics companies as a way to play the online shopping trend. Their reasoning? The delivery companies are seeing package volume grow, regardless of how much consumers spend on each purchase. “Express parcel volume growth has been outperforming online [gross merchandise value] growth since 2019, driven by the continued drop in ticket size amid a consumption downgrade,” JPMorgan analysts said in an Oct. 30 report. The JPMorgan report initiated coverage of U.S.-listed ZTO Express , which the analysts said is China’s largest express parcel player with more than 20% of the market. ZTO, also listed in Hong Kong, is more profitable than competitors YTO Express Group, STO Express Co., Yunda Holding Co. and J & T Global Express Ltd., the report said. JPMorgan has a price target of $30 on ZTO’s U.S. shares, nearly 30% above where the stock closed Friday. ZTO YTD mountain ZTO Express shares in the U.S. in 2024. Alibaba and JD.com kicked off their annual Singles Day shopping promotions on Oct. 14 this year, more than a week earlier than in 2023. The festival, akin to Black Friday in the U.S., centers on Nov. 11. The e-commerce companies have stopped releasing Singles Day GMV figures in recent years as consumer spending in China has grown more restrained. At the same time, China’s internet tech giants, once scrutinized for alleged monopolistic behavior, this year sought to lower the temperature by reducing competitive barriers and allow a rival’s mobile payment system onto their platforms. China’s online shopping landscape has created a large express delivery market in which logistics companies that use technology well can benefit from economies of scale, Morgan Stanley analysts said in a report last month. The Morgan Stanley study ranked Chinese logistics players on an “AI Matrix” that tries to measure the willingness and ability to invest in artificial intelligence, along with the size and scale of the companies’ proprietary data. Of three companies that stood out, ZTO also emerged as Morgan Stanley’s top pick in China’s logistics industry. “We believe in a winner-takes-all express delivery market, ZTO will continue to benefit from its larger scale, more advanced infrastructure and devotion to tech innovation,” the Morgan Stanley analysts said. Morgan Stanley has a price target of $27.50 on ZTO shares. Analysts also see opportunities for logistics players with Chinese ties to expand globally as PDD ‘s Temu and ByteDance’s TikTok take on international markets. “TikTok Shop’s robust expansion in [Southeast Asia] should bolster J & T’s dominance in the express delivery sector,” Nomura analysts said in an Oct. 25 report, initiating coverage of Hong Kong-listed J & T Global Express . 1519-HK YTD mountain J & T Global Express Hong Kong-listed shares in 2024. The company was founded in Southeast Asia by Jet Li, who previously oversaw business in the region for Chinese smartphone company Oppo. Li is also executive director, CEO and chairman of J & T. J & T held a “competitive 11% market share in China” in the first half of this year — and the leading position in Southeast Asia with 27.4% of the market, the Nomura analysts said. “Given sizeable parcel volumes from the China express delivery market, the profitability improvement in the China market could become a driver of J & T’s net profit growth.” Nomura rates the stock a buy, with a price target of 7.30 Hong Kong dollars (94 cents). That’s more than 16% above where shares closed Friday. Morgan Stanley is less bullish, rating J & T equal-weight while citing competitive risks in China and potential challenges in Southeast Asia. “Cuts on overseas profitability outlook has weakened our investment thesis,” the Morgan Stanley analysts said. They have a price target of 7.40 Hong Kong dollars on J & T. —CNBC”s Michael Bloom contributed to this report.
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