As the annual Singles Day shopping festival commences in China, attention is increasingly shifting to logistics companies as potential investment opportunities. This shift is driven by the realization that, amid changes in consumer spending habits, the volume of packages being delivered continues to rise. Analysts are shedding light on how the growth trajectory of express parcel services has outstripped that of e-commerce gross merchandise value (GMV) since 2019. This trend signifies an evolving consumer landscape characterized by smaller spending per transaction, which has become a central theme in the current economic climate.
JPMorgan’s recent analysis identifies ZTO Express as the preeminent player in China’s logistics sector. The company commands over 20% market share and has established itself as a more profitable alternative to its competitors, including YTO Express Group and others. According to JPMorgan’s report, ZTO’s stock is poised for growth, with a price target set significantly above its current price, indicating analysts’ confidence in its market position.
Singles Day: E-commerce Under Pressure
The timing of this year’s Singles Day promotions—initiated earlier than previous years—highlights the impending challenges facing major e-commerce players like Alibaba and JD.com. Larger Chinese companies have refrained from publicizing GMV figures for Singles Day recently, reflecting a trend of more conservative consumer spending. This uncertainty might indicate a shift away from previous years, where shopping festivals were characterized by massive consumer splurges, contributing to substantial revenue figures.
Moreover, the competitive landscape among China’s internet giants, previously hindered by monopolistic scrutiny, appears to be easing as firms are adopting more cooperative stances. The introduction of rival mobile payment systems by these tech titans could facilitate a more collaborative marketplace, potentially enhancing the overall consumer shopping experience.
In this evolving landscape, the Chinese logistics sector has emerged as a focal point of growth, particularly for firms adept in leveraging technology. Morgan Stanley emphasizes that logistics companies utilizing advanced technological solutions can achieve significant scales and operational efficiencies. Their AI Matrix study seeks to gauge the ability and readiness of these firms to invest in artificial intelligence, pinpointing ZTO as a standout candidate for success due to its technological advancements, larger infrastructure, and commitment to innovation.
The advantages held by ZTO in this highly competitive express delivery market underpin its potential as an investment. Analysts project that its advanced operational capabilities will solidify its market dominance, fostering a “winner-takes-all” environment that could result in significant profitability gains for ZTO.
Beyond domestic growth, analysts are now looking at the potential for logistics firms with Chinese connections to extend their reach internationally. As brands like PDD’s Temu and ByteDance’s TikTok venture into global markets, opportunities arise for logistics companies to capitalize on burgeoning international demand. Notably, J&T Global Express has forged a strong position within Southeast Asia, leveraging its roots in the region and adapting its strategies to address competitive pressures.
The company holds a noteworthy market share in China and even more substantial dominance in Southeast Asia, suggesting that its operations can benefit greatly from the increasing parcel volumes originating from the Chinese e-commerce market. Analysts from Nomura perceive J&T’s strategic positioning as favorable, projecting positive growth in profitability as a result of expanding its operational footprint.
However, contrasting views exist among analysts regarding J&T’s future performance. While some remain optimistic, citing its current trajectory and market share, others express caution. Morgan Stanley highlighted potential risks associated with competitive pressures in China and challenges in the Southeast Asian market, thereby adopting a more tempered outlook on J&T’s stock.
The current landscape of China’s logistics sector underscores a transition shaped by evolving consumer behaviors and an intricate interplay of technology and competition. While optimism exists around companies like ZTO and J&T, investors must weigh their growth potential against emerging competitive dynamics. As the e-commerce realm undergoes notable transformation, the logistics industry stands poised to play a critical role in facilitating this shift. Ultimately, a thoughtful approach to investing in this sector can unlock new opportunities amidst the uncertainties of a changing consumer market.