Research

ZTO EXPRESS (ZTO US)

Management had led the market to expect inflated returns from ZTO Express, presumably to help support a grossly over-priced IPO. However, the company failed to meet expectations, with 4Q16 EPS coming in 4% below consensus forecast. Along with tepid guidance for 1Q17, this calls into question highly over-optimistic consensus forecasts. As a result, we expect the market to rapidly downgrade profit expectations. The stock remains overpriced on 31x 2016 trailing PE. We think ZTO is worth less than US$10 per share. With downside of at least 22%, we recommend SELL/SHORT. DOWNLOAD PDF What’s happened? ZTO delivers parcels in the highly…
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CHINA EVERGRANDE (3333 HK)

Valuing Empty Properties

Nigel Stevenson · 22 March 2017

In our opinion, CBRE has gone to extremes to give Evergrande’s property assets the most favourable valuation. Its methodology allows Evergrande to increase valuations by simply revising up planned floor space, even at projects which our site visits demonstrated were failed developments. Furthermore, the lack of rental income on investment properties means CBRE has adopted a comparable transaction approach as opposed to income capitalisation. This produces a stellar valuation despite a pathetic rental yield of just 0.1%. In our report, CHINA EVERGRANDE: Auditors Asleep, we estimated these properties could be worth less than half their RMB122bn balance sheet value and…
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FOREIGN DEBT

Chinese Currency Manipulators

Nigel Stevenson · 9 March 2017

A large number of overseas-listed Chinese companies have been able to avoid recognising foreign exchange losses on their foreign debt by adopting what we think are inappropriate functional currencies. The culprits include major tech stocks, such as Alibaba, Baidu, Tencent and Ctrip. Based on our analysis, 80% of Hong Kong and US-listed Chinese companies have some form of foreign currency debt. Of those that do, for nearly a quarter it represented more than 90% of their total borrowings. A significant minority have foreign currency debt greater than their market value which makes them extremely vulnerable to even a moderate decline…
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ZTO EXPRESS (ZTO US)

SELL: Damaged Goods

Mark Webb · 22 February 2017

Parcel company, ZTO Express, delivers supernormal returns despite no apparent competitive advantage in an intensely challenging and commoditised industry. Alibaba accounts for 75% of its business but is building out its own delivery network and has invested in competitor YTO Express, which threatens longer-term prospects. Meanwhile, three-quarters of the delivery value chain is operated by ZTO’s related partnership networks that we think are barely profitable. Finally, a third of its trucking fleet is held by ZTO appointed employees but not consolidated. Overpriced at 32x 2016e PER, our conservative target price of US$10/share implies downside of 29%. Sell or Short. GET…
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