3Q26 results in line with our expectation

YTO Express announced its 3Q26 results: Revenue rose 7% YoY and fell 3% QoQ to Rmb19.50bn. Net profit attributable to shareholders rose 39% YoY and fell 19% QoQ to Rmb1.454bn. Net profit attributable to shareholders of the express delivery business rose 41% YoY and fell 19% QoQ to Rmb1.545bn. Adjusted net profit (excluding non-recurring items) rose 40% YoY and fell 21% QoQ to Rmb1.410bn, in line with our expectations.

Parcel volume rose 12% YoY and 1% QoQ to 8.682bn parcels in 3Q26, with market share rising 1.4ppt YoY and 0.6ppt QoQ to 17.1%. Average revenue per parcel stood at Rmb2.25, down Rmb0.12 YoY and Rmb0.08 QoQ. Average cost per parcel was Rmb1.99, down Rmb0.15 YoY and Rmb0.04 QoQ. Net profit per parcel came in at Rmb0.17, up Rmb0.03 YoY and down Rmb0.04 QoQ.

Trends to watch

Sector-wise: In 3Q26, parcel volume growth slowed, ASP continued to rebound (down in some regions due to slack season). We expect prices to recover in 4Q26 peak season. According to the State Post Bureau, parcel volume and ASP rose 3.0% and 3.7% YoY in 3Q26. Parcel volume and ASP rose 2.1% and 3.4% YoY in September, continuing to recover despite regional price competition in July-August slack season.

On the demand side, we believe the industry may grow faster than in 1H26, as the impact of a high base in 2H25 is gradually dissipated. Prices: Since 2H25, we believe the industry has attached great importance to anti-involution. In addition, with the peak season nearing in 4Q26, we expect prices to recover and continue to increase.

The firm's profit per parcel improved YoY in 3Q26. We are upbeat on the improvement in operating efficiency and service quality driven by AI applications. We expect the firm's capex to decline in 2027. We expect the firm's perparcel earnings to continue improving thanks to anti-involution policies.

Looking ahead, we expect the firm to leverage artificial intelligence (AI) technologies to promote digital transformation and strengthen its nationwide network. In the long term, we believe the firm will continue to narrow its gap with lagging rivals by reducing costs and improving service capabilities. In addition, we expect the firm's capex to enter a downward trend in 2027, and free cash flow to recover, creating conditions for improving shareholder returns.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts unchanged at Rmb6.182bn and Rmb7.245bn. The stock is now trading at 9.3x 2026e and 7.9x 2027e P/E. Maintain OUTPERFORM. We maintain our target price at Rmb26.00, implying 14x 2026e and 12x 2027e P/E, offering 55% upside.

Risks

Parcel volume growth disappoints; fiercer competition; sharp rise in labor costs.