 Good day fellow investors. My name is Sven Kirlin and as you probably watched my emerging markets video, why it is important to invest in emerging markets, you know that I said I'll be doing a series of emerging market stock picks. I'll start with China because I find it extremely cheap at the moment and also Charlie Munger, if you look the Berkshire head to a annual conference said that if you want to fish for stocks you better go fish in China. Now I'll discuss Chinese stocks that are traded on the New York Stock Exchange. I have seen, especially in the last year or two after the beer market in China, stocks in the US have lower valuations than those in China. Thus it's better to buy them here for now. This is because Wall Street is a bit wary of investing in emerging markets and especially China. They think there is too much risk. China will not grow at 8% anymore. Now it will grow at 6% per year and that's too slow. It's better to invest somewhere where the growth is 1.5% or 2% per year of course. I have looked at the complete list, quickly scanned them and now as I analyze them one by one for the third or fourth time I will also make this quick video to give you the necessary information to find the best fit for your portfolio. Every stock is different. Every stock has different potential and different risks so therefore you have to see how that puzzle risk reward fits into your portfolio. The goal is always to minimize risks and increase the potential in that. So from the list of 70 stocks I have about 16 that I want to analyze a bit deeper so you can expect a series of 16 videos about Chinese stock picks, detailed, relatively detailed analysis over the next few weeks, month or so. But I will also be doing other things to keep a certain variety in the channel. So please subscribe and I'll do my best to add value to your investment returns, to lower your risk and increase your return. The stock I want to talk about is ZTO Express. That's a parcel delivery company in China that recently went public on the New York Stock Exchange at $19 a share and it was the second largest IPO after Alibaba. The company managed to accumulate about $1.6 billion dollars that it plans to invest in improving its infrastructure for its delivery system. New sorting hubs improve the sorting software and all that goes into a delivery business like ZTO has. ZTO is one of the biggest parcel delivery companies in China which gives its scale and potential for further growth. So what does ZTO do? Simply, the first mile pickup is attributed to partners, they sorted long-haul line transportation again sorted and then delivery to their networking partners for the last mile delivery. Simple, we know the business. Now let's see how the business will grow in China in the future. What are the expectations? As you know Alibaba is one of the hottest stocks around because everybody expects it to grow. If Alibaba and all other Chinese online businesses grow in China then a company that delivers those packages is also expected to grow. So we can compare the valuations of Alibaba and ZTO and you can see how it fits, what are the risks and whether you can buy the leverage Alibaba brings at a cheaper price. The market overview tells us that the growth in online retail sales in China is huge and expected still to grow at 19% per year. The express delivery parcel volume is also expected to grow at 27% per year by 2020. The express delivery parcel market is now at one third, one fourth of the US market and expected to surpass the US market in the next two decades. So a very interesting sector to be invested in. What's also important there are opportunities to grow. China cross-border e-commerce market is also growing very fast in micro merchants market. The Etsy's various are also growing enormously fast. So there will be plenty of growth ahead. In order to see what we can expect from ZTO we look at fundamentals a little bit at the structure of the company and then at the risks of course. What's significant about ZTO is its scale. It has 4200 and more line hall vehicles, 26000 pickup delivery outlets and this is very important because there are 35 000 delivery shipping companies in China and if you are the biggest one, if you have the best technology with the scale you can really grow faster. And you can see that even if the market was growing at 30% ZTO was growing at 44% with the parcel volume. Revenue growth was 46% operating profit increased by 51% per year. Also earnings per share are growing at 35% per year. If the market continues to grow at 20% a year ZTO thanks to its scale and the acquisitions it will make and they are already investing the 1.6 billion that they got at the IPO into new sorting hubs enlarging their spread over China buying more trucks so they are really investing the money into the growth and in addition if they continue to grow at these rates so let's say 50% faster than the market or even just at the market rate we are looking at a company that will grow at 25-30% over the next five years which is huge. Earnings per share currently are 0.42 dollars per share book value is 4.12 so there is not a margin of safety in the book value but it's very significant that the company has no long term debt and total liabilities are 15% of assets mostly current liabilities. So just quick comparison with FedEx the growth in the last five years was 5% per year 67% of assets are financed by liabilities the price earnings ratio is 30. UPS growth was 2% per year in the last five years total liabilities are 98% of assets price earnings ratio is 28.2. The largest Chinese competitor YTO express price earnings ratio is also 30 the price earnings ratio of ZTO express is around 33. Now a price earnings ratio of 33 is relatively high but let's see how the growth expected growth on off earnings will develop in the future and when will ZTO's valuation be at a sensible investment level. So if ZTO continues to grow at 25% per year and increase earnings in four years we are already looking at the price to earnings ratio of 14 on the current market valuation because earnings will be $1 per share and the price is now $14 per share. I don't see this staying so because the market is expected to grow for the next two decades so the valuation is possible that remains high so as the company grows so will the stock price as long as the growth remains as is the case with every growth stock as long as the growth is stable or increasing the stock price is going up if there is a temporary halt to growth then the stock will drop significantly because new growth projections will be implemented in valuations so that's the major risk ZTO has a decline in growth but seeing what's going on in China I don't attach a great probability but always possible and important to know that. If you're worried about FedEx or UPS entering China they have just 3% market share and this is because they are too expensive. To ship a two-pound parcel 450 miles across China costs from 30 cents to 50 cents yes 30 to 50 cents if you ship the same two pounds across the states for 450 miles you'll pay at least $10 so it's very difficult for foreign competitors to enter the field especially ZTO and YTO are already very large in scale. What's an interesting potential is that or somebody acquires ZTO from outside in order to grow but that would be under heavy government scrutiny so but that's always a potential and then the potential is also that these Chinese companies that are cheap have cheaper operation models scale into the world so that's also potential for future growth but now they are of course focused on China and the Chinese growth because when you have a market that grows 20-30% per year you're not going to compete with FedEx win a market that grows to 3% or 5% per year. Apart from the growth risk that's normal for any growth company the second risk is that ZTO's business is very dependent of course on the biggest online commerce platform in China Alibaba. The exposure to Alibaba has been 80% in 2014 78% in 2015 and now was 77% in 2016. It is declining but the company is extremely exposed to Alibaba so that's a risk or you might also say a benefit because also Alibaba is extremely dependent on ZTO to delivery so I think they will continue to cooperate and everything will remain the same but it's important to mention the risk always think about the risks. So apart from reading the 20th risk side I found that Alibaba was the most significant risk I also listened to the last conference call and the management expects to grow faster than the market they're investing the money received in the IPO into better infrastructure cheaper costs lower costs and the ability to process more volume. To conclude ZTO is really a growth stock. If you want growth in your portfolio then ZTO is definitely a company to look at. The price earnings ratio is 40 will be 15 in three four years if the growth continues so it's a very very valuable investment and if the growth continues over the next two decades it will probably be a gem in your portfolio. However there are always risks as there are with any growth companies but you can now compare ZTO to the other growth companies in your portfolio and then make the best decision. Thank you for watching leave your comments question below if anybody has something to add about ZTO please leave your comment below don't forget to subscribe as there will be 15 more videos about Chinese companies and in the meantime I'll also start looking at other companies around the world and discuss them in order to provide you interesting stock picks for your emerging markets portfolio and plenty more of course. Thank you for watching and I'll see you in the next video