STO Express Earnings: Effective Cost Control Drives Strong Results; Fair Value Raised by 10%

While STO Express’ first-half revenue tracked our full-year estimate, core operating profit was substantially above our estimate, thanks to strong cost optimization. We raised STO’s fair value estimate by 10% to CNY 10.10 per share as we expect stronger cost-saving efforts in the long term. However, we think STO’s shares are fairly valued currently as we still expect intense competition in the sector to drive its estimated core operating margin down to 1.5% by 2028 from 2.5% in 2024.