ZTO Express (ZTO) is expected to have "significantly narrowed" its market share losses in Q2 following five consecutive quarters of losing market share due to "aggressive competition" from smaller rivals, Morgan Stanley said in a Wednesday note.

The brokerage said the delivery and logistics firm likely delivered 17.7% year-over-year volume growth in Q2.

Morgan Stanley said the company's competitors may be starting to lose momentum due to network and cash flow constraints, allowing ZTO to regain traction.

Despite a volume recovery, Q2 non-GAAP net profit is expected to decline 19% year-over-year to 2.3 billion renminbi ($321 million), partly due to timing effects related to government grants. Excluding that impact, Q2 adjusted net profit is expected to fall around 15%, Morgan Stanley said.

The firm trimmed its 2025, 2026, and 2027 EPS forecast by 3.5%, 3.8%, and 4.1%, respectively, citing slower-than-expected growth in the first four months of the year, according to the note.

Morgan Stanley maintained an overweight rating on the stock and raised its price target to $24.60 from $24.20.

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