Previously thriving on domestic success, the logistics giant takes aim at global markets and much-needed capital.
12 Years Ago, an Ambitious Vision Over a decade ago, SF Express's chairman, Wang Wei, stated in an interview, "The main advantage of going public is to raise funds and obtain the necessary capital for the growth of the enterprise. While SF Express needs money, it shouldn't go public just for that reason." By 2017, after a backdoor listing, SF Holdings (002352.SZ) had outpaced giants like Vanke and Midea to become the top-valued company on the Shenzhen Stock Exchange.
The company's stock enjoyed a steady surge in the years that followed, reaching a record-high market cap of over 5 trillion yuan in early 2021 - overshadowing the combined value of several "Tongda"-affiliated firms.
However, a dramatic shift occurred. In just over two years, SF's market value dropped to less than half its peak.
In the interim, SF poured significant funds into projects like airport construction, industry expansion, and asset acquisition. Moreover, in an effort to maintain its market position in the fiercely competitive Chinese courier and logistics sector, the company had to continually invest heavily. With domestic competition intensifying, the vast overseas market became a new battleground.
Now, six years after its initial public offering, SF is setting its sights on the Hong Kong Stock Exchange for a second IPO.
On August 1, 2023, SF Holdings announced its intention to list on the Hong Kong Stock Exchange and plans to complete this issuance and listing within 18 months following shareholder approval, or longer if an extension is agreed upon. If successful, SF Holdings will be the first in the courier industry to have dual-listed "A+H" shares. Besides SF Holdings, the SF Express has three other Hong Kong-listed companies: SF Metro (09699.HK), SF Real Estate Trust (02191.HK), and Kerry Logistics (00636.HK).
For context, ZTO Express (02057.HK) was the last courier company to go for a second IPO, in 2020 on the Hong Kong Exchange, having already been listed on the New York Stock Exchange for four years. An insider involved in ZTO's dual listing mentioned that ZTO wasn't lacking funds at the time; their decision was influenced by the challenges faced by Chinese stocks in the U.S. market.
However, unlike ZTO, SF's decision to list in Hong Kong directly pertains to funding. The company's announcement highlighted its goals to further internationalization efforts, establish a global capital operations platform, enhance its international brand image, and increase overall competitiveness.
In simpler terms, this move is about two things: capturing international markets and raising funds.
Beyond Manual Labor: Adapting to the Changing Landscape
The courier industry has transitioned from a growth market to a saturated one, intensifying competition.
Data from the State Postal Bureau reveals a decline in the growth rate of courier services over the past decade. While the volume growth rate was 61.6% in 2013, it dwindled to a mere 2.1% by 2022. SF has been working to diversify its services in response to these market shifts.
"I've always believed that relying solely on manual labor isn't SF's ultimate fate. Our future profit model needs to transition from physical labor to intellectual efforts," Wang Wei expressed in 2015, discussing innovation challenges.
SF's revenue streams encompass logistics and international, express delivery, refrigerated transport and pharmaceuticals, local urgent deliveries, and other non-logistics sectors. Over the past five years, the share of revenue from courier services has steadily decreased. While it accounted for 81.1% of SF's revenue in 2018, by 2022, this had fallen to 49%.
One of SF's stumbling blocks has been its local services sector, which has persistently operated at a loss. As of 2022, this segment accounted for just 2.4% of SF's total revenue, generating 6.4 billion yuan but incurring a loss of 290 million yuan. Despite SF Metro's much-hyped entry into the Hong Kong Stock Exchange in 2021 as a leading immediate delivery stock, its performance hasn't lived up to expectations.
A February 2023 report from Toutiao Research Institute showed that in the immediate delivery sector, Meituan Delivery covered 98.5% of the national market, followed by Dada Quick Delivery at 94.9%, Ele.me at 70.3%, and SF Metro trailing at 66.8%. For both local delivery and courier services, spreading out costs becomes easier with larger scales.
Wang Lei (alias), who was approached by SF to take over a local branch, declined due to the low package volume, observing that "the profitable regions are kept by them."
In 2022, express delivery services accounted for 10.44% of SF's total revenue, while refrigerated transport, pharmaceuticals, and other non-logistics services each comprised less than 4%.
In contrast, the share of revenue from logistics and international business has been on the rise. Accounting for only 3% of SF's total revenue in 2018, by 2022 it had grown to 33%, generating 879 billion yuan in revenue and ranking second only to courier services. Furthermore, in 2022, the net profit from logistics and international business reached 19 billion yuan.
Yang Ming (alias), a mid-level executive at a supply chain company and an associate of SF, informed that while SF's supply chain services focus primarily on warehousing and delivery, they seldom delve into complex supply chain solutions and aren't particularly profitable.
This suggests that within the "logistics and international" sector, the international business is where SF sees potential and hopes to drive future revenue growth.
In 2020, SF launched "Fengwang," a sub-brand aimed at breaking into the e-commerce sector. Initially, SF aimed to support Fengwang until it gained a stable footing and could then benefit its parent company in return. However, with consistent losses and direct competition with SF's primary brand, they eventually decided to divest from Fengwang.
In 2023, SF sold Fengwang to Jitu for nearly 1.2 billion yuan and subsequently bought a stake in Jitu.
Industry insiders indicate that the collaboration between the two will likely focus on international operations. Currently, Jitu is the largest courier company in Southeast Asia and has also expanded into the Latin American and Middle Eastern markets.
Recruiting and purchasing, increasing the scale of debt
In recent years, in terms of business expansion, SF Express has been very aggressive. Apart from continuous investment in new businesses, they have spent a significant amount on "recruiting and purchasing."
In 2018, SF Express reached an agreement with DHL, one of the three major international logistics giants. They spent 5.5 billion yuan to acquire 100% equity of DHL Hong Kong and DHL Beijing, gaining control over DHL's supply chain management business, management team, and transportation and warehousing technology facilities in Mainland China, Hong Kong, and Macau.
In 2021, SF Express spent another 14.6 billion yuan to acquire Kerry Logistics, based in Hong Kong. SF Express stated in an announcement that Kerry Logistics would be positioned as the main platform for SF Express to expand overseas markets in the future. Both sides would cooperate to establish a global logistics platform based in Asia.
Additionally, SF Express built airports and purchased airplanes to greatly enhance their transport capacity and efficiency.
In December 2017, SF Express announced that it had signed a cooperation agreement with the Hubei Provincial Government to co-build the Hubei International Logistics Hub Project centered around Ezhou Airport.
The Hubei Provincial Government, SF Express, and a third-party company established a joint venture company called Hubei International Logistics Airport Co., Ltd with a capital contribution ratio of 49:46:5. This company, responsible for the airport's planning, design, investment, construction, and operation, saw SF Express' subsidiary invest 2.3 billion yuan, holding a 46% stake.
By July 2022, Ezhou Airport began operations and subsequently launched international freight routes to Belgium, Germany, the US, and more.
In 2009, SF Airlines became the first private cargo airline in China. According to a 2017 report, they owned 42 cargo planes and leased 16, totaling 58. By 2022, this number increased to 97, an addition of 39 planes.
Such significant investments require continuous financial support. After going public, SF Express raised funds twice, totaling 25.8 billion yuan.
SF Express's announcement revealed that in 2019, they issued convertible bonds worth 5.8 billion yuan mainly for the purchase and maintenance of airplanes and the construction of smart logistics information systems. In 2021, SF Express raised 20 billion yuan through a private placement, which was invested in equipment upgrades, airport construction, and aircraft material procurement and maintenance.
The 2022 report showed that of the 20 billion yuan raised in 2021, only 2.8 billion yuan remained unused, with other expenses including 6 billion on automation upgrades for express delivery equipment, 2.1 billion on airport construction, and 2.8 billion on aircraft material procurement and maintenance.
Consequently, the scale of debt kept rising. Financial statements showed that from 2018 to 2022, SF Express's debt scale jumped from 34.7 billion yuan to 118.6 billion yuan, with the debt-to-asset ratio rising from 48% to 55%.
"The competition in the express delivery industry is intensifying. The 'Tongda Group' is improving its speed and service, and they are even more affordable. SF Express's advantages are slowly eroding," a senior industry insider told the author. Faced with this new market situation, SF Express started to lower its "price" to gain more package volume, hoping to stand firm in this fierce "price war."
Taking the Yiwu market as an example, a local e-commerce business owner said that recently, SF Express lowered its parcel collection price in Yiwu to 3 yuan per kilogram, down from 4 yuan.
On the one hand, business expansion requires a lot of funds; on the other hand, to stay competitive, they need to make concessions to the market. This places even higher demands on SF Express's financial capacity. If they succeed in their Hong Kong listing, it means they will have an additional financing channel.
Missed Opportunity with JD.com, Lacking Support from E-commerce Platforms
In 1993, Wang Wei, in his twenties, founded SF Express in Guangdong. At that time, their main business was same-day letter delivery, and they always adhered to a "self-operated" model.
Over a thousand kilometers away in Zhejiang's Tonglu, another approach to express delivery was emerging. The bosses of the "Tongda series" who started in Tonglu achieved rapid expansion by relying on a franchise system. This model reduced the cost and risk for the headquarters by distributing it among the franchise owners.
Documents and invoices were crucial for SF Express when they started. However, over the past decade, with the digitalization of invoices and documents, this area of business for SF was impacted. Data from Ai Media Consulting showed that in 2015, the number of electronic invoices issued was 350 million. By 2021, it had surged to 500 billion, 143 times the former.
During this period, e-commerce was on the rise. SF Express had considered venturing into the e-commerce sector but missed the opportunity.
According to "Southern Weekend," JD.com once approached SF Express for delivery services. However, after assessing the opportunity, SF realized they couldn't handle it and chose not to aggressively push into the e-commerce sector. E-commerce delivery has its peculiarities, such as the need to install and set up large appliances, which SF's couriers couldn't offer.
Later, JD.com started building its logistics team. Today, logistics has become one of the core assets of the JD Group. In 2021, JD Logistics (2618.HK) went public on the Hong Kong Stock Exchange. In 2022, JD Logistics made significant investments in Dada Group (NASDAQ: DADA), primarily focused on intra-city services. Furthermore, they acquired Deppon Express (603056.SH).
Now, in many logistics sectors, JD.com has become a direct competitor to SF Express.
Wang Lei, who has been in the express industry for over two decades and operated multiple "Tongda series" outlets in Northeast China, told the author that while JD Logistics is backed by its parent e-commerce platform, SF Express doesn't have strong e-commerce resources.
How important is platform support in today's logistics industry?
After entering the Chinese market, Jitu relied on orders from Pinduoduo for a long time. Many Jitu franchisees told the author that in the early days, more than 90% of Jitu's deliveries came from the Pinduoduo platform. With the backing of such a platform, Jitu quickly established itself in the Chinese market.
Shentong (STO) Express is another good example; its "resurgence" was largely thanks to the support from Alibaba.
Between 2020-2021, STO's profits plummeted, leading to continuous losses and a decreasing market share. In 2021, the company's net profit, excluding non-recurring items, was a loss of 943 million yuan, an increase in losses by 910 million yuan compared to the previous year. By 2022, STO turned the tide, reporting a net profit (excluding non-recurring items) of 309 million yuan, with a market share reaching 11.71%, a new high since its listing.
For a long time, Alibaba has been a major shareholder of STO, holding 25% of its shares. Among the "Tongda series", Alibaba has the highest stake in STO, and employees from Alibaba's Cainiao were even sent to work at STO.
At the end of March 2023, after announcing the independence of several business segments, Alibaba transferred its shares in STO, valued at 39 billion yuan, to Cainiao Supply Chain. An insider close to Cainiao admitted to the author that over the past two years, the company had been supporting STO to prevent further decline and protect its market share from competitors.
SF Express only realized what they were missing in November 2019. At that time, they collaborated with Vipshop to offer delivery services.
An insider close to Vipshop told the author that self-operated goods are now primarily delivered by SF Express due to their superior service quality and door-to-door delivery. However, there's a significant gap between Vipshop and the top e-commerce platforms. For instance, in 2022, Vipshop's annual GMV was 1,752 billion yuan, whereas Pinduoduo, the Taobao series, and Douyin's e-commerce platforms all exceeded one trillion yuan.
With the upcoming Hong Kong IPO, what changes will this bring to SF Express, which is about to embark on a new journey after its 30th anniversary?
