"Express Delivery Tycoon" to Challenge HKEX

Author | Cao Anxun

Editor | Zhang Xiaoling

After more than six years of backdoor listing on the A-share market, SF Holding plans to go public in Hong Kong for the second time. Wang Wei, the "express delivery tycoon" and chairman of SF Holding, wants to take a further step in his field of expertise.

On July 8th, SF Holding announced that it is conducting preliminary work such as researching and consulting on equity financing in the Hong Kong capital market. Previously, there were rumors in the market that SF Holding would go public in Hong Kong and raise $3 billion.

This will be Wang Wei's second attempt to make an impact on the capital market.

Under the fierce competition among express delivery giants, SF Holding urgently needs to expand its financing to cope with the escalating competitive pressure. Whether it is building airports, buying airplanes, upgrading product services, or expanding international business, a large amount of capital investment is required.

Before SF Holding's A-share listing in 2017, Wang Wei publicly stated multiple times, "SF Holding also needs money, but SF Holding cannot go public just for the sake of money." However, the power of capital is significant. That year, SF Holding raised nearly 8 billion yuan, emerged as the king in the fierce price war and competition among warlords; in 2022, Wang Wei, who holds 54.95% of SF Holding's equity, became the richest man in China's express delivery industry with a fortune of 190 billion yuan.

Next, in the context of domestic express delivery giants transforming and upgrading and striving for listing, Wang Wei will once again go to the Hong Kong Stock Exchange to fight for his ambition to become "Asia's number one and global top three."

The Importance of Financing

There have been rumors in the market about SF Holding's second listing in Hong Kong.

In May, market news showed that SF Holding had selected institutions such as Goldman Sachs, Huatai Securities, and JPMorgan Chase to arrange its listing in Hong Kong, with fundraising potentially reaching $3 billion.

In the latest announcement, SF Holding stated that it is studying the possibility of listing in Hong Kong but has not yet determined a specific timetable and plan.

In fact, SF Holding's need for funds has been reflected in its financial reports. The first-quarter report shows that as of the end of the first quarter, SF Holding had monetary funds of 31.904 billion yuan, a decrease of 22.3% compared to the end of the previous year. Among them, the net cash flow from operating activities was 4.305 billion yuan, a year-on-year decrease of 10.44% and a quarter-on-quarter decrease of 48.29%.

Over the past two years, SF Holding's asset-liability ratio has been increasing, rising from 48.94% to 54.67%, reaching the highest point since its listing in 2017. As of the end of 2022, SF Holding's total liabilities have reached 118.557 billion yuan, nearly five times the total liabilities of 24.928 billion yuan when it went public.

SF Holding's business model also determines its greater need for funds. Unlike other express delivery giants that mainly rely on railway transportation, SF Holding has been increasing its investment in aviation transportation in recent years. Currently, SF Holding owns more than 80 aircraft, making it the largest domestic air cargo company. SF Holding, on the other hand, spends billions of yuan on each of its planes. This year, SF Holding also plans to increase the number of large aircraft, which will incur significant costs in the short term.

Not to mention the Ezhou Huahu Airport. This is SF Holding's "killer move" in collaboration with the Hubei provincial government, with an investment of over 30 billion yuan in aviation transportation. The airport began operations in July last year, and the Ezhou Airport transfer center is expected to be put into operation in the third quarter of this year.

With the operation of the airport, SF Holding will focus on expanding its cargo aviation network. This year, it plans to open more than 40 domestic cargo routes and actively promote the opening of two or more international cargo routes, such as Osaka and Frankfurt.

Obviously, during the transition from the period of "homogeneous low-price" competition to the mature period of "quality differentiation and customer differentiation" in the express delivery industry, whether it is upgrading software or investing in heavy assets such as aircraft and logistics industrial parks, SF Holding needs to continuously invest funds to pave the way in order to achieve long-term returns.

Therefore, in recent years, SF Holding has been actively raising funds. Since 2017, SF Holding has raised approximately 30 billion yuan through bond issuance and private placement, most of which has been used for airport construction, aircraft and aviation material procurement, and maintenance.

When conditions are met, a secondary listing in Hong Kong is also necessary. Shell Gongsi, a consulting company specializing in backdoor listings, stated that the listing process in the Hong Kong capital market is relatively short and easier to obtain approval. Moreover, the Hong Kong Stock Exchange is one of the world's famous stock exchanges. Listing in Hong Kong helps mainland issuers attract overseas investors, enhance international visibility, and establish an international operation platform to implement the "going global" strategy.

Guosen Securities also stated that if SF Holding successfully lists in Hong Kong, it will help improve its long-term financing capabilities and accelerate internationalization. SF Holding is also expected to further advance towards its goal of "ensuring business scale and company value rank first in Asia and top three globally by 2025."

Battle of the Giants

SF Holding's secondary listing is not only a demand for its own further development but also a reflection of the intensifying competition in the express delivery industry.

As the domestic e-commerce market transitions from high growth to steady and moderate growth, after the leading express delivery companies enter the stock competition, in 2021, a price war broke out in the express delivery market. SF Holding, YTO Express, Yunda Express, STO Express, and Deppon Express all saw a decline in net profit, with SF Holding's net profit falling by more than 40% to only 4.269 billion yuan.

Entering 2022, the major express delivery giants have seen some recovery in profitability, but due to the impact of the pandemic, the recovery of the express delivery industry in 2022 has been slow. The industry completed 110.58 billion parcels throughout the year, a year-on-year increase of 2.1%, with an average revenue per parcel of 9.56 yuan, a mere 0.2% increase compared to the previous year, showing weak revenue and net profit growth.

Therefore, these giants are all accelerating their search for new profit curves.

SF Holding's solution is to return to the mid-to-high-end express delivery market at the business level and create new competitive advantages by upgrading digitalization and supply chain services to improve quality and efficiency. SF Holding announced that it will sell Fengwang, a company established only three years ago, to Jitu for 1.183 billion yuan in May. Fengwang is still in the early stage of development and has been continuously losing money, which has affected SF Holding's financial report. As a brand that mainly serves the economic and emerging e-commerce markets, SF Holding's sale of Fengwang is seen as a sign of its withdrawal from the emerging express delivery market.

SF Holding also admitted that after the transaction is completed, it can focus more on the development of core businesses such as domestic high-end express delivery, international express delivery, global supply chain services, and digital supply chain services. All of this requires continuous investment in technology, manpower, infrastructure, and capital.

In terms of market layout, SF Holding has accelerated its pace of going global, trying to seize the rapid development of cross-border e-commerce and find new opportunities.

In the past two years, the proportion of SF Holding's supply chain and international business has increased from less than 5% in 2020 to about 33% at the end of 2022. The revenue from this business has grown by over 120% year-on-year in 2022, reaching 87.87 billion yuan, which has significantly improved the overall financial report. Orient Securities believes that the supply chain and international business are expected to open up a second growth curve for SF Holding.

It's not just SF Holding. Not long ago, Cainiao announced its entry into the express delivery industry, aiming to compete with SF Holding and JD.com. Its development strategy is quite similar to that of SF Holding.

The capitalization actions of the express delivery giants are also happening almost simultaneously.

Jitu submitted its listing application to the Hong Kong Stock Exchange on June 16, planning to raise 500-1,000 million US dollars; Cainiao confirmed its listing plan on May 18 and is expected to complete it in the next 12-18 months; ZTO Express voluntarily changed its secondary listing status on the Hong Kong Stock Exchange to its primary listing status starting from May 1, completing its dual primary listing on the Hong Kong Stock Exchange and the New York Stock Exchange.

They are all gearing up for a big fight. Jitu stated in its prospectus that the funds raised from this listing will be mainly used to expand its logistics network, upgrade infrastructure, and explore new markets. In the next decade, Jitu Express will also invest 2 billion US dollars together with its partners to establish the most advanced and largest intelligent logistics industry park in the Middle East and North Africa.

Jack Ma, Chairman of Cainiao Group, recently stated that Cainiao will be based in China, focus on the global market, and build a global logistics network. He will also be the next Chairman of Alibaba's Board of Directors, which shows Alibaba's importance to Cainiao.

This also means that in the near future, with the massive influx of capital in the capital market, these new and old giants will engage in close combat, triggering a new round of expansion and market value frenzy in the express delivery industry. The war is about to begin.