“Losing money on every order”, was once the stereotype many people had of J&T Express. As a dark horse in the domestic express delivery industry and a “rising star”, J&T Express has grown extremely rapidly over the past three years. According to publicly available information, its revenue grew from $1.532 billion in 2020 to $7.267 billion in 2022, with a compound annual growth rate of almost 50%.

As its revenue scale expanded rapidly, so did its losses. According to the prospectus, J&T Express incurred losses of $664 million and $6.2 billion in 2020 and 2021, respectively, representing a nearly tenfold increase in losses within just one year. However, as J&T Express's business volume increased and its internal refinement strategies were implemented, its reputation as the “king of losses” began to fade.

First profitability turnaround

On August 19, J&T Express disclosed its first-half financial results, showing revenue of $4.86 billion, a year-on-year increase of 20.6%. Notably, all profitability indicators for J&T Express were positive in the first half. Specifically, the company turned a net profit of $31.026 million, with an adjusted net profit of $63.248 million and an adjusted pre-tax profit of $350 million, an almost eightfold year-on-year increase. The adjusted post-tax profit also turned positive, reaching $120 million. Notably, this is J&T Express's first profitability turnaround since 2020. Its rapid turnaround can be attributed to various refinement measures implemented by the company.

Firstly, J&T Express has made positive progress in improving transport efficiency and reducing costs, unlocking its business potential.

Thanks to J&T Express's continued investment in its own trunk vehicle fleet, it has gained greater flexibility in vehicle management. In addition, the company has been cautious about building its own transfer centers and mainly relies on leasing, which has helped it effectively control costs. As a result of these measures, J&T Express's collection and delivery costs have remained relatively stable since 2023, while transportation, sorting, and other costs have decreased significantly compared to last year, with the proportion of these costs falling by 6 percentage points.

Specifically, in the global market, J&T Express, as the leading express delivery operator in Southeast Asia, has leveraged its experience replicating China's express delivery model to rapidly reduce its local delivery costs, significantly enhancing its profitability. Meanwhile, as J&T Express rapidly expanded its scale in the Chinese market, it significantly reduced its losses. Data shows that J&T Express's gross margin in the Chinese market has narrowed from -120.4% in 2020 to 16.2% in 2022, accelerating its profitability recovery.

Secondly, J&T Express's overall business capabilities have been strengthened, with improved customer quality and service categories. Initially, J&T Express mainly collaborated with Pinduoduo, which accounted for a significant portion of its domestic business volume. Following the successful acquisition of Best Express, J&T Express quickly expanded into Taobao-affiliated e-commerce platforms. As its domestic business volume surged, JD.com also chose to partner with J&T Express.

Additionally, J&T Express successfully acquired SF Express's Fengwang Express, extending its reach to emerging e-commerce platforms like Douyin and Kuaishou. In overseas markets, TikTok is also an important customer. At this point, all well-known domestic and international e-commerce platforms have been integrated into J&T Express's portfolio, significantly improving its business quality. Thanks to J&T Express's business scale, cost structure, and diverse customer base, its profitability has improved substantially.

Significant valuation decline

Despite significant improvements in J&T Express's fundamentals, its market value has declined substantially since its IPO. Based on the August 29 closing price of HK$6 per share, J&T Express's share price has fallen by 70% from its IPO price. So, what are the reasons behind this continuous decline in J&T Express's market value?

Firstly, the capital market has significant concerns about its business model. Logistics, as an adjunct to commerce, has left the express delivery industry with limited autonomy. Since the establishment of Cainiao Network, the long-standing competition among the "Wutongyida" express companies in the Taobao ecosystem has largely come down to price and speed. As a result, domestic express companies have engaged in prolonged price wars to compete for market share, leading many to incur losses, including even the top players like Yunda Express.

This trend has persisted and even intensified since J&T Express entered the domestic e-commerce market, until government intervention led to some easing of the price wars. Nevertheless, express companies, including the "Wutongyida," have experienced varying degrees of revenue growth without commensurate profit growth. Under the current circumstances, it remains challenging to resolve the issue of industry-wide price wars in the future.

From a capital market perspective, the generally low valuations of listed express companies like the "Wutongyida" may reflect the attitude of the capital market towards them. Industry insiders suggest that the low valuations of express companies stem primarily from their unfavorable business models and challenging industry conditions. Given this backdrop, J&T Express, as a "rising star," has struggled to escape the low valuation trap.

Secondly, the high-growth phase has passed, and capital's expectations for future growth have diminished. Taking 2023 as an example, J&T Express's Chinese operations contributed 59% of its $8.849 billion revenue, while Southeast Asia accounted for approximately 30%. Specifically, J&T Express's market share in China was 11.6%, up 0.76 percentage points year-on-year. It handled 15.34 billion parcels, a year-on-year increase of 27.6%, exceeding the industry growth rate. With a compound annual growth rate of 94.5% over the past three years, this high growth rate was a key factor behind the high valuations initially assigned by capital.

However, with the decline in growth rates in the Southeast Asian market and the gradual bottleneck in the domestic market this year, it has become increasingly unlikely for J&T Express to maintain its previous growth rates. Under these circumstances, the high valuations originally propped up by capital have become unsustainable, leading to inevitable declines.

Has J&T Express won the "single-parcel war"?

Throughout the history of the domestic express delivery industry, companies like the "Wutongyida," JD.com, and SF Express have at least 20 years of development. In contrast, J&T Express has grown into a behemoth in just ten years since its inception, a truly remarkable feat. Its successful profitability has led many to speculate that J&T Express is winning the "single-parcel war." However, this claim is perhaps premature at present.

Firstly, there are multiple reasons for J&T Express's losses, with the short-term cost increases associated with rapid expansion being a significant external factor. Specifically, J&T Express's losses can be attributed to several factors: the rapid expansion within a short period led to high costs in human resources and infrastructure; the company had to lower prices to maintain competitiveness; and the high premiums paid during the acquisitions of Fengwang Express and Best Express resulted in goodwill impairments.

Upon closer analysis, at least two of these reasons are short-term, one-time investments. For example, infrastructure expansion is a one-time investment requiring only maintenance thereafter, and goodwill impairments from equity premiums can be fully impaired in one year, having limited ongoing impact on operations. The only ongoing factor is the industry price war, whose duration is difficult to predict. Therefore, excluding these interfering factors, J&T Express's losses are bound to decrease after completing its market expansion.

Secondly, J&T Express still faces significant external challenges in the domestic market. In terms of its main operating regions, J&T Express's revenue per parcel in China is $0.34, matching its cost per parcel, which, while a welcome decrease from the previous year, still results in minimal profitability. In terms of parcel volume, the majority (around 85%) currently comes from Pinduoduo, limiting the potential for further market share gains. Given J&T Express's rise, it primarily capitalized on the e-commerce booms in Southeast Asia and China fueled by platforms like Pinduoduo. Now, having leveraged these early-stage advantages, J&T Express stands at a crossroads.

At this stage, as a behemoth, J&T Express inevitably faces increased competition from rivals like SF Express and the "Wutongyida." To take the next step, it must expand and optimize its logistics network while enhancing service quality and exploring new business models. In other words, it is too early to declare that J&T Express has won the "single-parcel war."