Hive Box becomes the first company in the smart locker industry to list on the Hong Kong Stock Exchange

As the United Kingdom entered the Industrial Revolution, Charles Dickens famously described that era filled with passion, creativity, and boundless possibilities as "the best of times and the worst of times."

Today, with the emergence of shipping insurance, sole refunds, and live streaming e-commerce, China's e-commerce and express delivery industries have also reached a pivotal juncture. Recently, Hive Box Group (hereinafter referred to as "Hive Box") submitted an IPO application to the Hong Kong Stock Exchange, planning to list on the main board. Assuming no unexpected developments, Hive Box will become the first company in the smart locker industry to list on the Hong Kong Stock Exchange, signifying that the long-standing challenge of the "last mile" problem may finally be resolved.

However, looking at the entire express delivery industry, with Cainiao postponing its IPO, SF Express's unsuccessful attempts to list in Hong Kong, and J&T Express's reduced IPO fundraising scale in its Hong Kong listing last year, the secondary market is not particularly enthusiastic about the sector. So why has Hive Box chosen to list at this time? How has Hive Box, which has incurred losses for three consecutive years, managed to turn a profit before its IPO? And after listing, will Hive Box be able to find its next growth driver beyond express delivery?

Hive Box's path to IPO, as the fifth from the "SF Express Group," has not been easy

In fact, as the fifth IPO under the leadership of Wang Wei, the founder of the "SF Express Group," Hive Box has attracted significant attention since its inception. In 2015, SF Express jointly established Hive Box with ZTO Express, YTO Express, STO Express, and GLP, entering the smart locker market. According to the prospectus, over the past decade, Hive Box has completed 11 rounds of funding, with renowned institutions such as China Post, Sequoia Capital China, and Zhongding Capital participating.

However, based on previous IPOs in the express delivery industry, the secondary market has not been particularly optimistic about the sector. On the one hand, the share price of SF Holding, another express delivery giant under Wang Wei's leadership, has declined by approximately 60% from its peak on the A-share market. Additionally, SF Express has attempted to list in Hong Kong twice but has yet to succeed.

On the other hand, Cainiao, similar to SF Express, also faced challenges. Previously, Alibaba announced the construction of a "1+6+N" organizational structure and strongly promoted Cainiao as one of its six business groups. At the time, the market had high expectations for Cainiao. However, over time, Cainiao failed to smoothly enter the capital market as anticipated. On March 26th, Cainiao suddenly withdrew its IPO application in Hong Kong. Furthermore, according to Tianyancha, Cainiao's valuation in Alibaba's acquisition offer has plummeted from nearly RMB 200 billion a year ago to approximately RMB 74.4 billion, a decrease of nearly 60%.

As IPOs across the entire industry are slowing down, Hive Box itself is also facing challenges. In June 2018, ZTO Express, YTO Express, and STO Express, which had previously invested in Hive Box, chose to transfer their entire shareholdings in Hive Box to Weirong Development, effectively withdrawing from the company.

At the time, YTO Express and STO Express stated that they were optimizing their asset allocation structure to achieve reasonable investment returns. However, Tianyancha shows that from investment to collective withdrawal, ZTO Express, YTO Express, and STO Express earned approximately RMB 500 million, RMB 389 million, and RMB 545 million, respectively, opting to "take the money and leave."

Since then, Hive Box's most recent funding round was in January 2021. In other words, Hive Box has not received any additional funding since 2021. Previously, Zhao Xiaomin, an express logistics expert and CEO of Guanshuo Capital, stated, "Hive Box's challenges lie in its fundraising capabilities, expansion efforts, and capital market expectations for its future. From a growth perspective, Hive Box needs to strengthen capital operations and business expansion."

Zhao Xiaomin also pointed out that there is still a significant market gap for smart lockers, particularly in third-tier cities and across county-level markets. Hive Box's priority should be to quickly IPO and use the raised funds to expand its market share, "filling the market gap and demand through expansion." From this perspective, the current IPO reflects Hive Box's quest for capital market support to fuel its expansion and development.

How did Hive Box, which incurred losses for three consecutive years, turn a profit?

The decision to list now is not only driven by the need for funding and expansion, as mentioned earlier, but more importantly, after three years of "incubation" losses, Hive Box achieved profitability for the first time in the first half of 2024, demonstrating its ability to sustain itself financially.

Hive Box has rapidly expanded its scale and captured market share through a "funding-burn-refinancing" model, establishing itself as a leader in the industry. After acquiring industry leaders such as CIMC eStack and Zhongyou Zhidi, Hive Box's market share once approached 70%. However, with the emergence of JD.com's self-pickup lockers, Cainiao Posts, YTO's Mom Post, ZTO's Lejia lockers, STO's Miaokui lockers, and STO's Mihuang lockers, Hive Box's market share has declined somewhat.

As a fundamental service in the last-mile logistics sector, smart lockers are characterized by high investment costs, low profits, and relatively low technical barriers, inherently serving the public interest. Constrained by operating costs and profit models, losses have been a persistent challenge for many smart locker operators, including Hive Box.",According to the prospectus, Hive Box has incurred losses for the past three years due to increased expenses related to network expansion, but the magnitude of these losses has gradually narrowed. The prospectus shows that from 2021 to 2023, net losses were RMB 2.071 billion, RMB 1.166 billion, and RMB 541 million, respectively, with decreases of 43.7% and 53.6%. Over three years, cumulative losses totaled RMB 3.778 billion. However, in the first five months of this year, Hive Box achieved a net profit of RMB 72 million, marking a turnaround from losses.

How did Hive Box, which had incurred cumulative losses of over RMB 3 billion over three years, manage to turn a profit this year? There are two main reasons:

Previously, Hive Box depreciated its smart lockers over five years, but it turned out that the useful life of the lockers was longer than expected. Therefore, this year, Hive Box adjusted the depreciation period for some of its smart lockers to ten years, reducing the cost of using smart lockers.

After the adjustment, the gross margin for last-mile delivery services improved from a gross loss rate of 12.2% in the five months ending May 31, 2023 (where gross loss occurs when sales costs exceed sales revenue) to a gross margin of 32.4% in the same period of 2024. Overall, the gross margin increased from 3.6% to 26.1%, significantly enhancing profitability.

Specifically, Hive Box's revenue sources consist of three main components: last-mile delivery services, consumer smart delivery services, and value-added services and others.

Last-mile delivery services are the backbone of Hive Box's revenue, with revenue growing annually over the past three years. However, its proportion of total revenue has declined from 57.6% in 2021 to 40.8% at the end of May 2024. Revenue growth has slowed from 15.8% in 2022 to 8.9% in 2023.

The rise of live streaming and short video e-commerce has led to an increase in product returns and exchanges, opening up a new growth market for Hive Box. E-commerce returns and exchanges have become a significant driver of revenue growth.

According to the prospectus, from 2021 to the first five months of 2024, revenue from consumer smart delivery services (i.e., consumers shipping parcels through Hive Box lockers) has experienced triple-digit year-on-year growth, with its proportion of total revenue rapidly increasing from 5.9% to 36.3%. The prospectus states, "This growth is primarily driven by the development of our comprehensive e-commerce returns and exchanges service."

From this perspective, Hive Box, which was originally more focused on "receiving" parcels, has achieved a reversal through "shipping."

What is the imagination space for the "last mile" business with challenging profitability?

However, the business model of smart lockers has long been questioned. On the one hand, the smart locker business faces significant external uncertainties. Previously, to enhance turnover rates and profitability, Hive Box began charging users for temporary storage. However, this quickly sparked public controversy, prompting Hive Box to extend the free storage period to 18 hours.

On March 1, 2024, the "Measures for the Administration of the Express Delivery Market" came into effect, stipulating that express delivery companies cannot unilaterally use smart lockers or express service stations for delivery without the user's consent. This means that simply charging couriers, express delivery companies, and users for temporary storage fees is unlikely to provide significant growth opportunities for Hive Box in the future.

On the other hand, as e-commerce becomes increasingly competitive, the competitive and cooperative relationships between smart locker companies, express delivery companies, and e-commerce platforms are evolving. Major express delivery companies and e-commerce platforms are likely to prioritize their own smart locker businesses to enhance control over logistics, such as JD.com's self-pickup lockers established to optimize its logistics services.

With platform adjustments to policies such as sole refunds and industry-wide changes to address "internal competition," it remains uncertain whether the high volume of parcels resulting from high return rates will continue.

Facing these questions, Hive Box has also addressed them in its prospectus: failing to continuously enrich or upgrade services, being unable to expand or maintain the customer base, failing to effectively expand and manage the smart locker network or optimize operational efficiency, which may hinder the company's growth as expected. Regarding recent express delivery regulations, Hive Box stated that future laws and regulations in this area may become more comprehensive and stringent, potentially increasing the company's compliance costs.

Due to doubts about the business model of the smart locker industry, Hive Box has begun exploring new businesses:

In 2022, Hive Box introduced two value-added services: home life services and laundry and care services (such as cleaning, household appliance cleaning, and on-site repairs). These services received strong exposure on WeChat Mini Programs and the Hive Box app. With a series of promotional campaigns, orders for housekeeping services such as on-site repairs and cleaning surged, with Hive Box completing 71,400 home service orders by the end of May this year.

Meanwhile, Hive Box has also begun strategically expanding into global markets. According to the prospectus, Hive Box expanded its smart locker network to Thailand in 2022, deploying 200 smart lockers there by May 31, 2024, accounting for 0.1% of its entire smart locker network. HiveBox (Thailand) Company, an affiliated subsidiary of Hive Box, generated revenue of RMB 6.4 million and RMB 400,000 from purchases of smart lockers and services from Hive Box in 2023 and up to May 31, 2024, respectively, with revenue expected to reach RMB 27 million by fiscal year 2026.

Previously, Huang Lichong, President of HSBC International Capital, stated that Hive Box's decision to expand overseas is based on a global strategic vision and insight into future market trends, helping Hive Box diversify its business and achieve sustainable development by spreading risks across multiple markets.

In other words, with the profitability demonstrated by the smart locker business, which inherently serves the public interest, Hive Box still holds significant commercial value in terms of business diversification and global market expansion. From this perspective, Hive Box may break through the survival ceiling of smart locker companies and continue to tell the story of a former darling of capital markets.