Patching up holes is an ongoing process

Editor: Chuqi

Fengpin: Zhang Ge

Source: Shoucai - Shoucai Financial Research Institute

Small businesses often have big markets. The ubiquitous express cabinets found in residential communities and CBDs are about to go public.

On August 30, Hive Box officially submitted its prospectus to the Hong Kong Stock Exchange. If successful, this global largest smart express locker network operator will become the "first listed express locker company," fulfilling SF Express owner Wang Wei's fifth IPO dream.

According to the prospectus, as of May 31 this year, Hive Box's revenue reached 1.904 billion yuan, with a profit of 71.602 million yuan, marking its first turnaround since its inception.

With this highlight moment and the SF Express halo, going public at this time seems timely. However, is everything really stable, and how much of an advantage does it truly have?

1

Behind the turnaround

Soaring delivery costs

Significant increase in net current liabilities

Everything still depends on fundamentals.

The turnaround primarily stems from the contribution of "consumer smart delivery," specifically the return and exchange business.

Due to the rise of live streaming and short video e-commerce models, the proportion of consumer returns and exchanges has increased significantly. According to Time Finance, China's e-commerce reverse logistics volume increased from 3.6 billion parcels in 2019 to 8.2 billion in 2023, with a compound annual growth rate of 22.7%, and is projected to reach 20.9 billion parcels by 2028.

As a leading player in express terminal services, Hive Box has benefited from this trend. From 2021 to 2023 and the five months ending May 31, 2024, its consumer smart delivery service revenue showed a significant growth trend: 149 million yuan, 309.5 million yuan, 1.02 billion yuan, and 692 million yuan, respectively. Its share of total revenue jumped from 5.9% to 10.7%, 26.8%, and reached 36.3% in the latest five-month period.

As of August 20, 2024, Hive Box has partnered with 12 e-commerce platforms to provide comprehensive return and exchange services. During the reporting period, the number of returns and exchanges handled by Hive Box was 18.5 million, 36.5 million, 133 million, and 77.2 million pieces, respectively. The number of individual parcels sent was 95.8 million, 105 million, 99.7 million, and 36.2 million pieces, respectively.

However, ultimately, this belongs to impulse buying fueled by live e-commerce, and there are doubts about how long this redistributive effect can last. Consequently, there are concerns about the quality, stability, and potential for sustained profitability of Hive Box's turnaround.

The prospectus also admits that even though Hive Box achieved profitability in the first five months of 2024, it cannot guarantee sustained profitability in the future. As it continues to expand its smart locker network, enhance value-added services, invest in technology development, and improve operational efficiency, the company's costs and expenses may continue to rise. Failure to drive revenue growth and manage costs and expenses effectively may jeopardize its profitability.

Not an exaggeration. Delving deeper, as the proportion of low-margin reverse logistics increases, the gross margin related to consumer smart delivery services has come under significant pressure, falling from 31.1% in 2021 to 7.3% in the first five months of 2024.

In 2023, Hive Box's delivery costs soared by 300% to 887 million yuan compared to 2022. In the first five months of 2024, these costs further increased to 643 million yuan, up 129.6% from 280 million yuan in the same period last year, and their share of sales costs rose from 20.4% to 45.8%. Hive Box attributes this surge to increased shipping costs paid to express companies for its comprehensive return and exchange services.

Clearly, returns and exchanges are a double-edged sword, and the related business is not as lucrative as it seems.

In the long run, Hive Box has struggled with losses over the past three years: revenues of 2.526 billion yuan, 2.891 billion yuan, and 3.811 billion yuan from 2021 to 2023, respectively. Over the same period, net losses were 2.071 billion yuan, 1.166 billion yuan, and 541 million yuan, totaling 3.768 billion yuan in losses over three years.

Achieving a turnaround has been no easy feat, but the sharp increase in net current liabilities is still concerning: from 153 million yuan at the end of 2023 to 3.662 billion yuan as of May 31, 2024, primarily due to a significant increase in current trade and other payables. Additionally, cash and cash equivalents on hand dropped significantly from 1.969 billion yuan in the same period last year to 859 million yuan.

Thus, despite the glossy turnaround narrative, Hive Box's upcoming IPO also implies urgent challenges and hidden concerns.

2

Is the incremental growth story easy to tell?

Strengthening the fundamentals of quality control is crucial

Objectively speaking, Hive Box has made many efforts to shake off its loss-making status over the years.

Revenue from express lockers primarily comes from fees paid by couriers for depositing parcels, advertising income, and fees paid by consumers for overtime storage or membership services. When community group-buying was booming in 2020, Hive Box attempted to capitalize on this trend by operating "Hive Box Huishang Mall," but by the end of 2022, this mini-program was no longer accessible.

In March 2021, Hive Box issued a "Recruitment Announcement for Parcel Locker Partners" to expand into more scenarios, deploying lockers in transportation hubs, tourist attractions, schools, libraries, shopping malls, and other high-traffic areas to meet user storage needs. In April, Hive Box smart lockers introduced a long-term rental function.

According to Haibao News, to enhance profitability, Hive Box expanded its business to home life services in 2022, including cleaning services, home appliance cleaning, and on-site repair services, aiming to tell a new growth story and expand profits through value-added services.

The crux of the matter is that there are countless platforms operating in the home services and cleaning categories on the market. In addition to vertical platforms like E Helper, companies like Hema, JD.com, and Meituan are also seeking to expand related businesses. Facing fierce competition, Hive Box, without a first-mover advantage, still faces pressure to differentiate its traffic, marketing, and services.

From 2021 to 2023 and the five months ending May 31, 2024, Hive Box's value-added service revenue was 922 million yuan, 896 million yuan, 956 million yuan, and 435 million yuan, respectively, without significant growth recorded. The company must ponder whether there are growth bottlenecks and how to tell its incremental growth story.

At the end of April 2020, Hive Box officially launched its membership service policy and announced new standards. According to Qilu News, the fee structure differentiates between regular users and members. Regular users can store parcels for free for 12 hours, after which they are charged 0.5 yuan per 12 hours, capped at 3 yuan. During holidays, there are no fees, and users enjoy two free overtime pickups. Membership options include monthly and quarterly subscriptions at 5 yuan per month and 12 yuan per quarter, respectively, allowing unlimited storage within the validity period for up to 7 days. Members also enjoy discounts on shipping through Hive Box and joint brand benefits.

Hive Box claims that providing long-term storage and shipping discounts to users "incurs significant costs," justifying the "reasonable fees" charged.

While this may be true, the announcement sparked controversy. "Did the courier get my permission to place the parcel in the locker?" "12 hours is too short, especially if I have to work overtime and come home late." "The courier already paid the fee when depositing the parcel, so Hive Box shouldn't charge the recipient again." These are just a few of the criticisms leveled against the policy.

Facing intense backlash, Hive Box eventually conceded, extending the free storage period from 12 to 18 hours and apologizing for insufficient communication and inadequate services in the past.

Dr. Wang Baoyi from Shandong Jiaotong University believes that locker fees primarily stem from companies' inability to find a profitable business model. Some operators have tried adding value-added services to lockers, such as utility bill payments and retail sales. If a stable profit model is established, free usage may resume in the future.

Regardless, based on the above performance, Hive Box is still exploring its path to profitability. Besides expanding derivative revenue, solidifying its core business may be more crucial. Achieving economies of scale is the key to shaking off losses. Thanks to continuous expansion, Hive Box has become the world's largest smart express locker network operator.

However, as of September 11, 2024, there were a total of 16,102 complaints about Hive Box on Heimao Complaints, with 441 in the past 30 days, mostly related to lost parcels, overcharging, and after-sales service disputes.

For instance, on September 7, 2024, Complaint No. 17375748278 reported that a consumer claimed the Hive Box app did not show the parcel's arrival, resulting in overtime fees.

On the same day, Complaint No. 17375739094 stated that a consumer's parcel disappeared from a Hive Box locker, demanding an explanation and 80 yuan in compensation.

Also on the same day, Complaint No. 17375739094 involved a consumer claiming a 500 yuan dispute. Unable to contact customer service, the consumer demanded improved service and an explanation for the refund.

Objectively speaking, satisfying everyone is unrealistic due to individual differences. While some complaints may be biased, solid product and service experiences are crucial for business development. Size is superficial; quality control is essential. Only by integrating both can true economies of scale be achieved and losses be overcome.

A shaky foundation can lead to instability. It is foreseeable that if Hive Box successfully goes public, it may face even greater capital expectations and potential expansion. Before rushing ahead, laying a solid foundation and enhancing quality control are more critical tasks than navigating the IPO landscape.

3

Addressing shortcomings and uncertainties

Conquering territory is difficult; maintaining it is even harder.

2017 marked the fiercest battle in the express locker industry. That year, Cainiao and SF Express engaged in the "Cainiao-SF Express War." Cainiao Networks announced its investment in Sudi Express, while Hive Box acquired Zhongji e-Stack for 810 million yuan. ZTO Express also launched its Tuxi Supermarket franchise program nationwide and introduced Tuxi lockers. In subsequent years, Yunda Express introduced its Mihuan Smart Lockers and takeout self-pickup lockers. STO Express registered Shanghai Miaogui Smart Technology Co., Ltd. in 2019, making the industry lively and competitive. In 2020, Hive Box acquired Zhongyou Zhidi, securing a significant market share.

However, standing atop the mountain comes with its challenges. This dominant position implies increasing difficulty in further growth, and Hive Box faces a ceiling.

According to Beijing Business Today, Hive Box's market share growth in China's first- and second-tier cities has saturated. Over 60% of its lockers are deployed in e-commerce hubs like Shanghai, Jiangsu, Guangdong, and Guangxi. From 2021 to 2023, the number of lockers in first- and second-tier cities remained stable at around 26% and 53%, respectively. As of May 31, 2024, Hive Box's network encompassed 330,200 smart lockers with 29.9 million compartments across 31 Chinese provinces and Thailand.

In June 2015, SF Express, ZTO Express, Yunda Express, STO Express, and GLP jointly invested 500 million yuan to establish Hive Box Technology Co., Ltd., with SF Express holding 35%, ZTO Express, Yunda Express, and STO Express each holding 20%, and GLP holding 5%. In 2018, ZTO Express, Yunda Express, and STO Express withdrew their investments, and Wang Wei and SF Express took over most of Hive Box's shares. In 2019, GLP also exited its stake in Hive Box.

According to Chaonews, ZTO Express, Yunda Express, and STO Express profited handsomely from this investment, earning approximately 500 million yuan, 389 million yuan, and 545 million yuan, respectively, while Hive Box struggled with more losses than gains.

This is partly due to the capital-intensive business model of express lockers. The significant operating costs often put immense pressure on operators.

Despite its strong market share, Hive Box's revenues were insufficient to cover its investments. From 2016 to 2020, Hive Box lost 250 million yuan, 385 million yuan, 249 million yuan, 781 million yuan, and 840 million yuan, respectively, totaling approximately 2.5 billion yuan in losses over five years. From 2021 to 2023, sales costs amounted to 3.166 billion yuan, 3.135 billion yuan, and 3.407 billion yuan, respectively. Hive Box acknowledged that these losses were primarily due to the substantial costs and expenses incurred in investing in and operating its smart locker network.

Industry analyst Wang Yanbo noted that relying heavily on fees from couriers, express companies, and users for parcel storage is unlikely to drive significant growth for Hive Box in the future. Meanwhile, the industry is rapidly evolving, and the continuous derivation and iteration of the industrial chain pose challenges to the commercial value of express lockers.

This is not an exaggeration. Firstly, express stations offer diverse options, including YTO Mom's Post, ZTO Tuxi Supermarket, Best Express Neighborhood, Yunda Express Supermarket, and third-party stations like Cainiao Post, Panda Post, and Kuaibao Post, providing consumers with more choices.

Secondly, as consumers demand greater convenience and efficiency, on-site return and exchange services have become increasingly popular, prompting courier companies to prioritize home delivery services.

From a courier's perspective, express lockers also have shortcomings. For instance, parcels have time limits for storage, requiring re-delivery or return if not collected within the specified time, Unconsciously increasing the workload and return rate of couriers . Additionally, security guarantees need improvement, and there are certain restrictions on parcel sizes and freshness.

Time Finance reported in March this year that many residential communities in Beijing, Hangzhou, Shenzhen, Foshan, and Haikou have issued notices to remove express lockers, including those from Cainiao Smart Lockers, Hive Box, and Sudi Express.

Policy challenges also exist. The Measures for the Administration of the Express Delivery Market, implemented on March 1, 2024, stipulates fines ranging from 10,000 to 30,000 yuan for unauthorized use of smart parcel lockers or express service stations to deliver parcels without user consent, especially in severe cases.

In conclusion, addressing these uncertainties is a critical challenge for Hive Box. Even if it successfully goes public, telling a more deterministic growth story and incremental narrative will be essential to secure a favorable valuation in the market.

4

Creating More Value

How much progress has been made, and how much remains?

Fortunately, the market potential is immense, providing Hive Box with significant confidence in its IPO.

Senior logistics industry analyst Wei Jianhui noted that as the volume of express deliveries continues to grow, Hive Box's role is unlikely to change significantly due to the ever-increasing industry demand. According to ZS Consultants, China's last-mile logistics solutions market, measured by parcel volume, grew from 31.1 billion parcels in 2019 to 94.3 billion in 2023, with a compound annual growth rate of 32.0%, and is projected to reach 166.4 billion parcels by 2028, with a compound annual growth rate of 12.0%.

According to the prospectus, as of May 31, 2024, the proportion of Hive Box's smart lockers in first-tier, second-tier cities and sinking markets was 25.8%, 53.4%, and 20.8%, respectively. Regionally, East China and South China are the main markets. As of May 31, 2024, out of the 330,000 Hive Box smart lockers, 144,900 were in East China and 75,900 in South China.

Separately, Hive Box has strategically positioned itself in the global market. In 2022, it expanded its smart locker network to Thailand, where 200 smart lockers had been deployed by May 31, 2024.

As an affiliated subsidiary of Hive Box, HiveBox (Thailand) Company generated revenues of 6.4 million yuan and 0.4 million yuan from purchasing smart lockers and services from Hive Box in 2023 and as of May 31, 2024, respectively. It is estimated that the revenue from this service will reach 7 million yuan, 20 million yuan, and 27 million yuan in fiscal years 2024, 2025, and 2026, respectively.

Industry insiders point out that going overseas also helps Hive Box diversify risks in a single market and achieve diversified operations and sustainable development.

A sufficiently large and growing market means that Hive Box still has time and space to identify and address weaknesses. Zhang Yiming once said, "Whether or not money is being burned is not important; what matters most is creating value."

From this perspective, turning a loss into a profit is merely a starting point. Whether Hive Box can simultaneously improve its size and quality, promptly address shortcomings to cope with various uncertainties, and effectively communicate both its core competencies and growth potential, will determine the success of its IPO and its subsequent stable development and valuation trends.

How much has been achieved, and how much remains to be done?

This article is originally written by Caijing.

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