Produced by | Huabo Business Review

On June 28th, SF Holding, the largest integrated logistics service provider in China and Asia, submitted a prospectus to the Hong Kong Stock Exchange. The prospectus showed that SF Express plans to issue no more than 625 million overseas listed ordinary shares, with Goldman Sachs, Huatai International, and JPMorgan Chase serving as its joint sponsors.

The funds raised by SF Express will be used to strengthen international and cross-border logistics capabilities, research and develop advanced technologies, digital solutions, and upgrade intercontinental logistics networks and infrastructure. At the same time, it will enhance its logistics network and services in China, invest in technological research and development, upgrade supply chain logistics services, and implement ESG-related initiatives.

If successfully listed, SF Express will become the first company in the domestic express delivery industry to have both "A+H" shares listed simultaneously.

01

Is it a lack of funds or a far-reaching plan?

Why is SF Express rushing to list on the Hong Kong Stock Exchange? Opinions vary.

Some analysts pointed out that since its backdoor listing in 2017, SF Express has conducted two targeted additional issues and one convertible bond issuance, raising a total of 33 billion yuan. According to the prospectus, SF Express's year-end cash and cash equivalents amount to 40.4 billion yuan, indicating that SF Express does not lack funds.

However, on the other hand, SF Express has invested all the funds raised into expanding production, including information service platform construction, aviation material procurement, and smart logistics information system construction. At the same time, SF Express has also expanded its business territory through mergers and acquisitions. In 2018, SF Express spent 5.5 billion yuan to acquire 100% of the equity of DHL Hong Kong and DHL Beijing. In 2021, SF Express spent 14.6 billion yuan to acquire Kerry Logistics in Hong Kong.

Behind the frequent expansion, SF Express's debt pressure is also increasing. From 2018 to 2023, SF Express's debt scale rapidly increased from 34.7 billion yuan to 118.2 billion yuan, and the asset-liability ratio increased from 48% to 53%. At the end of the first quarter of 2024, SF Express's total assets reached 224.94 billion yuan, with total liabilities reaching 122.915 billion yuan, and the asset-liability ratio reached 54.64%, at a historically high level.

Moreover, the prospectus also shows that as of April 30, 2024, SF Express's total borrowings due within one year amount to approximately 29.174 billion yuan. Although SF Express has 40 billion yuan on its balance sheet, the amount of "idle money" that can actually be used is not much. Therefore, SF Express has a high financing demand.

But this raises another question. There are more than one financing methods. Why did SF Express choose to list on the Hong Kong Stock Exchange? Wang Wei, Chairman of SF Express, once said that the original intention of the company's listing was to promote the implementation of its internationalization strategy.

Professionals pointed out that listing abroad is one of the important ways for domestic enterprises to internationalize and standardize their development. It is conducive to enterprises using foreign capital for development, optimizing their modern governance level, and better integrating into the global economy. Specifically, enterprises listed in Hong Kong can access top international investment institutions, which is conducive to improving their shareholder structure and corporate governance.

It is worth mentioning that in August 2023, Wang Wei also said at the shareholders' meeting: "Listing in Hong Kong will definitely choose the best timing, not the shortest time." This year, the number of mainland enterprises listing in Hong Kong has been at a historical high. On the policy side, the "New Nine Policies" clearly adhere to coordinating high-level institutional opening-up and security in the capital market. Some analysts believe that this means that listing in Hong Kong will be more convenient. This may be why SF Express chose to launch its listing in Hong Kong recently.

02

Stock price slump, revenue growth停滞 in 2023

However, SF Express still faces considerable market pressure behind its promotion of internationalization.

In 2023, SF Express achieved revenue of 258.4 billion yuan, a year-on-year decrease of 3.39%, and a net profit after deducting non-recurring gains and losses of 7.13 billion yuan, a year-on-year increase of 33.7%. This is the first time that SF Express has seen a revenue decline since its listing. The revenue decline was caused by SF Express's reliance on supply chain and international business. In 2018, SF Express's supply chain and international business accounted for 2.8% of total revenue, which rapidly rose to 32.8% in 2022 but fell back to 23.2% in 2023.

The 2023 financial report showed that during the reporting period, SF Express's supply chain and international business achieved tax-free operating income of 59.98 billion yuan, a year-on-year decrease of 31.7%. This was mainly due to the significant decline in international air and sea freight demand and freight rates from the historical highs in the first half of 2022 to the market normalization level in 2019, affecting the revenue growth rate of the company's international freight and agency business in 2023. However, as demand and freight rates stabilized quarter by quarter, the revenue decline continued to narrow.

In addition, although SF Express has a revenue of 250 billion yuan, its net profit after deducting non-recurring gains and losses is only 7.13 billion yuan, with a net profit margin of only 3.06%, which has even declined compared to the past. SF Express's net profit margin was 4.50% in 2020 and 5.01% in 2019.

SF Express's net profit also pales in comparison to its peers. In 2023, ZTO Express achieved revenue of 38.42 billion yuan and net profit attributable to shareholders of 8.749 billion yuan. ZTO Express's revenue scale is less than one-sixth of SF Express, but its profit scale exceeds the latter.

The market also lacks confidence in SF Express. As of the close on July 2nd, SF Express's closing price was 34.90 yuan per share, down nearly 75% from its historical high.