Chinese courier giant SF delivered 26% rise in net profit buoyed by busy online shopping

Mable, Mengyuan Ge

Mon Mar 22 2021 07:30:00 GMT+0000 (Coordinated Universal Time)


HONG KONG - SF Holding Co. Ltd., one of China’s largest courier companies, reported an annual profit surge amid a boom in e-commerce business during the Covid-19 pandemic.

The company made 7.3 billion yuan in net profit in 2020, up 26% from 5.8 billion yuan a year ago. Revenue logged a 37% surge to 154 billion yuan, which is much higher than the industry’s average growth rate of 17.3%. Adjusted earnings up 46% year-on-year, largely in-line with market expectations. In terms of business volume, the company's 2020 full-year express logistics business totalled 8.137 billion parcels, up nearly 70% from a year ago.

The Shenzhen-based courier giant has been handling a surge in e-commerce orders during the Covid-19 pandemic as more people shifted to shop from home. Online goods delivery orders pocketed the company 44.1 billion yuan in revenue, representing a 64% year-on-year increase. The company said in a statement that they expected that trend to persist, “as online consumption became an indispensable part of life.” It did not specify the number of e-commerce orders transported but said the amount grew 156% from the previous year.

Although SF’s business volume increased significantly in 2020, the average revenue per shipment dropped 19% to 17.7 yuan in 2020, compared with 22 yuan in 2019; Company’s operation briefing of February 2021 also showed the downturn in average revenue per shipment, which amounted to only 15.11 yuan, a nearly 17% decline from the prior-year period.

Gross margin fell from 17.42% to 16.3% in 2020, slightly lower than analysts' expectations of 17%, according to Frank Yip, research associate of Daiwa Capital Markets. “The company’s gross margin in the fourth quarter of 2020 was just 12%. Given that the period is the peak season of e-commerce logistics, there are ‘double 11’, ‘double 12’ and other shopping carnivals, fierce market competition is what we believed to be the key factor of the decline,” he said.

Daiwa Capital Markets upgraded its rating on the SF Holdings from “hold” to “buy”, mainly due to “the lower-than-expected gross margin in 2020 and our lower revenue assumptions”. The company’s share price has retreated over 20% from its peak in mid-February, from the highest 117 yuan to 85 yuan on March 22.

The company management said the steep decline in gross margin in in the fourth quarter of 2020 can be attributed to higher economy parcel volume, increase in capacity investment, and higher-than-expected temporary costs during the peak season.

Due to the high degree of product and service homogeneity in the courier and logistics industry, the market competition is fierce as ever. Average revenue per shipment saw a 13-years decline, and the trend is expected to continue, according to the State Post Bureau statistics. Low-price strategies have become the main means by which new entrants rapidly seize market. Under the competition pressure, the market share of SF has dropped from 18.8% to 7.61% since 2010 until 2019.

In order to maintain its market share, SF who has been famous for its timeliness and service quality with a focus on mid-to-high end market, also joined the price war in ferocity. The company launched several economy express business, such as new franchise system "Fengwang" and heavy cargo service “SF Kuaiyun”, aiming to march into the mid-to-low end e-commerce market since 2019. In 2020, its market share increased to 9.76%, an 2.15% increase over the previous year, while facing the risk of price drop in future.

Even though traditional business made up more than 70% of SF's revenue in 2020, new business grew rapidly, achieving a compound growth rate of 64.5% in last three years. In 2020, SF’s new businesses segments including freight forwarding, cold chain, intra-city, international and supply chain accounted for 28.2% of the total revenue.

Despite the new business segments still in net loss, analyst Frank Yip has an optimistic view on it, as saying “We see the stronger-than-expected revenue growth would be the future earnings drivers once the business scale is established, especially for the freight forwarding once it merges with Kerry Logistics.”

SF Holdings has offered HK$17.6 billion to buy control of Hong Kong-based Kerry Logistics Network to expand its reach into Southeast Asia. The deal is expected to be completed by the fourth quarter of 2021.