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Get 1, lose 1 yuan, and SF Express went “bloody” listing in the same city

On November 14, SF Express successfully passed the Hong Kong Stock Exchange listing hearing, and will soon become the “first share of instant logistics in the same city” for Hong Kong stocks.

SF Express was the first in the same city$S.F. Holding (002352.SZ)$One of its divisions began to get involved in the same city distribution business in 2016, and only began independent and corporate operations in 2019. The “SF Express Express” company was established, and plans to go public by 2021. It only took five years.

It is worth mentioning that on May 17, c$SF REIT (02191.HK)$Officially listed and traded on the Hong Kong Stock Exchange, becoming the first domestic real estate investment trust to be listed in Hong Kong and focused on logistics; on September 28, a wholly-owned subsidiary of SF Express Holdings completed the acquisition of Kerry Logistics.

If$SF INTRA-CITY (09699.HK)$Successful listing will follow SF Holdings, SF Housing Trust,$KLN (00636.HK)$After that, it was the fourth listed company in the hands of SF Express President Wang Wei.

It only took 5 years from establishment to listing

In the new era of consumption, people are increasingly willing to pay for “saving time, trouble, and effort”. Consumer demand for consumption upgrades and brands' demand for service upgrades have together driven distribution logistics upgrades. When “being able to deliver” was no longer a problem, diversified and personalized delivery services began to increase.

As a result, SF Express entered the third-party delivery circuit to provide personalized services for four major scenarios: local catering (food, drinks), retail in the same city (fresh supermarket, flower cake, medicine), near-field e-commerce (clothing, beauty, 3C), and near-field services (personal errands, corporate services).

In 2016, delivery in the same city entered the consolidation period after the outbreak:$Dada Nexus (Delisted) (DADA.US)$Arrived home with JD$JD-SW (09618.HK)$After the merger, Hungry bought Baidu Takeaway and sold to Ali ($Baidu (BIDU.US)$), Click here to get it$BABA-W (09988.HK)$In the D round of financing of 150 million US dollars, Flash Delivery announced that it had achieved break-even.$Walmart (WMT.US)$Investing in New Dada... SF Express also established the SF Express Tongcheng Division based on its own express delivery business, which targets the company's existing B-side customers.

In 2017, SF Express launched SF Express Delivery, expanding the scope of delivery services and opening up the service to C-end users; in 2018, it began officially entering the personal business, and the “SF Express Delivery” business was launched simultaneously in 5 cities.

In October 2019, as logistics moved from “next day level” to “minute level”, SF Express's business in the same city officially operated independently in a corporate form, independently operating the “SF Express Delivery” brand.

If SF Express only integrates SF Express's external products and takes orders with the company's original riders, although it can supplement the logistics capacity of SF Express's entire chain, there are problems such as single scenarios and insufficient user stickiness.However, SF Express Tongcheng, which founded the company to operate independently, as an independent brand, can improve dispatch efficiency through a complete package model, efficiently integrate various scenarios, increase the proportion of business entry, and at the same time add value through ancillary services, and do a wider range of personal errands.

In November 2019, SF Express's “Help Me Buy” errands service was officially launched in 16 cities across the country. Based on this, SF Express began simultaneously launching the “100 Cities Plan” to accelerate its decline and layout towards third- and fourth-tier cities. In May 2020, SF Express tested the waters of “Fengshui” group meal takeout, hoping to further expand the upstream catering supply chain.

By continuously extending its business reach outward, SF Express's business sources in the same city are gradually expanding from KA's major customers to small and medium-sized businesses, individuals, and large companies and organizations.

The largest third-party instant delivery service platform in China

The instant delivery industry, which started with takeout, developed into a 100 billion dollar industry in just a few years. Anxin Securities$J-Yuan Trust (600816.SH)$According to research data, in 2019, China's instant logistics industry had an order volume of about 18.5 billion yuan, and the market size reached 131.3 billion yuan.

At the 2021 China Tongcheng Instant Logistics Industry Summit held in September, Sun Haijin, CEO of SF Express Tongcheng, mentioned that the business model of instant logistics is in line with humanity; it satisfies peopleFirst aidpossiblyrelishrequirements.

Like people at Pizza Hut$Yum China (YUMC.US)$After ordering the mini programs from many leading restaurant brands, including Hi Cha, the hot drink was still hot when it was delivered, and the cream top was kept and not spilled at all; for example, if you ordered the latest phone from JD, you can pick it up and start using it within half an hour; they grabbed limited-edition clothing at Uniqlo, and after playing a game while lying on the couch, they could be sent to try on.

The nature of SF Express Tongcheng's independent third party determines that there is no traffic competition with other platforms, so supermarkets, fresh e-commerce, and community group buying platforms are all willing to cooperate with it. This makes SF Tongcheng's leading edge in the B2C circuit even more obvious.

As of May 31, 2021, SF Express's business in the same city has covered more than 1,000 cities, 530,000 B-side merchants and 126 million C-end users across the country, and more than 2.8 million riders have registered on the platform.

In the prospectus, SF Express Tongcheng disclosed the operating data for the last three years for the first time.In 2018-2020, SF Express's revenue in Tongcheng was 993 million yuan, 2.11 billion yuan, and 4.84 billion yuan respectively, with orders of 79.8 million, 210 million and 760 million orders, respectively.As can be seen, its revenue and order volume increased significantly in 2019 and 2020.

According to prospectus data, the total order volume of domestic independent third-party delivery platforms has also grown rapidly in recent years, from 500 million orders in 2016 to 3 billion orders in 2020, with a compound growth rate of 53.2%. Judging from the order volume,SF Tongcheng is already the largest third-party instant delivery service platform in China, with a market share of 11%.

According to Tianyan survey information, SF Express Tongcheng has previously received a total of 4 rounds of financing. This IPO has also attracted many investment institutions. According to the prospectus, SF Express currently has 29 shareholders in the same city. Among them, SF Tyson, SF Holding Limited, Tongcheng Technology, and Ningbo Shunxiang each held 42.82%, 14.59%, 9.35%, and 8.34% of the shares. The remaining shares were held by the remaining 25 shareholders, all with a shareholding ratio of less than 5%.

Many opponents

Although there is a market and demand for instant delivery, the market competition is far more intense than expected.

Since the development of instant delivery in 2012, the industry has entered a state of oligopolistic competition with a high degree of concentration. Currently, players on the track can be roughly divided into three echelons:

The first tier is an instant delivery service derived from takeout platforms.Mainly including Meituan delivery$MEITUAN-W (03690.HK)$With Hungry Hummingbird delivery (including Order Me Delivery), the high-frequency nature of takeout orders has created a stable and massive order flow for them.

According to data from the Anxin Securities Research Report, in 2019, Meituan delivered an average of about 23.9 million orders per day, with a market share of 47.2%. Hummingbird and Dianwei reached an average of 10.5 million orders per day, with a market share of 20.7%. Together, the two accounted for 68% of the market share.

The second tier is a third-party independent platform including SF Express Tongcheng, Dada, Dianwo, Express Delivery, and UU Errands.Since there are no takeout platforms behind it that can provide a stable daily order volume, each platform is continuously expanding its scope of business to get more customers, thus forming a retail platform+instant delivery model.

For example, in addition to providing JD home delivery services for the group's own business, Dada Express also cooperates with domestic supermarket chains, including Walmart,$Yonghui Superstores (601933.SH)$Wait to make up for the “last mile problem” of large supermarkets.

The third tier is fresh O2O and traditional express delivery companies.The former includes Hema, Baiguoyuan, etc., while the latter includes the same city delivery services of express delivery services such as “Three Links and One Delivery” itself. However, fresh O2O generally directly serves the company's own delivery system, and express delivery is also sent back to the branch before delivery, which is slightly different from the previous two types of point-to-point instant delivery services.

Local lifestyle services have become an important traffic entry point for internet giants, and instant delivery just hits the peer-to-peer instant demand derived from local lifestyle services and new retail, and has huge prospects to attract many players.

In addition to competing with the same type of DLC, Express Delivery, and UU Errands, SF Express also competes for market share with Meituan Delivery, Ali's Hummingbird, and Jingdong's Dada Group. Latecomers such as Kuaixiansen, Xiaoqiang Errands, and Flash Delivery should not be underestimated. Other than that, according to rumors$DiDi Global (Delisted) (DIDI.US)$、$JPMorgan Hedged Equity Laddered Overlay ETF (HELO.US)$They are also preparing to enter the field of instant delivery.

Under such circumstances, it is very difficult for SF Express to “sit back and relax” in the same city.

Where is it going

At the same time, SF Express's own business in Tongcheng is also facing many challenges.

According to the prospectus, in 2018-2020, SF Express's net profit was -328 million yuan, -470 million yuan, and -758 million yuan respectively, with a total loss of 1,556 billion yuan over 3 years.If calculated based on the 2020 order volume of 760 million orders and a net loss of 758 million yuan, SF Express almost lost 1 yuan for every order made.

Looking at gross profit and gross margin, SF Express's gross profit in 2018-2020 was -231 million, -336 million, and -189 million, respectively, while the corresponding gross margins were -23.29%, -15.96%, and -3.89%, respectively. However, although it is still in a negative range, its gross margin has shown a clear upward trend. The latest financial report shows that as of the end of May this year, this figure was -0.9%.

One reason for the loss was the high cost of riders. According to official data,SF Express currently has 2.8 million registered riders. Outsourced rider expenses in 2018-2020 were 1.05 billion, 2.11 billion, and 4.86 billion respectively, accounting for 85.4%, 86.4% and 96.6% of total operating costs, respectively.No wonder some people say that SF Express works part-time for riders in the same city.

Heavy dependence on major customers is also a major concern of SF Express in the same city. According to the prospectus, the top five customers in 2018-2020 accounted for 67.7%, 67.1%, and 61.2% of total revenue, respectively; furthermore, its largest customer was SF Holdings, which contributed 22.7%, 19.4%, and 33.6% of SF Express's total annual revenue in 2018-2020, respectively.

Also, although SF Express claims that it is currently the largest third-party instant delivery service platform in China,However, the 11% market size advantage is not obvious. There is no clear gap with latecomers, and more than 60% of the market still belongs to a large number of small and medium-sized platforms that have yet to be integrated.

In order to seize the market on instant delivery tracks with many players, SF Express had to “bleed” to go public in the same city.

According to the prospectus, the capital raised by SF Express Tongcheng's IPO is mainly used to invest in the company's main business and future strategic layout to consolidate its existing competitive advantage, further enhance its industry position and market share, and ensure the company's sustainable development.

SF Express also stated in the announcement that the spin-off and listing of Tongcheng Industrial will build a platform for Tongcheng Industrial's international capital operation, enhance Tongcheng Industrial's brand awareness and market influence, continue to consolidate and strengthen Tongcheng Industrial's core resources, and promote the rapid development of Tongcheng Industrial's business.

The motivation of SF Express Tongcheng is the continuous high growth of the instant delivery service industry. Along with the development and upgrading of the local consumer market, considering the continuous expansion of new service scenarios and innovation in new business models and consumption models, the instant delivery service industry has obvious potential for growth.

According to the prospectus data, the transaction value of China's local consumer market is still growing rapidly. The transaction value reached 23.8 trillion yuan in 2020 and is expected to reach 33.9 trillion yuan in 2024; the annual order volume of China's instant delivery service industry is expected to grow to 64.3 billion orders in 2024, with a compound growth rate of 32.3% in 2020-2024.

The coverage and penetration rate of independent third-party instant delivery services will also grow further. According to prospectus data, the annual order volume of the independent third-party instant delivery service industry is expected to further increase to 12.2 billion orders in 2024. The compound annual growth rate for 2020-2024 is 41.9%, benefiting from the continued expansion of the sinking market and the derivation of new service scenarios, and this scale is expected to increase further.

Shen Wan Hongyuan's research report predicts that across the country, the proportion of logistics forms with immediate delivery to replace express delivery in the whole network in the same city in the long term is about 1%-25%, while in Tier 1 and 2 cities, the replacement ratio is expected to reach 50% or even higher.

The huge market size of the instant delivery service and the unstabilized pattern have given SF Express considerable room for imagination for the future development of Tongcheng. However, at a time when it is about to become the “first share of instant logistics in the same city,” how to cross the loss line, how to get rid of dependence on SF Holdings, and how to further expand the scale to consolidate its market position are all must-answer questions for SF Express in the same city.

Author: Wu Xinyao Editor: Gu Yan

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