Can best inc, which is lightly armed, turn the tide?

Three months after divesting the domestic express delivery business and announcing a profit in the annual report, Best Inc. recently released the first quarter financial report of 2022. The report shows a net loss from continuing operations of 0.38 billion yuan, compared to a net loss of 0.19 billion yuan in the same period last year, with the loss widening again. The reason for the loss, according to the financial report, is the winding up of the capital business line and the increase in unit costs for freight services, mainly due to high fuel costs.

At the beginning of the year, Best Inc. received a letter from NYSE informing the company that it did not meet the price standards applicable to continued listing on NYSE. The reason was that as of January 4, the average closing price of Best Inc.'s American depositary shares (ADS) on NYSE for less than 1 USD over 30 consecutive trading days. Following the share consolidation, Best Inc.'s stock price has slightly increased. On June 9, Best Inc. announced that it had received a notification from the New York Stock Exchange, informing the company that it had once again met the NYSE's continuous listing standards. As of June 21 Beijing time, Best Inc. opened at a stock price of 1.21 USD, with a total market value of 95.06 million USD (0.636 billion CNY).

Although downsizing has stabilized the company's fundamentals and prevented it from being delisted from Nasdaq, Best Inc. still faces significant challenges, and Chen Shaoning's struggle may continue. An independent analyst told Titanium Media APP that with the serious impact of the second quarter epidemic in Shanghai, Beijing, and other areas, the performance of Best Inc. in the freight sector may not necessarily be satisfactory.

Continuing to operate in the weight loss sector results in ongoing losses.

After transferring the business of Best Inc., it did not take long for Best Inc. to achieve profitability. The latest financial report data shows that Best Inc. had revenue of 1.8 billion yuan in the first quarter of 2022, a decrease of 35.2% compared to the same period last year with revenue of 2.784 billion yuan.

According to the financial report, Best Inc's main businesses include Best Express, Best Supply Chain, and Best International. In the first quarter, only Best International business revenue increased by 7.3% year-on-year, while other business revenues all declined year-on-year. In particular, the Youhuo business revenue decreased by 97.8% year-on-year, showing the most severe decline. Since the previous quarter, Best Inc's Youhuo business has entered the liquidation phase. In addition, the first quarter's freight service revenue was 1.09 billion RMB, compared to 2.04 billion RMB in the same period last year, a year-on-year decrease of 8.6%. The reason is due to a 13.5% decrease in freight volume. Under the influence of the epidemic, transportation fleets, hubs, and sorting centers were restricted, but at the same time, the average selling price per ton increased by 4.5% year-on-year, partially offsetting each other. At the same time, the proportion of e-commerce package business gradually increased, accounting for 22.2% of the total freight volume, a year-on-year growth of 5.6%.

Furthermore, Best Inc's Best Supply Chain business revenue was 0.409 billion RMB, an 8.6% decrease compared to 0.4477 billion RMB in the same period last year, accounting for 22.7% of the total revenue proportion. The main reason is the discontinuation of certain low-profit legacy accounts. This quarter, the total number of orders in the Best Supply Chain alliance reached 54.06 million units. At the same time, the business expansion of the cloud warehouse network in sectors such as automotive parts and pharmaceuticals occurred this quarter.

Chairman and CEO of Best Inc, Zhou Shaoning, expressed his views on the development of the supply chain business: "Under the test of the epidemic, there is a strong market demand for smart supply chain services. Best Inc. will leverage its information technology advantages, deepen cross-business collaboration, utilize abundant cash reserves to enhance network capabilities and service quality, expand market share through a wide customer base, and create profits."

Unlike last year, Best Inc's cash flow and debt ratio have gradually improved as the 'lean' process concludes, but the prolonged impact of the epidemic affects the underlying conditions. Financial data shows that the net cash flow used in ongoing operating activities in 2021 was 0.8911 billion RMB, compared to 70.5 million RMB generated in ongoing operating activities in 2020. The main reason for the decrease is the gradual normalization of payment terms in 2021 compared to the pandemic-induced extended payment terms in 2020, resulting in an increase of 0.2354 billion RMB in net losses from ongoing operations, mainly due to intense market dynamics and pricing lag.

The net cash flow generated from ongoing operating activities in 2020 was 70.5 million RMB, compared to 20.7 million RMB in 2019. This growth was mainly due to extended payment terms caused by the COVID-19 pandemic.

In terms of revenue costs, excluding traditional Youhuo business, Best Inc's freight revenue cost amounted to 1.145 billion RMB, accounting for 106.6% of the freight revenue, a 6.6 percentage point increase compared to the same period. Similarly, the cost of international business revenue was also high, reaching 0.285 billion RMB in the first quarter of 2022, accounting for as high as 106.3% of its revenue, a 0.4% year-on-year increase. This is mainly due to increased fuel and additional costs during the epidemic, partially offset by the increase in freight volume.

Additionally, the supply chain business revenue cost of Best Inc was 0.391 billion RMB, accounting for 95.7% of the supply chain revenue, a 1.1 percentage point year-on-year increase. This is mainly due to restrictions on certain warehouses during the epidemic.

On March 4th this year, Best Express Logistics held the 2022 National Network Conference, reaffirming the high-quality development path of express logistics business. "Quality" is the key strategic keyword for Best Express Logistics in 2022.

At that time, Zhou Shaoning stated at the meeting: "Best Express Logistics has entered a new stage of development. To implement the strategy of high-quality development, it is necessary to strengthen network coverage, optimize product structure, increase refined management, fully promote digital operation, help reduce costs and increase efficiency, accelerate the development of express logistics business, and enhance the overall capability of products and services based on quality and operation."

Struggles of Zhou Shaoning

Best Inc was established in 2007. In 2008, at a dinner party, Zhou Shaoning gained the favor of Alibaba. Alibaba successfully invested 15 million US dollars in Best Inc at the time, thereby obtaining support from the Alibaba ecosystem. During its rapid development over ten years, the cash-rich Best Inc has been aggressively acquiring companies, acquiring Huitong, Quanjitong, and 360 Hitao, and established an express company (later renamed Best Express). Almost its sole business orders come from the e-commerce empire of Alibaba. On September 20, 2017, Best Inc was officially listed on the New York Stock Exchange in the USA.

The annual price wars and rising rental expenses have gradually increased Best Inc's debt ratio.

In the price war, Best Express also adopted the method of lowering single ticket prices to increase market share, but the effect was not significant. As of the end of the fourth quarter of 2020, Best Express's single volume increased by 6%, but the market share was only 9.5%, lower than the 10.7% market share in the second quarter of the same year.

In 2020, Best Express's annual revenue was approximately 19.42 billion yuan, a year-on-year decrease of 11%.

Against the background of the "price war", the volumes of major express delivery companies have all increased: ZTO Express (ZTO.NYSE) completed 17 billion transactions, a year-on-year increase of 40.3%; YTO Express Group (600233.SH) completed 12.648 billion transactions, a year-on-year increase of 38.76%; Yunda Holding (002120.SZ) completed 14.182 billion transactions, a year-on-year increase of 41.52%; STO Express Co., Ltd. (002468.SZ) completed 8.818 billion transactions, a year-on-year increase of 19.60%; S.F. Holding (002352.SZ) reached 8.137 billion transactions, a year-on-year increase of 68.09%. Best Express handled a volume of 8.54 billion transactions, with a growth rate of 12.7%, which is lower than "Three Links One Reach".

This is also due to the "light asset model" of Best Express. Although logistics companies have been using franchise systems to save costs, the management of Best Inc's franchise system has always been criticized. The light asset model of Best Express determines that warehouses and transportation tools can only rely on leasing, and the uneven quality of these outsourced services has led to continuous errors in the logistics process. Additionally, due to the lack of direct labor relations between most franchise employees and Best Inc, such a negative reputation has emerged.

In addition to being slow, Best Inc's 'violent sorting' is also notorious. This has caused Best Inc to lose market share. In January 2021, S.F. Holding, Yunda, Yto Express Group, Sto Express Co.,Ltd., Best Inc, and Jitu respectively accounted for 10.64%, 16.33%, 14.94%, 9.93%, 10.2%, and 8% of the market share. The reporter interviewed the former Best Inc delivery stations, which stated that before selling the express delivery business to Jitu, there was a significant decline in the number of orders. 'Now Jitu's orders are about 300 per month, when Best Inc was here, there were only about 100.'

According to the financial report, Best Inc's revenue has been increasing year by year since 2014, but the net income has been negative for a long time. The financial report shows that starting from 2014, total losses exceeded 7 billion yuan, and the net loss continued to expand year by year until the first half of 2021 before the acquisition by Jitu, the loss continued to expand to 1.074 billion yuan. According to Best Inc's annual report, in 2016, its total liabilities were 3.962 billion yuan, with an asset-liability ratio of 59.62%; by the third quarter of 2021, this data had climbed to 17.544 billion yuan, with an asset-liability ratio of 98.57%. After selling Best Inc Express, Best Inc's debt ratio has been decreasing year by year. In the fourth quarter of 2021, it was 9.127 billion yuan. After selling the express delivery business in October 2021, Best Inc's total assets in 2021 amounted to 11.3109 billion yuan, and the debt ratio dropped to 80.40%.

Similarly improving is Best Inc's cash flow value. As of December 31, 2021, Best Inc's 'cash and cash equivalents' have increased from 1.1808 billion yuan in 2020 to 3.5657 billion yuan, a year-on-year increase of 201.97%.

An internet analyst told TMTPost that Zhou Shaoning's strategic contraction did solve Best Inc's dilemma to a certain extent. Foreign strategies can help Best Inc expand its market share. By leveraging the supply chain, technology, and service capabilities that Best Inc has accumulated in the Chinese market, rapid replication can be achieved to go international, providing comprehensive international supply chain services for more and more Chinese brands to explore the Southeast Asian market. Cainiao is also cooperating with Best Inc to plan the full-chain cross-border express delivery service from China to Thailand, Vietnam, and Cambodia. Previously, the two parties opened up cross-border logistics service routes from China to Malaysia and Singapore. 'However, due to the impact of the second quarter epidemic, the situation of losses may continue to expand.'

'For today's Best Inc, after transferring the express delivery, the business is basically To B business, and B-side customers value cost and service quality. Obviously, only by having high service quality and reputation, providing customers with high cost-effective rather than low-price services, can win the B-side market. Best Inc's reputation has been criticized due to the previous express delivery business and needs time to repair it,' the above-mentioned person said. (This article was first published on the TMTPost APP, author | Liu Zhongning)

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