Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<ul>
<li>Industry and company reports show ASP declines gained momentum in April</li>
<li>April volume jumped 36% Y/Y on a weak comp from 2022 (Covid-19 lockdowns)</li>
<li>Our thesis: pricing is getting weaker, and this trend will soon impact margins</li>
</ul>


Industry and company reports show ASP declines gained momentum in April
April volume jumped 36% Y/Y on a weak comp from 2022 (Covid-19 lockdowns)
Our thesis: pricing is getting weaker, and this trend will soon impact margins


Monthly Express Tracker | Prices Continue to Slide | Volume Pops | (May 2023)

Equity Capital Markets

<ul>
<li>Three potentially large e-comm logistics IPOs are now in-process in Hong Kong</li>
<li>We compare the three 'by the numbers', then examine their strengths and weaknesses</li>
<li>We conclude by providing a matrix that may help investors decide where to allocate time</li>
</ul>


Three potentially large e-comm logistics IPOs are now in-process in Hong Kong
We compare the three 'by the numbers', then examine their strengths and weaknesses
We conclude by providing a matrix that may help investors decide where to allocate time


Which Hong Kong E-Comm Logistics IPO Is Right for You? We Compare SF Holding, J&T, and CaiNiao

Cainiao Smart Logistics Network / Equity Bottom-Up

<ul>
<li>For certain companies now seeking IPOs, X-border volumes may serve as demand proxy</li>
<li>In 2023, Chinese X-border volume growth has accelerated, up +55% Y/Y through September</li>
<li>In developing X-border express market, lower ASPs are actually a good thing, in our view</li>
</ul>


For certain companies now seeking IPOs, X-border volumes may serve as demand proxy
In 2023, Chinese X-border volume growth has accelerated, up +55% Y/Y through September
In developing X-border express market, lower ASPs are actually a good thing, in our view


Introducing Monthly Tracking of Chinese X-Border Express Parcel Data | YTD Volume up +55%, ASPs -25%

J&T Global Express  / Equity Capital Markets

<ul>
<li>In this insight, we examine <a href="https://www.smartkarma.com/entities/j-t-global-express-co-ltd" target="_blank" data-smartkarma-citation="entities:36819:1" rel="noopener">J&amp;T Global Express (1936374D CH)</a>'s operation in SE Asia, where it's the region's dominant player, with market share of 22.5% by volume </li>
<li>We profile SE Asian demand and supply and compare these to the development of China's express industry, acknowledging the key role <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba (ADR) (BABA US)</a> has played there</li>
<li>We also present a framework for estimating the value of J&amp;T's SE Asian operation by identifying the most appropriate comps and EV valuation multiples</li>
</ul>


In this insight, we examine J&amp;T Global Express (1936374D CH)'s operation in SE Asia, where it's the region's dominant player, with market share of 22.5% by volume 
We profile SE Asian demand and supply and compare these to the development of China's express industry, acknowledging the key role Alibaba (ADR) (BABA US) has played there
We also present a framework for estimating the value of J&amp;T's SE Asian operation by identifying the most appropriate comps and EV valuation multiples


J&T Global Express Pre-IPO, Part 2: SE Asia Operation | Demand, Supply Profiles | Valuation Approach

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

<h2>Growth of low end driven by Pinduoduo</h2>
<p>The growth of <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> has spurred growth in China’s express market over the last two years, accounting for 60% or more of incremental growth in parcel volume in 2018. PDD’s emergence has boosted parcel volume growth, but this gift has come at a price: to win business from the merchants operating on PDD’s platform, express companies must offer rock-bottom pricing.</p>
<h2>Volume growth a nice gift, but it comes with a price</h2>
<p>PDD’s emergence offers strong volume growth, accompanied by downward pressure on pricing and margins. To combat these pressures, express companies must aggressively pursue parcel volume share in order to reduce unit costs (and thereby limit margin erosion). With most small express players squeezed out, we believe price competition among the remaining express firms is intensifying, with average parcel pricing down by 12-16% YoY in recent months.</p>
<h2>At high end of express &amp; logistics, less competition</h2>
<p>Away from intensifying competition at the low-end of the express sector, the high-end of China’s express segment features pockets of growth with muted competition. In time-definite (i.e., ‘overnight’) express, international express, supply chain management, and cold-chain logistics, providers tend to compete based on service levels, and their customers tend to be less price-sensitive than those at the low-end of the market. Underlying demand for these services is powered by a gradual ‘consumption upgrade’, helping merchants move high-value goods faster and more reliably compared to mainstream express products. We believe these segments offer shelter from the price competition that has emerged at the low-end of the express sector.</p>
<h2>Express market is bifurcating</h2>
<p>We see two distinct segments developing within express. At the low end, most of the listed express companies are aggressively pursuing volume share gains in order to reduce costs so they can profitably handle the low-priced parcels that are driving sector growth. Meanwhile, at the high end, SF Holding is successfully courting customers who value speed and reliability ahead of low prices. We expect profitability in this latter segment to remain fairly stable, while at the low end we expect profitability to continue eroding.</p>
<h2>Low-end pressure adds to rising capex demand, sliding returns</h2>
<p>The development of a bifurcated market comes at the same time most Chinese express companies are already facing pressures on cash flow and profitability. We believe most of the listed express companies are increasing capital expenditures in order to expand ‘last mile’ service and to build out needed infrastructure in smaller cities and rural areas. We suspect initial returns on these types of investments will be low, compounding downward pressure on margins related to PDD’s rise.</p>
<h2>Focus on high end should produce better results going forward</h2>
<p>Strong downward pressures on margins will make it increasingly difficult for most express companies to convert strong top-line growth into attractive earnings growth. In the medium-term, we believe companies with limited exposure to low-end parcel volumes are more likely to generate attractive strongest earnings growth. </p>

Growth of low end driven by Pinduoduo
The growth of Pinduoduo (PDD US) has spurred growth in China’s express market over the last two years, accounting for 60% or more of incremental growth in parcel volume in 2018. PDD’s emergence has boosted parcel volume growth, but this gift has come at a price: to win business from the merchants operating on PDD’s platform, express companies must offer rock-bottom pricing.
Volume growth a nice gift, but it comes with a price
PDD’s emergence offers strong volume growth, accompanied by downward pressure on pricing and margins. To combat these pressures, express companies must aggressively pursue parcel volume share in order to reduce unit costs (and thereby limit margin erosion). With most small express players squeezed out, we believe price competition among the remaining express firms is intensifying, with average parcel pricing down by 12-16% YoY in recent months.
At high end of express &amp; logistics, less competition
Away from intensifying competition at the low-end of the express sector, the high-end of China’s express segment features pockets of growth with muted competition. In time-definite (i.e., ‘overnight’) express, international express, supply chain management, and cold-chain logistics, providers tend to compete based on service levels, and their customers tend to be less price-sensitive than those at the low-end of the market. Underlying demand for these services is powered by a gradual ‘consumption upgrade’, helping merchants move high-value goods faster and more reliably compared to mainstream express products. We believe these segments offer shelter from the price competition that has emerged at the low-end of the express sector.
Express market is bifurcating
We see two distinct segments developing within express. At the low end, most of the listed express companies are aggressively pursuing volume share gains in order to reduce costs so they can profitably handle the low-priced parcels that are driving sector growth. Meanwhile, at the high end, SF Holding is successfully courting customers who value speed and reliability ahead of low prices. We expect profitability in this latter segment to remain fairly stable, while at the low end we expect profitability to continue eroding.
Low-end pressure adds to rising capex demand, sliding returns
The development of a bifurcated market comes at the same time most Chinese express companies are already facing pressures on cash flow and profitability. We believe most of the listed express companies are increasing capital expenditures in order to expand ‘last mile’ service and to build out needed infrastructure in smaller cities and rural areas. We suspect initial returns on these types of investments will be low, compounding downward pressure on margins related to PDD’s rise.
Focus on high end should produce better results going forward
Strong downward pressures on margins will make it increasingly difficult for most express companies to convert strong top-line growth into attractive earnings growth. In the medium-term, we believe companies with limited exposure to low-end parcel volumes are more likely to generate attractive strongest earnings growth. 

Bifurcated Chinese Express Market Developing

China

BEST Inc. offers logistics and supply chain management solutions. The Company provides express and freight delivery, inventory management, warehousing, financing, cross-border supply chain, merchandise sourcing, and value-added services. BEST serves customers worldwide.

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BEST (BEST US)

Monthly Express Tracker | Prices Continue to Slide | Volume Pops | (May 2023)

In April, express volume shot up 36% against easy Y/Y comps, but ASPs deepened their recent decline. We believe pricing will continue to...

Tracking Traffic

Which Hong Kong E-Comm Logistics IPO Is Right for You? We Compare SF Holding, J&T, and CaiNiao

On Sunday June 2, SF Holding announced via a notice at the Shenzhen Stock Exchange that it plans to sell up to 625 mn new shares in a secondary...

Tracking Traffic

Introducing Monthly Tracking of Chinese X-Border Express Parcel Data | YTD Volume up +55%, ASPs -25%

Chinese X-border express parcel volume growth has accelerated dramatically in 2023, and unit pricing has fallen sharply. In this note we dissect...

Tracking Traffic

J&T Global Express Pre-IPO, Part 2: SE Asia Operation | Demand, Supply Profiles | Valuation Approach

We're pulling this insight out of the archives in light of J&T's updated filing and its decision to begin pushing forward with its IPO in Hong Kong...

Tracking Traffic

Bifurcated Chinese Express Market Developing

We will write more about SF Holding soon as the company prepares to seek a secondary listing in Hong Kong. But we believe some of the themes we...

Daniel Hellberg

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