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

After moderating in August, headline express sector volume surged in September. Total parcel volume grew by 44.6% last month, and key inter-city volume was up almost 50%. 
Pricing remains weak, however. For all express shipments, ASPs fell by 12.2%, and the companies that report monthly numbers all reported YoY ASP declines of between 15% and 31%.
In other express sector news: <a href="https://www.smartkarma.com/entities/zhejiang-idc-fluid-control-co-ltd" target="_blank" data-smartkarma-citation="entities:18695:1" rel="noopener">STO Express (002468 CH)</a> pre-announced Q3 losses, we check on how <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a>'s Hong Kong IPO has fared so far, and we note (again) <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> massive scale relative to its Chinese peers -- and it's incredible year of growth. 
We continue to rate SF Holding BUY as we expect it to continue to gain share from peers. We also recently upgraded <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US) </a>to BUY on our expectation that it could become an attractive target once sector M&amp;A takes off. Meanwhile, ZTO remains a SELL in our view.

After moderating in August, headline express sector volume surged in September. Total parcel volume grew by 44.6% last month, and key inter-city volume was up almost 50%. 
Pricing remains weak, however. For all express shipments, ASPs fell by 12.2%, and the companies that report monthly numbers all reported YoY ASP declines of between 15% and 31%.
In other express sector news: STO Express (002468 CH) pre-announced Q3 losses, we check on how ZTO Express (ZTO US)'s Hong Kong IPO has fared so far, and we note (again) S.F. Holding (002352 CH) massive scale relative to its Chinese peers -- and it's incredible year of growth. 
We continue to rate SF Holding BUY as we expect it to continue to gain share from peers. We also recently upgraded BEST Inc (BEST US) to BUY on our expectation that it could become an attractive target once sector M&amp;A takes off. Meanwhile, ZTO remains a SELL in our view. 

TRACKING TRAFFIC/Chinese Express: Pricing Still Weak | STO Q3 Profit Warning | ZTO HK IPO Update

Event-Driven

Last week <a href="https://www.smartkarma.com/entities/zhejiang-idc-fluid-control-co-ltd" target="_blank" data-smartkarma-citation="entities:18695:1" rel="noopener">STO Express (002468 CH)</a> warned investors that it lost money in Q3 2020, versus profits in the year-earlier period. It was the third profit warning issued by the company so far in 2020. 
STO Express appears to be retreating from its aggressive pursuit of volume share gains, but the company's new strategy remains unclear, in our view. 
We believe STO Express remains a potential acquisition target when Chinese express sector M&amp;A gains momentum, along with US-listed <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a>.

Last week STO Express (002468 CH) warned investors that it lost money in Q3 2020, versus profits in the year-earlier period. It was the third profit warning issued by the company so far in 2020. 
STO Express appears to be retreating from its aggressive pursuit of volume share gains, but the company's new strategy remains unclear, in our view. 
We believe STO Express remains a potential acquisition target when Chinese express sector M&amp;A gains momentum, along with US-listed BEST Inc (BEST US). 

As Profits Turn to Losses, STO Express Retreats from Growth Strategy. Is M&A Next?

Equity Capital Markets

Kerry Express Thailand / Equity Capital Markets

The purpose of this note is to analyze the different eCommerce fulfillment markets pursued by <a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> and <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US).</a> KEX focuses on Thailand's domestic express market, while Best has a competing domestic service and is also developing a X-border express service to quickly move Chinese goods into multiple SE Asian markets.To better understand these two markets, we looked at market data from KEX's IPO documents as well as financial data disclosed by eCommerce giant <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>. These figures, combined with numbers from KEX itself and the Chinese express companies, give investors a sense of the size and growth potential of the Thai domestic and X-border eComm fulfillment markets.While both markets offer attractive growth, they also present distinct challenges. In the Thai domestic express market, these challenges include a lack of scale (compared to China's expess market) and relatively low population density, especially outside of Metro Bangkok. Challenges presented by the X-border market include exorbitant pricing, competition from large multinationals, and increased complexity (ie, paperwork, customs, tariffs, etc). We conclude that KEX is an intriguing pure play on Thailand's eCommerce development whose upcoming IPO is worth following. Regarding Best, we recently upgraded its shares to Buy on expected sector consolidation. To date its Thai and X-border revenues remain a very small part of the company's business which probably won't "move the needle" in the near-term.

The purpose of this note is to analyze the different eCommerce fulfillment markets pursued by Kerry Express Thailand (KEX TB) and BEST Inc (BEST US). KEX focuses on Thailand's domestic express market, while Best has a competing domestic service and is also developing a X-border express service to quickly move Chinese goods into multiple SE Asian markets.To better understand these two markets, we looked at market data from KEX's IPO documents as well as financial data disclosed by eCommerce giant Alibaba Group (BABA US). These figures, combined with numbers from KEX itself and the Chinese express companies, give investors a sense of the size and growth potential of the Thai domestic and X-border eComm fulfillment markets.While both markets offer attractive growth, they also present distinct challenges. In the Thai domestic express market, these challenges include a lack of scale (compared to China's expess market) and relatively low population density, especially outside of Metro Bangkok. Challenges presented by the X-border market include exorbitant pricing, competition from large multinationals, and increased complexity (ie, paperwork, customs, tariffs, etc). We conclude that KEX is an intriguing pure play on Thailand's eCommerce development whose upcoming IPO is worth following. Regarding Best, we recently upgraded its shares to Buy on expected sector consolidation. To date its Thai and X-border revenues remain a very small part of the company's business which probably won't "move the needle" in the near-term. 

Kerry Express & Best Inc: Two Approaches to ECommerce Logistics Growth in SE Asia

We are upgrading <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a> from HOLD to BUY on the expectation of Chinese express sector consolidation in the coming 12-18 months. Note that we do not expect sector fundamentals to improve in the near-term, nor do we expect Best to erase its losses in the next few quarters. 
While we concede we may be early in rating Best BUY, we believe conditions are developing in ways that make sector M&amp;A more likely in the medium-term. Given its size, its depressed valuation and its relationship to <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, Best could become an acquisition target. 
We view Best as a cheap option on sector consolidation. At a 20% discount to peers on [EV/Revenue] and [EV/Parcel], we believe Best's express operation alone is worth US$5.05 per ADS -- investors effectively get the rest of its businesses for free. BUY below US$3 for ~70% upside.

We are upgrading BEST Inc (BEST US) from HOLD to BUY on the expectation of Chinese express sector consolidation in the coming 12-18 months. Note that we do not expect sector fundamentals to improve in the near-term, nor do we expect Best to erase its losses in the next few quarters. 
While we concede we may be early in rating Best BUY, we believe conditions are developing in ways that make sector M&amp;A more likely in the medium-term. Given its size, its depressed valuation and its relationship to Alibaba Group (BABA US), Best could become an acquisition target. 
We view Best as a cheap option on sector consolidation. At a 20% discount to peers on [EV/Revenue] and [EV/Parcel], we believe Best's express operation alone is worth US$5.05 per ADS -- investors effectively get the rest of its businesses for free. BUY below US$3 for ~70% upside. 

Upgrading Best Inc To Speculative BUY on Expectation of Express Sector Consolidation

Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

<ul>
<li>The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing, according to a decision made at the Politburo meeting chaired by President Xi Jinping meeting on Monday.</li>
<li>The Fifth Plenum, to be held next week (26-29 October), will most likely focus on Three major subjects: i) the steering of China’s economic growth and restructuring, ii) the development of China’s 14th Five Year Plan, and iii) the prepared political reshuffling to occur ahead of 2022, when the Standing Committee, China’s highest legislative body, is expected to step down.</li>
<li>As one of the important task, the meeting will focus on finalising the guidelines for the 14th Five Year Plan. The plan will be approved in March 2021 at the conclusion of the annual National People’s Congress meeting.</li>
</ul>


The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing, according to a decision made at the Politburo meeting chaired by President Xi Jinping meeting on Monday.
The Fifth Plenum, to be held next week (26-29 October), will most likely focus on Three major subjects: i) the steering of China’s economic growth and restructuring, ii) the development of China’s 14th Five Year Plan, and iii) the prepared political reshuffling to occur ahead of 2022, when the Standing Committee, China’s highest legislative body, is expected to step down.
As one of the important task, the meeting will focus on finalising the guidelines for the 14th Five Year Plan. The plan will be approved in March 2021 at the conclusion of the annual National People’s Congress meeting.


Fifth Plenum Should Focus on Economic Targets, Five Year Plan, Political Reshuffling

China

S.F. Holding Co., Ltd operates as a holding company. The Company, through its subsidiaries, provides logistics, order tracking, supply chain management, and warehousing services. S.F. Holding operates worldwide.

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S.F. Holding (002352 CH)

TRACKING TRAFFIC/Chinese Express: Pricing Still Weak | STO Q3 Profit Warning | ZTO HK IPO Update

Although volumes bounced back in September, pricing remains weak. We retain our BUY ratings on SF Holding and Best Inc, while ZTO Express remains a...

Tracking Traffic

As Profits Turn to Losses, STO Express Retreats from Growth Strategy. Is M&A Next?

STO Express recently warned investors it would report a loss in Q3 2020. The company seems to be rethinking its aggressive pursuit of volume share,...

Tracking Traffic

Kerry Express & Best Inc: Two Approaches to ECommerce Logistics Growth in SE Asia

Define market opportunity: domestic Thailand (KEX

Tracking Traffic

Upgrading Best Inc To Speculative BUY on Expectation of Express Sector Consolidation

What is rationale? What are catalysts? Why Best and not other potential targets? Price target?

Tracking Traffic

Fifth Plenum Should Focus on Economic Targets, Five Year Plan, Political Reshuffling

The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing,...

Li Tang

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