• AntPWM

S.F.Holding Co. (002352.SZ)


Business Overview


SF Holding is a leading integrated express logistics service provider in China. After years of development, it has basically established the capabilities of providing integrated comprehensive logistics solutions to customers. Not only does it provide high quality logistics services from the delivery end, it has also extended its services to segments of production, supply, sales and distribution in the front-end of

the value-chains, and catered to consumer demand by using data technologies such as big data analysis and cloud computing to provide customers with comprehensive solutions including intelligent warehouse management, sales forecasting and self-service big data analytics. The logistics products of the Company mainly include various types of express services such as express delivery, economy express

delivery, intra-city delivery, warehousing service and international express delivery; express transportation services focused on LTL (less than truckload) service; and cold chain transportation services for customers in the fresh produce, food products and pharmaceutical segments. Moreover, SF Holding also provides value-added services

such as insurance and Cash on Delivery (COD) as well as diversified and refined services to customers.


Market Position


Targeting precisely at mid- to high-end markets, SF Holding has secured its leading position in the express delivery industry in China leveraging on its direct operation model, the “aviation + ground + information” three-in-one integrated network resources, and its strong technological capabilities. The Company has preliminarily built up the capabilities to provide customers with integrated comprehensive logistics solutions extending from distribution and delivery to the front-end segments of the value chain such as production, supply, sales and distribution segments. Customer-demand-oriented, the Company uses big data analysis coupled with diversified services such as express delivery, economy express delivery, intra-city, freight and warehousing services to provide customers with integrated logistics services such as trunk route transportation, store delivery, sales forecast and warehouse management with top service efficiency and quality, which enable the Company to win brand reputation and market influence successfully.


Industry Outlook


The life-cycle of an industry generally consists of four development stages: startup, growth, maturity, and decline. The Chinese express delivery industry is currently going through a transition from the growth stage toward the maturity phase – a time characterized by fast-growing demand, consolidation of logistics technology and high market-entry barriers. On the other hand, the market as a whole relies

substantially on upstream demand, market participants have limited means of competition, and user stability tends to be low. China’s express delivery industry currently has the following characteristics:


1. Consistent rapid growth and growing market concentration

The express delivery industry started in China between the late 1970s and early 90s. Thanks to the economic open-up policy, trade activities between China and foreign countries became increasingly commonplace and China’s economic growth accelerated, resulting in a dramatic increase in domestic and international delivery services. After many years of rapid development, China has grown into the world’s

largest express delivery market by business volume. In 2019, a total of 63.52 billion shipments were delivered by Chinese express delivery companies, up 25.3% year-on-year (yoy); and their operating revenues grew by 24.2% yoy to RMB749.78 billion, data from the State Post Bureau shows. As the fastest-growing and most dynamic emerging express delivery market in the world today, China’s parcel delivery

volume has surpassed that of the United States, Japan and Europe combined, and accounts for more than 50% of total global growth, making it the powerhouse and stabilizer for the international post industry. According to the “Report on the Operation of the Chinese Express Delivery Industry in 2019” released by the State Post Bureau, the brand concentration index, CR8, came in at 82.5% in 2019, with

all major market players registered faster growth in business volume relative to the industry average, indicating consistent increases in market concentration.


2. A shift away from the labor- and capital-intensive business model toward technology-intensive operations

In its early years, China’s express delivery industry scaled up through labor-intensive development; during the following two decades or so, the leading players succeeding in securing funding from external sources or via stock listings, and then continued to expand businesses via mergers and acquisitions (M&As); in recent years, however, labor costs have risen consistently in line with the expansion of delivery networks, and technology application capabilities have become the main driving force for industry upgrade. The market has reached the technology-intensive stage, prompting the leading players to adopt automation technology to boost productivity. By integrating technology seamlessly with business operations, some of them

managed to achieve breakthroughs in business volume and reduce labor costs at the same time. In the current stage of development, companies with strong technology R&D and application capacities will have a sustainable competitive edge over their peers.


3. E-commerce remains a key growth driver for express delivery businesses

Unlike its counterparts in the U.S. and other developed economies, the Chinese express deliver industry has benefitted enormously from the rise of the traditional e-commerce market. The e-commerce shipping market has grown at a relatively fast pace in recent years, amid rising penetration of e-commerce in small Chinese cities, a

boom of cross-border e-commerce sales and proliferation of internet celebrity e-commerce platforms. Nationwide online retail sales rose by 16.5% yoy to RMB10.63 trillion in 2019, data from the National Bureau of Statistics shows. Specifically, online retail of physical goods surged 19.5% yoy to RMB8.52 trillion, accounting for 20.7% of the total retail sales of consumer goods. From a macro-level perspective, there is still plenty of room for increase in online retail sales relative to total consumer goods retail sales.


4. Homogeneous competition among e-commerce delivery service companies

The express delivery price per shipment has declined consistently in recent years – from RMB28.50 in 2007 to RMB11.80 in 2019. It is mainly attributable to the rapid development of the e-commerce express delivery business (one of the major business segments for express delivery companies), as well as homogeneous competition among e-commerce delivery services – most e-commerce delivery businesses rely heavily on price competition to grow market share.


Financial Profile


The Company witnessed a slowdown in revenue growth of traditional products in the first half of 2019, resulting from uncertainty surrounding global markets and deceleration in domestic demand growth. The Company adjusted business strategies in response to the changes in market conditions, and business volume and revenue growth picked up in the second half, which, coupled with continuous rapid growth of new businesses, maintained revenue growth and profitability for 2019 at a stable and healthy level.


Revenue: In 2019, the Company delivered a total of 4.831 billion express shipments, up 25.84% yoy. Express logistics and supply chain revenues rose by 23.67% yoy to RMB110.901 billion, with the total revenue grew 23.37% yoy to RMB112.193 billion. The Company revised product strategies in line with changes in market demand resulting from the consumer spending restructuring. New products were released targeting certain markets and customers, resulting in incremental revenue growth in traditional businesses. The express logistics and supply chain businesses delivered revenue growth substantially faster than the industry average in the second half of 2019. In the meanwhile, new businesses such as freight, cold-chain and pharmaceuticals, international express, intra-city delivery and supply chain services continued to grow sharply, with their contribution to the total revenue increased further to 25.63%. Fast revenue growth across the new business lines had a positive impact on the overall operating revenue growth.


Profit: The Company realized a net profit attributable to shareholders of parent company of RMB5.797 billion, representing a year-on-year increase of 27.23%, while net profit attributable to shareholders of parent company after deducting non-recurring profits and losses amounted to RMB4.208 billion, representing a year-on-year increase of 20.79%. On the one hand, earlier on, the Company effectively improved operational efficiency and resource utilization by integrating network resources and enabling business operations with the latest technology, with initial results achieved through cost control measures; on the other hand, concessionary e-commence parcel (特惠专配), an economy product released by the Company, achieved a stronger-than-expected growth, but the resulting spike in shipment volume in the 4Q peak season entailed a significant amount of ad hoc temporary resources investment. Economy express, freight and intra-city delivery businesses are expanding service networks driven by market expansion, and the economies of scale will enter a round of uphill growth, resulting in a 0.5 pp decline in the Company’s average gross margin in 2019 relative to the previous year. Furthermore, inputs into digitalization, smart and data visualization technologies have translated into management efficiency gains and a simplified organizational structure, which, in turn, resulted in optimization of administrative expenses. As discussed above, the Company’s 2019 net margin attributable to shareholders of parent company after deducting non-recurring profits and losses slightly declined by 0.08 pp from a year earlier.


Financial Status: As at the end of the reporting period, the Company’s total assets were RMB92.535 billion, an increase of 28.94% as compared with the end of 2018. Benefiting from stable and healthy profit contribution in 2019, the Company’s total equity attributable to shareholders of the parent company at the end of the reporting period was RMB42.420 billion, an increase of 15.55 % as compared with the end of 2018. As at the end of the reporting period, the Company’s debt-to-asset ratio increased slightly, from 48.35% as at December 31, 2018 to 54.08% as at December 31, 2019, while the level of debt remained relatively healthy and the financial position was stable and optimistic.



The traditional business grew steadily and contributed to sustainable and healthy revenue


Customer resources: In response to the changes in the market and the diversification of customer demand, SF Holding focused on industry characteristics and business clustering, centered on the direction of multiple-scenario planning, digitalization and refinement, and tapped into customer demand for supply chain. By relying on technological means to drive internal changes and upgrading product portfolio, we constantly improved customer service capabilities and customer experience to achieve a stable and healthy growth of customer volume and revenues.

Retail customers: Retail customer management adopts a customer-centric approach, to provide users with user-friendly services by optimizing online and offline channel-based services. Online operations are focused on mobile apps, WeChat mini-apps, WeChat public account and other self-service interfaces, increasing the coverage of online service. By using AI to differentiate membership privileges for members at different levels, the SVIP payment system was introduced to offer discounts to users with higher shipping frequency, thus maximizing user stickiness. In the offline space,

efforts have been made to tap into users’ needs in different shipping scenarios, and increase service coverage in county-level markets, residential communities and tourist attractions, making sure that “SF service is visible 24/7 at all places”. As at the end of the reporting period, the Company had some 250 million members, up ~58% yoy. Going forward, the Company will continue to consolidate basic-level

services, upgrade, optimize and iterate operation tools, improve the efficiency of retail customer management, and ensure the fulfillment of business targets through concerted efforts, thereby achieving steady long-term business growth.


Maintain rapid growth while further improving integrated logistics capacities


(1) Freight

Unlike the highly concentrated and standardized express delivery market which is generally characterized by a relatively high degree of economies of scale, the less than truck load business, the core business of SF Freight (顺丰快运), represents a trillion-yuan market, but is still at an initial stage of scale-building and market integration. Formally launched in July 2019, SF Freight (顺丰快运) formed a dual-branded expedite delivery service network alongside SX Freight (顺心捷达); which went live in 2018). SF Freight targets mid- to high-end customers who tend to be more time/quality-conscious and have demanding requirements in terms of user experience. On the other hand, SF Freight focuses on whole network mid-end freight

market. The dual-branded strategy seeks to capitalize on complementary

operating models and product positioning.


SF Freight’s full-year revenue topped RMB10 billion in 2019, making it by far the fastest-growing player in the mid- to high-end market. Its market share has also increased consistently. The firm has acquired a large number of key-account clients such as Huawei, Midea and Hisense. In addition to the reliability and high risk tolerance of their own businesses, these clients have strong demand for a diverse range of services, thus benefiting SF Freight in terms of giving it access to high-quality client resources and injecting fresh momentum for business development. As of December 31, 2019, SF Freight owned 51 transit depots and some 1,300 transit service outlets, with a total area of more than 1.75 million square meters; more than 19,000 delivery vehicles, 1,134 trunk routes and 8,170 branch routes for expedite delivery, located in 362 major cities and regions throughout the 31 provinces. In 2019, the daily peak load at SF Freight exceeded 23,000 tonnes.


(2) Cold Chain and pharmaceuticals

China’s cold-chain logistics market has enormous development potential relative to its counterparts in developed economies. The Cold Chain Logistics Professional Committee of China Federation of Logistics & Purchasing (CFLP) projects that the domestic cold-chain logistics market of 2019 is worth RMB339.12 billion, up 17.60%

yoy. However, it is currently highly fragmented, and most market participants are regional or local players. Challenges facing the domestic market include under-developed cold-chain technology and inconsistent operating standards. SF Holding is the first Chinese logistics company that has initially established a national cold chain

network, with by far the most extensive network coverage. As at the end of the reporting period, SF Holding had 23 high-standard refrigerated food warehouses integrating multi-temperature section management and distribution capabilities, with a total operation area of 145,300 square meters. They are equipped with advanced

automated refrigeration equipment, smart temperature monitoring and control systems. It also has 237 refrigerated trucks featuring advanced vehicle GPS and real-time monitoring systems. Our food product transportation routes cover all major Chinese cities. On December 31, 2019, the British Standards Institution (BSI) granted the ISO 22000 food safety management system international standards certificate to SF cold-chain, making SF a national leader in secure cold-chain food transportation as the first ISO22000-accredited logistics operator in the country.


(3) Intra-city instant delivery

Amid the rise of New Retail and consumer service businesses, instant delivery is playing an increasingly important role in the “New Commerce” model as an integral part of the New Retail infrastructure that is most directly connected with end consumers. Instant delivery has grown into a 100-billion-yuan market and the fastest-growing segment of the logistics industry. The market is expected to grow at an annual rate above 30% over the next five years, with enormous growth potential.

Launched in 2016 with the vision of establishing a “high quality, high efficiency and full scene” third-party instant delivery platform, SF Intra-city Delivery is capable of providing market leaders with custom-made and centralized delivery services to help them expedite the “scale expansion” process, as well as delivering standardized and decentralized services to small- and medium-sized enterprises (SMEs) and retail consumers. Thus far, we have served leading brands in the catering, supermarket, fresh food and apparel industries, and our customers include more than 100,000 small and medium businesses and some 20 million retail consumers.


(4) International Express

SF international standard express/international economy express businesses cover 62 countries including the U.S., E.u., Russia, Canada, Japan, South Korea, India, Brazil, Mexico and Chile, and SF international small parcel services are available in 225 countries and regions across the world. In 2019, SF International was officially licensed as a customs broker for imports at all ports in the U.S., and was officially licensed as a customs broker and delivery operations center. A joint venture of SF in Japan acquired license as a customs broker in November. These resources enable SF International to deliver convenient and hassle-free services to customers. SF Airlines

operates five international flight routes, with the latest addition of Wuxi-Hahn and Shenzhen-Delhi B747 routes in 2019. In addition, the Company released end-to-end international ocean freight services in collaboration with Flexport in August 2019, covering shipping routes between mainland China and Hong Kong and all American ports and major ports in Europe. The services will help Chinese companies expand into overseas markets.


(5) Supply Chain Business

In August 2018 and February 2019, SF Holding completed the acquisition of the cold chain business of HAVI in mainland China, Hong Kong China and Macao China and the supply chain business of DHL in mainland China, Hong Kong China and Macao China respectively, and established SF’s New HAVI and SF DHL businesses.

The integration and synergy between New HAVI and SF DHL businesses with SF Holding’s original businesses have achieved initial results. On the one hand, SF rapidly learned from and replicated the supply chain solutions and management capabilities of New HAVI and SF DHL. On the other hand, driven by technology and data, based on SF’s DNA genes, and through digital technologies such as the Internet of Things, big data, artificial intelligence, SF’s technological solutions

drive the transformation and upgrading of the supply chain to jointly reshape the supply chain for customers and provide comprehensive solutions with multi-scenario products.



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