China’s leading express delivery giant, SF Express, released its half-year report, showing strong performance, but the market remains unimpressed. The company’s stock price took a sharp nosedive since late August, with its market value eroded by over 30 billion yuan by the closing on September 12th. This unusual downturn has sparked widespread attention from industry insiders.
SF Express’s stock price plummeted from August 29th and continued its downward trend until the closing on September 12th, resulting in a market value depletion of over 30 billion yuan.
On the evening of August 28th, SF Express announced its half-year report, revealing a 9.26% year-on-year increase in revenue to 146.858 billion yuan and a 19.37% year-on-year growth in net profit attributable to shareholders to 5.738 billion yuan.
However, the profit growth failed to boost market confidence. The day after the report was released, SF Express’s stock price rapidly plunged. In the 11 trading days leading up to September 12th, the cumulative decline reached nearly 14%.
This leaves people wondering: what is going on with SF Express?
According to a report by “Chinese News Weekly” on September 13th, quoting opinions from various industry analysts, the direct reason for the drop in SF Express’s stock price can be attributed to concerns in two main business aspects, casting doubt on the “appealing” financial figures.
Core Business: Stuck in Price Wars
From a macro perspective, the express delivery market’s “increased volume, decreased price” trend has become the norm. According to data from China’s State Post Bureau, although the national express delivery business volume grew by nearly 20% in the first half of this year, the average revenue per ticket actually dropped by 7.7% compared to the same period last year. Looking back further, the current average ticket price is less than the leftover change from 2007’s average ticket price of 28.6 yuan.
As a leader in the industry, SF Express is finding it difficult to stand alone. Its per-ticket revenue has been continuously declining, dropping to 13.55 yuan per ticket in July this year, over a 14% decrease compared to the same period last year. This indicates that the profitability of its core express delivery business is under pressure. In 2018, SF Express’s per-ticket revenue was 23.18 yuan.
Bai Wenxi, Vice Chairman of the China Enterprise Capital Alliance, pointed out that although SF Express’s net profit attributable to shareholders appeared to increase by 19.37%, the growth rate of its non-recurring net profit after deducting extraordinary items is far below market expectations, with only 3.46% in the second quarter. This clearly shows that the profitability of its core business is declining. Liu Chunsheng, Associate Professor of Central University of Finance and Economics, also believes that SF Express’s profit to some extent depends on the investment income from disposing of subsidiaries, making its core business profitability not as strong as it seems.
Emerging Business: A “Drag” of Continued Losses
In addition to challenges in its core business, SF Express’s emerging businesses outside of express logistics have not yet fully taken off. Especially in its supply chain and international business, although they contributed over 34 billion yuan of revenue in the first half of the year, they are still in the red with losses of around 296 million yuan. Financial expert Qu Fang mentioned that the overseas business is still in the “burning money phase,” which also becomes a significant adverse factor dragging down the stock price.
SF Express’s profitability is under pressure, as evidenced by changes in its gross profit margin. In the first half of this year, SF Express’s gross profit margin decreased by 0.6% to 13.22% compared to the same period last year, with a 1.4 percentage point year-on-year drop in the second quarter.
Ultimately, what investors are concerned about is the quality of future growth. Bai Wenxi predicts, “If the price war continues and the international business drag worsens, SF Express’s market value may further shrink.”
Under multiple business challenges, SF Express’s recently announced “Co-growth” shareholding plan has been considered by analysts like Liu Chunsheng as a significant factor causing the stock price plunge.
This long-term incentive plan, donated by SF Express Chairman Wang Wei’s holding company at nearly a billion yuan, covers core employees from executives to frontline delivery staff. While this seems like a beneficial arrangement for the company’s long-term development, the market’s interpretation differs drastically.
The main point of contention lies in the overly loose conditions of the plan; the corporate-level performance assessment goal is merely “positive growth rate of annual net profit.” Bai Wenxi noted that because employees do not need to invest and the threshold is extremely low, the plan is questioned as a “benefit” rather than an “incentive,” potentially fostering a ‘coasting’ mentality among employees, making it difficult to truly inspire their work enthusiasm.
Additionally, this generous donation could impact shareholder interests, further intensifying concerns in the market about corporate governance and the quality of future growth.