International investors soon may be able to access one of the most reliable ways of playing the China growth story. It's a company that has delivered its founder, Wang Wei, riches to rival the wealth of Alibaba Group Holding ( (BABA) and HK:9988) co-founder Jack Ma.
The courier company SF Holding (SZ:002352) is working on a listing in Hong Kong to supplement its existing stock in Shenzhen. The offering could raise US$2 billion to US$3 billion, Bloomberg reports today, with the company selecting the blue-chip investment banking team of Goldman Sachs (GS) , Huatai Securities (HK:6886) and JPMorgan Chase (JPM) to work on the listing.
SF Holding is the parent of SF Express, China's largest courier company. It's the fourth-largest delivery service in the world, behind only United Parcel Service (UPS) , Deutsche Post (DPSGY) and its DHL service, and FedEx (FDX) .
SF Holding listed shares in Shenzhen in 2017 via a backdoor listing. But mainland markets are impossible for individual international investors to reach directly and hard even for institutions. As a result, they often simulate Chinese holdings through derivatives if they're unable to access the tightly restricted direct-investment quotas on offer.
SF Holding has a current market capitalization equivalent to US$40 billion. A Hong Kong listing would allow a far broader range of investors to access the stock, which in theory should make it more stable, although domestic listings inside China tend to trade at higher valuations given the limited investment options open to Chinese investors.
Alibaba's logistics arm Cainiao Network Technology is also considering a Hong Kong listing, according to Bloomberg, as is their rival J&T Express, which operates across Southeast Asia under that brand and under the name Jitu Express (or "Speedy Rabbit Express") inside China.
Cainiao's blue lockers as well as the black-and-red livery of the SF Express vans and lockers are familiar sights all round Hong Kong and China, where consumers are some of the world's heaviest users of e-commerce services. And they have numerous smaller competitors, although size and scale definitely deliver results in this sector, if you'll forgive the pun.
They would be following in the footsteps of the JD.com ( (JD) and HK:9618) spinoff JD Logistics (HK:2618), which raised US$3.2 billion when it listed in Hong Kong in 2021. However, investors have had a torrid time after a strong start to trading for JD Logistics, with the stock down from the HK$40.36 offer price to just HK$12.36 now.
Although JD Logistics does offer its services to third-party retailers and wholesalers, it is still tied to the performance of the JD.com network. Parent JD.com missed its earnings forecasts in its March results, with the company warning that it will take time for consumer confidence inside China to repair. JD.com, Alibaba's Taobao and Tmall sites and the Pinduoduo group-buying site run by PDD Holdings (PDD) have been fighting a costly war for market share, offering subsidies to lure customers to their services and sites.
SF Express doesn't have a tie-in to a particular e-commerce site. It makes money off whatever you order, wherever you order it, as long as you select its vast and convenient network for delivery. Besides delivering to your door, consumers here can also select the often-cheaper option of collecting your package at a locker in a nearby mall or even from the counter at convenience stores.
SF Express blankets China with courier coverage and also ships internationally to 98 countries. It owns a fleet of 77 cargo aircraft to serve that network. Sales rose 29% in 2022 while profits shot up 45% thanks to a pandemic bounce.
SF Holding shares are down 5.7% so far this year in Shenzhen, but they have sparked to life since the end of the effort to stamp out Covid-19 inside China, which was so economically disruptive. From a nadir in October, the shares have rallied 21%.
While manufacturing quickly clicked back into gear inside China when the Covid restrictions suddenly were scrapped last December, it has taken time for the service sector and consumer confidence to return. Indeed, it hasn't returned fully thanks to doubts about the Chinese economy, a punishing phase of deleveraging for the property sector, geopolitical and trade tensions with the United States, and doubts about global demand.
That combination of factor therefore could make now an opportune time to buy into the shares. They're out of the basement but haven't yet fully recovered from the pandemic. And they're a strong play on the increasing wealth of Chinese households, with an Asia-focused kicker in markets such as Southeast Asia.
Wang set up the company in Guangdong, China's most-productive province, just across the border from Hong Kong way back in 1993. At first, it was designed to ship fabric samples from the factory where Wang was working, in Shunde, to buyers based in Hong Kong, where Shanghai-born Wang had gone to school. He was 22 at the time and expanded the business to ship goods from other local manufacturers to Hong Kong and on to the world.
The company is now based in Shenzhen, at the heart of China's tech sector. Wang still owns around 60% of the stock, which largely accounts for a fortune that Forbes pegs at US$22.2 billion, good for No. 8 on China's richest person's list. His wealth fluctuates dramatically based on the performance of the shares, similar to Jack Ma's dependence on Alibaba shares for his US$23.5 billion fortune.
SF Express in 2021 expanded its international operations by buying 51.8% of Hong Kong-listed Kerry Logistics Network (HK:0636) for US$2.2 billion. The deal took SF Express into other Asian markets such as Singapore, Malaysia and Thailand.
While the Hong Kong debut may come in 2023, the timing or size of any offering isn't yet set and will depend on market conditions. The company has been looking at a listing for at least three years, since around the time JD Logistics went public. Given uncertainties over the financial sector and capital markets in the West, it makes sense to proceed cautiously, although the discussions are signs that the market for Asian listings is very much alive.
Reuters, which also confirmed that SF Holding is working on the Hong Kong listing, said the company has picked up work on an offering in recent weeks and aims to file a prospectus with the Hong Kong Stock Exchange by June.
