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 Capital Markets

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/179/974/original/BANNER-TTOtherDec20_GreyOrange.png?1608781028" class="editor-image img-responsive" data-smartkarma-image-id="179974"></figure></section>In a previous note we argued <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>, at its IPO price of 28 baht per share, was attractively priced relative to comps in the Chinese express sector.However, after shares jumped 83% to 51.25 baht in their trading debut on December 24, KEX's EV/Revenue and EV/EBITDA multiples increased substantially (even as its Chinese comps faded).A day after its public debut, KEX is still a unique Thai play on eCommerce and the company enjoys strong market position in a growing segment. However, at 50+ baht per share it is no longer cheap.By the way, Merry Christmas!

In a previous note we argued Kerry Express Thailand (KEX TB), at its IPO price of 28 baht per share, was attractively priced relative to comps in the Chinese express sector.However, after shares jumped 83% to 51.25 baht in their trading debut on December 24, KEX's EV/Revenue and EV/EBITDA multiples increased substantially (even as its Chinese comps faded).A day after its public debut, KEX is still a unique Thai play on eCommerce and the company enjoys strong market position in a growing segment. However, at 50+ baht per share it is no longer cheap.By the way, Merry Christmas!

Kerry Express Thailand: Just One Day Into Public Life, KEX Suddenly Looks Expensive

Equity Bottom-Up

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/178/841/original/BANNER-LOGISTICS.png?1608076389" class="editor-image img-responsive" data-smartkarma-image-id="178841"></figure></section>While still solid, YoY express parcel volume growth in China moderated somewhat in November. Slower growth came as a surprise, as November includes the big "11-11" online shopping holiday. An ongoing price war drove down ASPs in November (again). We don't believe companies can offset YoY price declines of 20-30% with unit cost reductions, so margins are likely falling (again). Our investment thesis for Chinese express is that growing financial pressures will result in consolidation in 2021. Under this scenario, struggling <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a>, closely aligned with Alibaba's logistics efforts, becomes a potential acquisition target. We rate Best BUY.

While still solid, YoY express parcel volume growth in China moderated somewhat in November. Slower growth came as a surprise, as November includes the big "11-11" online shopping holiday. An ongoing price war drove down ASPs in November (again). We don't believe companies can offset YoY price declines of 20-30% with unit cost reductions, so margins are likely falling (again). Our investment thesis for Chinese express is that growing financial pressures will result in consolidation in 2021. Under this scenario, struggling BEST Inc (BEST US), closely aligned with Alibaba's logistics efforts, becomes a potential acquisition target. We rate Best BUY.

TRACKING TRAFFIC/Chinese Express: Volume Growth Moderates | Pricing Stays Depressed

<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> recently announced an IPO price range of 25-28 baht per share and plans to finally list its shares in late December. In this note we update KEX's EV/Revenue and EV/EBITDA valuations relative to those of the Chinese express delivery sector, which we believe are the most appropriate 'comps' for this issue. In this note we also highlight recent competitor actions in the Thai express market. In its Q320 earnings call, Chinese express company <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a> announced it was considering 'strategic options' for all non-core businesses, including its express operation in Thailand. In the long-run, Best's  withdrawal from the market could be an opportunity for KEX, or a threat. In the near-term, however, Best's potential actions in Thailand don't alter our thinking about KEX's IPO. We believe KEX at the IPO price range is attractively valued, particularly for a clear market leader in a fast-growing sector exposesd to several positive secular trends.

Kerry Express Thailand (KEX TB) recently announced an IPO price range of 25-28 baht per share and plans to finally list its shares in late December. In this note we update KEX's EV/Revenue and EV/EBITDA valuations relative to those of the Chinese express delivery sector, which we believe are the most appropriate 'comps' for this issue. In this note we also highlight recent competitor actions in the Thai express market. In its Q320 earnings call, Chinese express company BEST Inc (BEST US) announced it was considering 'strategic options' for all non-core businesses, including its express operation in Thailand. In the long-run, Best's  withdrawal from the market could be an opportunity for KEX, or a threat. In the near-term, however, Best's potential actions in Thailand don't alter our thinking about KEX's IPO. We believe KEX at the IPO price range is attractively valued, particularly for a clear market leader in a fast-growing sector exposesd to several positive secular trends. 

Kerry Express Thailand (KEX) IPO: Update on Valuation Range & Competitor Actions

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Kerry Express Thailand aims to raise around up to US$277m in its Thailand IPO. The company is a subsidiary of Hong Kong listed Kerry Logistics and also counts VGI as a major shareholder.Kerry Express Thailand is Thailand's largest private express delivery company. As of FY19, it had over 16,000 service locations in all provinces in Thailand, with its next-day delivery service covering 99.9% of Thai population. It also offers same-day delivery service within the Bangkok Metropolitan, Greater Bangkok areas and certain upcountry areas. It delivers more than 1.1m parcels everyday.Revenue tripled over FY17-19, while gross profit was up 2.22x, EBITDA was up 2.36x, and PATMI was up 10.2x. Although, 9M20 operations weren’t anything to write home about with revenue merely being flat YoY.Apart from being a well known brand in Thailand, it presents one of the only ways to get exposure to the e-commerce market. If that wasn’t enough, its cornerstone book is one of the best that I’ve seen, of late.

Kerry Express Thailand aims to raise around up to US$277m in its Thailand IPO. The company is a subsidiary of Hong Kong listed Kerry Logistics and also counts VGI as a major shareholder.Kerry Express Thailand is Thailand's largest private express delivery company. As of FY19, it had over 16,000 service locations in all provinces in Thailand, with its next-day delivery service covering 99.9% of Thai population. It also offers same-day delivery service within the Bangkok Metropolitan, Greater Bangkok areas and certain upcountry areas. It delivers more than 1.1m parcels everyday.Revenue tripled over FY17-19, while gross profit was up 2.22x, EBITDA was up 2.36x, and PATMI was up 10.2x. Although, 9M20 operations weren’t anything to write home about with revenue merely being flat YoY.Apart from being a well known brand in Thailand, it presents one of the only ways to get exposure to the e-commerce market. If that wasn’t enough, its cornerstone book is one of the best that I’ve seen, of late.

Kerry Express Thailand IPO - Time for Delivery

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/980/original/BANNER-LOGISTICS.png?1605971640" class="editor-image img-responsive" data-smartkarma-image-id="172980"></figure></section>In October, Chinese express parcel volume growth remained strong. However, pricing was weak, and we see no signs of price improvement in the near-term. Margins remain under pressure. A slew of Q3 earnings results show some companies losing money, with margins at almost all of the companies under intense pressure. <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a>'s recent decision to exit non-core businesses supports our thesis that pressure to consolidate is increasing. We retain our view that SF Holding is the sector's leading company, but in the medium-term, we believe Best is an attractive way to play expected sector M&amp;A in 2021.

In October, Chinese express parcel volume growth remained strong. However, pricing was weak, and we see no signs of price improvement in the near-term. Margins remain under pressure. A slew of Q3 earnings results show some companies losing money, with margins at almost all of the companies under intense pressure. BEST Inc (BEST US)'s recent decision to exit non-core businesses supports our thesis that pressure to consolidate is increasing. We retain our view that SF Holding is the sector's leading company, but in the medium-term, we believe Best is an attractive way to play expected sector M&amp;A in 2021. 

TRACKING TRAFFIC/Chinese Express: Weak Q3 Results from ZTO & Best | Consolidation Pressures Gaining

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)

Kerry Express Thailand: Just One Day Into Public Life, KEX Suddenly Looks Expensive

After it jumped by 83% to 51.25 baht per share in its trading debut, it's suddenly much tougher to argue that KEX is attractively priced versus peers.

Tracking Traffic

TRACKING TRAFFIC/Chinese Express: Volume Growth Moderates | Pricing Stays Depressed

Recent strong volume growth moderated in November, and express industry revenue growth lagged the performance of leading eComm platforms....

Tracking Traffic

Kerry Express Thailand (KEX) IPO: Update on Valuation Range & Competitor Actions

We update our views of KEX's IPO valuation ahead of its late December listing. We also highlight the potential sale of a domestic competitor. We...

Tracking Traffic

Kerry Express Thailand IPO - Time for Delivery

Kerry Express Thailand aims to raise around up to US$277m in its Thailand IPO. The company is a subsidiary of Hong Kong listed Kerry Logistics and...

Sumeet Singh

TRACKING TRAFFIC/Chinese Express: Weak Q3 Results from ZTO & Best | Consolidation Pressures Gaining

October express data show -- once again -- strong parcel volume growth but very weak pricing. Margin pressure seen in Q3 results is adding to...

Tracking Traffic

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