Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Equity Bottom-Up

<h2>Growth of low end driven by Pinduoduo</h2>
<p>The growth of <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> has spurred growth in China’s express market over the last two years, accounting for 60% or more of incremental growth in parcel volume in 2018. PDD’s emergence has boosted parcel volume growth, but this gift has come at a price: to win business from the merchants operating on PDD’s platform, express companies must offer rock-bottom pricing.</p>
<h2>Volume growth a nice gift, but it comes with a price</h2>
<p>PDD’s emergence offers strong volume growth, accompanied by downward pressure on pricing and margins. To combat these pressures, express companies must aggressively pursue parcel volume share in order to reduce unit costs (and thereby limit margin erosion). With most small express players squeezed out, we believe price competition among the remaining express firms is intensifying, with average parcel pricing down by 12-16% YoY in recent months.</p>
<h2>At high end of express &amp; logistics, less competition</h2>
<p>Away from intensifying competition at the low-end of the express sector, the high-end of China’s express segment features pockets of growth with muted competition. In time-definite (i.e., ‘overnight’) express, international express, supply chain management, and cold-chain logistics, providers tend to compete based on service levels, and their customers tend to be less price-sensitive than those at the low-end of the market. Underlying demand for these services is powered by a gradual ‘consumption upgrade’, helping merchants move high-value goods faster and more reliably compared to mainstream express products. We believe these segments offer shelter from the price competition that has emerged at the low-end of the express sector.</p>
<h2>Express market is bifurcating</h2>
<p>We see two distinct segments developing within express. At the low end, most of the listed express companies are aggressively pursuing volume share gains in order to reduce costs so they can profitably handle the low-priced parcels that are driving sector growth. Meanwhile, at the high end, SF Holding is successfully courting customers who value speed and reliability ahead of low prices. We expect profitability in this latter segment to remain fairly stable, while at the low end we expect profitability to continue eroding.</p>
<h2>Low-end pressure adds to rising capex demand, sliding returns</h2>
<p>The development of a bifurcated market comes at the same time most Chinese express companies are already facing pressures on cash flow and profitability. We believe most of the listed express companies are increasing capital expenditures in order to expand ‘last mile’ service and to build out needed infrastructure in smaller cities and rural areas. We suspect initial returns on these types of investments will be low, compounding downward pressure on margins related to PDD’s rise.</p>
<h2>Focus on high end should produce better results going forward</h2>
<p>Strong downward pressures on margins will make it increasingly difficult for most express companies to convert strong top-line growth into attractive earnings growth. In the medium-term, we believe companies with limited exposure to low-end parcel volumes are more likely to generate attractive strongest earnings growth. </p>

Growth of low end driven by Pinduoduo
The growth of Pinduoduo (PDD US) has spurred growth in China’s express market over the last two years, accounting for 60% or more of incremental growth in parcel volume in 2018. PDD’s emergence has boosted parcel volume growth, but this gift has come at a price: to win business from the merchants operating on PDD’s platform, express companies must offer rock-bottom pricing.
Volume growth a nice gift, but it comes with a price
PDD’s emergence offers strong volume growth, accompanied by downward pressure on pricing and margins. To combat these pressures, express companies must aggressively pursue parcel volume share in order to reduce unit costs (and thereby limit margin erosion). With most small express players squeezed out, we believe price competition among the remaining express firms is intensifying, with average parcel pricing down by 12-16% YoY in recent months.
At high end of express &amp; logistics, less competition
Away from intensifying competition at the low-end of the express sector, the high-end of China’s express segment features pockets of growth with muted competition. In time-definite (i.e., ‘overnight’) express, international express, supply chain management, and cold-chain logistics, providers tend to compete based on service levels, and their customers tend to be less price-sensitive than those at the low-end of the market. Underlying demand for these services is powered by a gradual ‘consumption upgrade’, helping merchants move high-value goods faster and more reliably compared to mainstream express products. We believe these segments offer shelter from the price competition that has emerged at the low-end of the express sector.
Express market is bifurcating
We see two distinct segments developing within express. At the low end, most of the listed express companies are aggressively pursuing volume share gains in order to reduce costs so they can profitably handle the low-priced parcels that are driving sector growth. Meanwhile, at the high end, SF Holding is successfully courting customers who value speed and reliability ahead of low prices. We expect profitability in this latter segment to remain fairly stable, while at the low end we expect profitability to continue eroding.
Low-end pressure adds to rising capex demand, sliding returns
The development of a bifurcated market comes at the same time most Chinese express companies are already facing pressures on cash flow and profitability. We believe most of the listed express companies are increasing capital expenditures in order to expand ‘last mile’ service and to build out needed infrastructure in smaller cities and rural areas. We suspect initial returns on these types of investments will be low, compounding downward pressure on margins related to PDD’s rise.
Focus on high end should produce better results going forward
Strong downward pressures on margins will make it increasingly difficult for most express companies to convert strong top-line growth into attractive earnings growth. In the medium-term, we believe companies with limited exposure to low-end parcel volumes are more likely to generate attractive strongest earnings growth. 

Bifurcated Chinese Express Market Developing

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

<ul>
<li>Industry and company reports show ASP declines gained momentum in April</li>
<li>April volume jumped 36% Y/Y on a weak comp from 2022 (Covid-19 lockdowns)</li>
<li>Our thesis: pricing is getting weaker, and this trend will soon impact margins</li>
</ul>


Industry and company reports show ASP declines gained momentum in April
April volume jumped 36% Y/Y on a weak comp from 2022 (Covid-19 lockdowns)
Our thesis: pricing is getting weaker, and this trend will soon impact margins


Monthly Express Tracker | Prices Continue to Slide | Volume Pops | (May 2023)

<ul>
<li>SF Hldg had <em>slowest</em> Q125 revenue growth among China-listed express companies, STO <em>fastest</em>
</li>
<li>Only these two express firms reported margin expansion in Q125 -- how'd they do it?</li>
<li>Q125 results suggest two very different paths toward improved express profitability</li>
</ul>


SF Hldg had slowest Q125 revenue growth among China-listed express companies, STO fastest

Only these two express firms reported margin expansion in Q125 -- how'd they do it?
Q125 results suggest two very different paths toward improved express profitability


Chinese Express: SF, STO Enjoyed Margin Expansion in Q125; YTO, Yunda Saw Margins Contract

<ul>
<li>By some measures, combined Jan-Feb volume growth slowed vs recent trend growth rates</li>
<li>Volume leader ZTO rejoining volume share game in FY25, -ive implications for pricing?</li>
<li>With concerns about mainstream price growing, we continue to favor only SF Holding</li>
</ul>


By some measures, combined Jan-Feb volume growth slowed vs recent trend growth rates
Volume leader ZTO rejoining volume share game in FY25, -ive implications for pricing?
With concerns about mainstream price growing, we continue to favor only SF Holding


Monthly Chinese Express Tracker | Volume, Price Trends | ZTO Rejoins Volume Game | (March 2025)

<ul>
<li>In container shipping, 'normalization' means lower rates, lower margins, &amp; lower returns</li>
<li>In Chinese express, a potential recovery in ground segment, more risks in X-border business</li>
<li>In Chinese tourism, how will investors react to inevitable slowing</li>
</ul>


In container shipping, 'normalization' means lower rates, lower margins, &amp; lower returns
In Chinese express, a potential recovery in ground segment, more risks in X-border business
In Chinese tourism, how will investors react to inevitable slowing


Crystal Baller: Tracking Traffic's Key 2025 Themes & Events: Containers | Express | Chinese Tourism

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)

Bifurcated Chinese Express Market Developing

We will write more about SF Holding soon as the company prepares to seek a secondary listing in Hong Kong. But we believe some of the themes we...

Daniel Hellberg

Monthly Express Tracker | Prices Continue to Slide | Volume Pops | (May 2023)

In April, express volume shot up 36% against easy Y/Y comps, but ASPs deepened their recent decline. We believe pricing will continue to...

Tracking Traffic

Chinese Express: SF, STO Enjoyed Margin Expansion in Q125; YTO, Yunda Saw Margins Contract

Chinese express companies SF Holding and STO Express followed two very disparate paths to Op Inc margin expansion in Q1 2025

Tracking Traffic

Monthly Chinese Express Tracker | Volume, Price Trends | ZTO Rejoins Volume Game | (March 2025)

Combined January-February parcel volume growth moderated, but it's too early to say this is a departure from trend. We're now more concerned about...

Tracking Traffic

Crystal Baller: Tracking Traffic's Key 2025 Themes & Events: Containers | Express | Chinese Tourism

In this insight we outline the important 2025 themes & events facing the three sectors we cover in our monthly Tracking Traffic series: Container...

Tracking Traffic

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