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

Kerry Express Thailand / Equity Capital Markets

The purpose of this note is to analyze the different eCommerce fulfillment markets pursued by <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> and <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US).</a> KEX focuses on Thailand's domestic express market, while Best has a competing domestic service and is also developing a X-border express service to quickly move Chinese goods into multiple SE Asian markets.To better understand these two markets, we looked at market data from KEX's IPO documents as well as financial data disclosed by eCommerce giant <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>. These figures, combined with numbers from KEX itself and the Chinese express companies, give investors a sense of the size and growth potential of the Thai domestic and X-border eComm fulfillment markets.While both markets offer attractive growth, they also present distinct challenges. In the Thai domestic express market, these challenges include a lack of scale (compared to China's expess market) and relatively low population density, especially outside of Metro Bangkok. Challenges presented by the X-border market include exorbitant pricing, competition from large multinationals, and increased complexity (ie, paperwork, customs, tariffs, etc). We conclude that KEX is an intriguing pure play on Thailand's eCommerce development whose upcoming IPO is worth following. Regarding Best, we recently upgraded its shares to Buy on expected sector consolidation. To date its Thai and X-border revenues remain a very small part of the company's business which probably won't "move the needle" in the near-term.

The purpose of this note is to analyze the different eCommerce fulfillment markets pursued by Kerry Express Thailand (KEX TB) and BEST Inc (BEST US). KEX focuses on Thailand's domestic express market, while Best has a competing domestic service and is also developing a X-border express service to quickly move Chinese goods into multiple SE Asian markets.To better understand these two markets, we looked at market data from KEX's IPO documents as well as financial data disclosed by eCommerce giant Alibaba Group (BABA US). These figures, combined with numbers from KEX itself and the Chinese express companies, give investors a sense of the size and growth potential of the Thai domestic and X-border eComm fulfillment markets.While both markets offer attractive growth, they also present distinct challenges. In the Thai domestic express market, these challenges include a lack of scale (compared to China's expess market) and relatively low population density, especially outside of Metro Bangkok. Challenges presented by the X-border market include exorbitant pricing, competition from large multinationals, and increased complexity (ie, paperwork, customs, tariffs, etc). We conclude that KEX is an intriguing pure play on Thailand's eCommerce development whose upcoming IPO is worth following. Regarding Best, we recently upgraded its shares to Buy on expected sector consolidation. To date its Thai and X-border revenues remain a very small part of the company's business which probably won't "move the needle" in the near-term. 

Kerry Express & Best Inc: Two Approaches to ECommerce Logistics Growth in SE Asia

Equity Bottom-Up

We are upgrading <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a> from HOLD to BUY on the expectation of Chinese express sector consolidation in the coming 12-18 months. Note that we do not expect sector fundamentals to improve in the near-term, nor do we expect Best to erase its losses in the next few quarters. 
While we concede we may be early in rating Best BUY, we believe conditions are developing in ways that make sector M&amp;A more likely in the medium-term. Given its size, its depressed valuation and its relationship to <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, Best could become an acquisition target. 
We view Best as a cheap option on sector consolidation. At a 20% discount to peers on [EV/Revenue] and [EV/Parcel], we believe Best's express operation alone is worth US$5.05 per ADS -- investors effectively get the rest of its businesses for free. BUY below US$3 for ~70% upside.

We are upgrading BEST Inc (BEST US) from HOLD to BUY on the expectation of Chinese express sector consolidation in the coming 12-18 months. Note that we do not expect sector fundamentals to improve in the near-term, nor do we expect Best to erase its losses in the next few quarters. 
While we concede we may be early in rating Best BUY, we believe conditions are developing in ways that make sector M&amp;A more likely in the medium-term. Given its size, its depressed valuation and its relationship to Alibaba Group (BABA US), Best could become an acquisition target. 
We view Best as a cheap option on sector consolidation. At a 20% discount to peers on [EV/Revenue] and [EV/Parcel], we believe Best's express operation alone is worth US$5.05 per ADS -- investors effectively get the rest of its businesses for free. BUY below US$3 for ~70% upside. 

Upgrading Best Inc To Speculative BUY on Expectation of Express Sector Consolidation

Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

<ul>
<li>The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing, according to a decision made at the Politburo meeting chaired by President Xi Jinping meeting on Monday.</li>
<li>The Fifth Plenum, to be held next week (26-29 October), will most likely focus on Three major subjects: i) the steering of China’s economic growth and restructuring, ii) the development of China’s 14th Five Year Plan, and iii) the prepared political reshuffling to occur ahead of 2022, when the Standing Committee, China’s highest legislative body, is expected to step down.</li>
<li>As one of the important task, the meeting will focus on finalising the guidelines for the 14th Five Year Plan. The plan will be approved in March 2021 at the conclusion of the annual National People’s Congress meeting.</li>
</ul>


The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing, according to a decision made at the Politburo meeting chaired by President Xi Jinping meeting on Monday.
The Fifth Plenum, to be held next week (26-29 October), will most likely focus on Three major subjects: i) the steering of China’s economic growth and restructuring, ii) the development of China’s 14th Five Year Plan, and iii) the prepared political reshuffling to occur ahead of 2022, when the Standing Committee, China’s highest legislative body, is expected to step down.
As one of the important task, the meeting will focus on finalising the guidelines for the 14th Five Year Plan. The plan will be approved in March 2021 at the conclusion of the annual National People’s Congress meeting.


Fifth Plenum Should Focus on Economic Targets, Five Year Plan, Political Reshuffling

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Back in April of this year, China's President Xi Jinping <a href="http://paper.people.com.cn/rmrb/html/2020-04/16/nw.D110000renmrb_20200416_1-09.htm" target="_blank" rel="noopener">mentioned</a> taking the initiative to seek change and turn "crises into opportunities".
This was expanded upon in a Politburo meeting on the <a href="http://cpc.people.com.cn/n1/2020/0515/c64094-31709627.html?mc_cid=28966ada58&amp;mc_eid=902fe70bde" target="_blank" rel="noopener">14 May</a> under the guise of a "dual circulation" strategy, such that China will seek to primarily rely on "internal circulation" (domestic production, distribution, and consumption) for its future development. This "internal circulation" would be supplemented with "external circulation". 
During a 21 July <a href="https://web.archive.org/web/20200811045300/http://www.xinhuanet.com/politics/leaders/2020-07/21/c_1126267575.htm" target="_blank" rel="noopener">speech</a> to public and private business in Beijing, Xi emphasized that “We must gradually form a new development pattern with the domestic internal circulation as the main body and the domestic and international dual circulations mutually promoting each other.
When  co-hosting a China-Germany-EU leaders last week, Xi Jinping <a href="https://news.cgtn.com/news/2020-09-14/Xi-attends-China-Germany-EU-leaders-meeting-via-video-link-TMA0kfp5lK/index.html" target="_blank" rel="noopener">reiterated</a> that "China is working toward the goal of fostering a new, dual-cycle development architecture with the domestic cycle as the mainstay and with domestic and international development reinforcing each other."
This “dual circulation/cycle” strategy may form a key government initiative in the 14th Five-Year Plan (2021-2025), which is expected to be released by the National People's Congress early next year, probably March. A Communist Party leaders’ meeting next month is expected to unveil more detail on this strategy. 
Does this strategy point to China turning its back to the world and taking on a closed and self-sufficient path?

Back in April of this year, China's President Xi Jinping mentioned taking the initiative to seek change and turn "crises into opportunities".
This was expanded upon in a Politburo meeting on the 14 May under the guise of a "dual circulation" strategy, such that China will seek to primarily rely on "internal circulation" (domestic production, distribution, and consumption) for its future development. This "internal circulation" would be supplemented with "external circulation". 
During a 21 July speech to public and private business in Beijing, Xi emphasized that “We must gradually form a new development pattern with the domestic internal circulation as the main body and the domestic and international dual circulations mutually promoting each other.
When  co-hosting a China-Germany-EU leaders last week, Xi Jinping reiterated that "China is working toward the goal of fostering a new, dual-cycle development architecture with the domestic cycle as the mainstay and with domestic and international development reinforcing each other."
This “dual circulation/cycle” strategy may form a key government initiative in the 14th Five-Year Plan (2021-2025), which is expected to be released by the National People's Congress early next year, probably March. A Communist Party leaders’ meeting next month is expected to unveil more detail on this strategy. 
Does this strategy point to China turning its back to the world and taking on a closed and self-sufficient path?

China's Dual Circulation: Hedged Integration

Event-Driven

The objectives of this report are to examine what express sector consolidation may look like over the next few years, and to offer investors guidance about how to play this trend when the dominoes begin to fall, most likely in 2021-22. We organize the report into six parts as follows:
<ol>
<li>How things used to work in China's express sector</li>
<li>How the sector has begun changing in ways that may force consolidation</li>
<li>The 'Why?' &amp; 'How?' of Chinese express sector consolidation</li>
<li>Alibaba's critical role in potential M&amp;A activity</li>
<li>Some thoughts about the timing of expected changes</li>
<li>Conclusions</li>
</ol>

The objectives of this report are to examine what express sector consolidation may look like over the next few years, and to offer investors guidance about how to play this trend when the dominoes begin to fall, most likely in 2021-22. We organize the report into six parts as follows:

How things used to work in China's express sector
How the sector has begun changing in ways that may force consolidation
The 'Why?' &amp; 'How?' of Chinese express sector consolidation
Alibaba's critical role in potential M&amp;A activity
Some thoughts about the timing of expected changes
Conclusions


Pressure Building: How Consolidation in China's Express Sector Might Look Over the Next Two Years

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)

Kerry Express & Best Inc: Two Approaches to ECommerce Logistics Growth in SE Asia

Define market opportunity: domestic Thailand (KEX

Tracking Traffic

Upgrading Best Inc To Speculative BUY on Expectation of Express Sector Consolidation

What is rationale? What are catalysts? Why Best and not other potential targets? Price target?

Tracking Traffic

Fifth Plenum Should Focus on Economic Targets, Five Year Plan, Political Reshuffling

The fifth plenary session of the 19th Central Committee of the Communist Party of China (CPC) will be held from October 26 to 29 in Beijing,...

Li Tang

China's Dual Circulation: Hedged Integration

Back in April, Xi Jinping

David Blennerhassett

Pressure Building: How Consolidation in China's Express Sector Might Look Over the Next Two Years

Objective of this note: How things used to work How the sector has begun changing

Tracking Traffic

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52-week Range

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