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SF Holding’s intra-city delivery service receives green light for Hong Kong IPO

Written by Mengyuan Ge Published on     2 mins read

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With few means to offer differentiation, logistics services slash prices to retain customers.

Chinese courier giant SF Holding’s intra-city delivery subsidiary is on track for an independent listing in Hong Kong. At the moment, the company is racking up growing net losses as a price war in China’s logistics sector intensifies.

SF Intracity, as the business arm is called, was spun off from SF Holding in 2019. It has rapidly grown into the largest third-party on-demand delivery service platform in China, managing 11.1% of China’s intra-city shipping order volume in the five months ended March 31, according to the iResearch Report. It is now the delivery service provider for major restaurant chains, including McDonald’s, KFC, and Pizza Hut.

According to the company Stock Exchange filing posted on Monday, SF Intracity plans to issue no more than 230 million overseas shares with a par value of RMB 1 (USD 0.16). Once raised, the fresh capital will be invested to develop new service offerings, as well as expand the customer base at home and abroad. The company will also invest in new technology infrastructure.

The IPO makes it the fourth company under SF to go public, after SF Holding, SF Real Estate Investment Trust, and Kerry Logistics.

SF Intracity posted RMB 3.05 billion (USD 477.4 million) in revenue for the first five months of 2021, more than doubling last year’s RMB 1.43 billion, according to a stock exchange filing released by the company. Total orders also surged to 514 million, representing 151% annual growth.

However, SF Intracity’s net losses have widened by 46% YoY to RMB 352.9 million (USD 55.2 million) for the first five months this year, primarily due to intensifying competition across the logistics industry.

The Shenzhen-based courier giant has been handling a surge in e-commerce orders throughout the COVID-19 pandemic, as consumers shifted to making purchases online. But logistics companies tend to offer the same set of services, which means differentiation is typically achieved only by slashing prices. The price per shipment in China has declined conservatively for 13 years, and the race to the bottom is expected to continue, according to the State Post Bureau statistics.

SF now offers diversified logistics services, including intra-city delivery, freight forwarding, cold chain, and international express delivery. These service lines altogether accounted for 28.2% of the company’s total revenue in 2020.

The company expects its costs and expenses to continue to increase in the future. “We recorded gross losses, net loss, and net operating cash outflow throughout the track record period [from January 1, 2018, to May 31, 2021], and we expect such positions may continue for another three to five years until we outgrow the early stage and build economies of scale,” the company said in its filing.

SF Holding spent HKD 17.6 billion on a controlling stake in Hong Kong-based Kerry Logistics Network, which would give SF Holding a stronger presence in Southeast Asia. The deal is expected to be completed during the fourth quarter of 2021.

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