With the largest number of intelligent express cabinets globally, Fengchao is planning to go public in Hong Kong, but there is much debate in the market about whether its path to listing will be smooth. As Fengchao submits its application for listing, the public company portfolio of SF Holding's founder, Wang Wei, is expected to grow.
Recently, Fengchao Holding Co., Ltd. (hereinafter referred to as "Fengchao") submitted its prospectus for listing to the Hong Kong Stock Exchange (HKEX), intending to be listed on the Main Board of the HKEX.
According to the prospectus disclosed by Fengchao, Wang Wei and his actual control over Mingde Holding hold 36.54% of Fengchao's shares through multiple companies. At the same time, through a concerted action agreement with Xu Yubin, the chairman of Fengchao Holding, and several other senior executives of Fengchao, they ultimately control approximately 48.45% of the voting rights of Fengchao's issued share capital, jointly becoming the controlling shareholders of Fengchao. In addition, the list of Fengchao's shareholders also includes China Post Group and Prologis Group, holding 17.01% and 5.52% of the shares, respectively.
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If Fengchao successfully lists on the Hong Kong stock market, Wang Wei will welcome his fifth IPO (Initial Public Offering) after SF Holding, Kerry Logistics, SF Express, and SF Real Estate Investment Trust, with the combined market value of the five SF companies expected to exceed 200 billion yuan.
At the same time, Wang Wei's SF Holding is also actively planning to go public in Hong Kong. In the recent semi-annual report released by SF Holding, the progress of going public in Hong Kong was updated: it plans to issue foreign shares (H shares) for overseas listing and apply for listing on the Main Board of the Hong Kong Stock Exchange.
Currently, a major focus of market concern is whether Fengchao can knock on the door of the HKEX before Cainiao this time?
After all, before Fengchao submitted its application, its main competitor Cainiao had proactively withdrawn its listing application in March this year, citing that the current IPO could not highlight Cainiao's intrinsic value.
The profit model of express cabinetsFengchao's main business is the intelligent express cabinet business, with the core being to earn money from the last mile of the end express logistics market. According to the company's prospectus, based on the data from Zhuoshi Consulting, as of December 31, 2023, Fengchao has become the world's largest intelligent express cabinet network operator in terms of the number of express cabinets and the volume of parcels in 2023.
According to the prospectus, Fengchao's current business mainly consists of three parts: express end distribution services, consumer intelligent delivery services, and value-added services and others. Among them, express end distribution services are Fengchao's largest revenue business, which is to charge couriers and express companies for the service fee of storing parcels in the express cabinet, usually charging 0.2 yuan to 0.4 yuan per piece. From 2021 to the first five months of 2024, Fengchao's express end distribution services achieved operating income of 1.455 billion yuan, 1.686 billion yuan, 1.836 billion yuan, and 777 million yuan, accounting for 57.6%, 58.3%, 48.2%, and 40.8% of total revenue, respectively.
However, there are certain doubts in the market about the sustainability of Fengchao's express end distribution services business. On March 1 this year, the Ministry of Transport officially implemented the revised "Express Market Management Measures" (hereinafter referred to as the "Management Measures"), which stipulates that parcels shall not be delivered without the consent of the user through intelligent express cabinets, express service stations, and other methods, and violations will be punished.
Fengchao also mentioned in the prospectus: Changes in the current laws, regulations, or policies related to the industry and business may have a significant adverse impact on the company's business, financial condition, and operating results.
An industry insider said: "The 'Management Measures' have been implemented for more than half a year, but there are still many violations of delivery behavior, which is indeed a compliance risk for the end express logistics industry including Fengchao, but the specific risk is still not quantifiable."
In addition, the overtime charging model introduced by Fengchao for express cabinets has also caused some controversy among consumers. In 2020, Fengchao began to charge users for temporary storage fees, also known as free storage fees or detention fees. According to Fengchao's regulations, users have a 12-hour (now changed to 18 hours) free storage period for parcels in Fengchao's express cabinets. After exceeding the time limit, a temporary storage fee of 0.5 yuan will be charged every 12 hours, up to a cap of 3 yuan, and no fees will be charged during statutory holidays. Although this regulation is controversial, it has objectively improved the turnover rate of Fengchao's express cabinet compartments. Data shows that the turnover rate of Fengchao's express cabinet compartments increased from 67.2% in 2021 to 74.6% in the first five months of 2024.
At the same time, Fengchao has also expanded its revenue through the overtime charging model. The prospectus shows that from 2021 to the first five months of 2024, Fengchao charged a free storage fee for about 430 million, 460 million, 517 million, and 208 million parcels stored in the express cabinets, accounting for 6.9%, 7.9%, 8.0%, and 7.5% of the total number of parcels delivered to Fengchao's express cabinets during the same period, respectively. If calculated according to the minimum charging standard of 0.5 yuan, from 2021 to the first five months of 2024, Fengchao collected a detention fee of 215 million yuan, 230 million yuan, 259 million yuan, and 104 million yuan through detained parcels, accounting for 8.51%, 7.96%, 6.79%, and 5.46% of Fengchao's total operating income during the same period, with a total of 808 million yuan collected in detention fees in the past three and a half years.
Fengchao's second-largest business is consumer intelligent delivery services. In simple terms, it mainly involves consumers using express cabinets for parcel delivery when returning and exchanging goods. The main customers are express companies and consumers on e-commerce platforms. Fengchao charges a service fee for each parcel sent through the express cabinet, which is the fastest-growing business for Fengchao in recent years.
Starting from 2021, domestic mainstream e-commerce platforms have increased the insurance cost of freight to improve the online shopping experience for consumers, which has invisibly increased the return and exchange rate and brought about rapid growth in "reverse logistics." Data shows that the volume of parcels sent at the domestic end has increased from 500 million pieces in 2019 to 2.8 billion pieces in 2023, with a compound annual growth rate of 52.1%, far higher than the 32% compound annual growth rate of the domestic end logistics market during the same period.Fengchao has seized the opportunity in the reverse logistics market of "returns and exchanges" with its price advantage and cooperation with mainstream e-commerce and logistics platforms. From 2021 to 2023, Fengchao's consumer intelligent delivery service revenue increased significantly from 149 million yuan to 1.02 billion yuan, a growth of 584.56%. In the first five months of 2024, it achieved a revenue of 692 million yuan, and its contribution to revenue has increased from 5.9% in 2021 to 36.3%, approaching the proportion of the largest business. For the rapid growth of consumer intelligent delivery services, Fengchao stated in its prospectus that it was mainly driven by the development of e-commerce return and exchange comprehensive services, making the demand for parcel delivery to the cabinet grow faster than the demand for parcel collection from the cabinet.
In addition to charging couriers, express companies, and express users, Fengchao has also expanded its value-added services, including advertising and local life services, by leveraging the traffic value accumulated by express cabinets. This includes advertising business placed on Fengchao's intelligent cabinets and online platforms, laundry services, and home life services such as home cleaning and home repair.
According to the prospectus, Fengchao has provided services for about 6,000 advertisers in 35 industries. The number of laundry service orders increased from about 60,900 in 2022 to about 548,000 in 2023, reaching 962,000 in the first five months of this year; the number of home life service orders increased from about 17,300 in 2022 to about 98,300 in 2023, and is about 71,400 in the first five months of this year.
It is worth noting that Fengchao has not disclosed the specific revenue situation of each detailed value-added service. Although the business volume has increased significantly, its revenue from value-added services and others has only increased from 922 million yuan in 2021 to 436 million yuan in the first five months of 2024, with limited year-on-year growth. The proportion of revenue from this business has decreased from 36.5% in 2021 to 22.9% in the first five months of 2024. Industry insiders said: "The main reason behind this may be that Fengchao's advertising business has been weak due to the overall demand for advertising, and at the same time, Fengchao's local life business is facing competition from major internet platforms, and its advantages are not obvious."
Nearly 3.8 billion yuan in losses in three years
Since its establishment, with the help of capital, Fengchao has continued to expand its layout of express cabinets. From 2015 to 2017, in the competition of express cabinets, Fengchao, China Post Express Easy, and E-stack stood together. In 2017, Fengchao spent 810 million yuan to acquire China Merchants E-stack, and in 2020, Fengchao acquired China Post Express Easy, which had a market share of second place at the time, with a transaction price of 5.599 billion yuan through cash and the issuance of new shares. Fengchao's market share in the express cabinet market once approached 70%.
After that, Fengchao continued to accelerate the layout of express cabinet networks. From 2021 to 2023, the number of express cabinets put into operation by Fengchao were 38,800, 14,700, and 16,600 respectively, and 15,600 express cabinets were put into operation in the first five months of this year. According to the prospectus, as of May 31, 2024, Fengchao's intelligent express cabinets reached 330,200 sets, with a total of about 29.9 million compartments, covering about 209,000 communities in 31 provinces across the country.
In addition to express cabinets, post stations are also one of the last-mile solutions in the terminal logistics market. Due to the presence of dedicated staff in post stations, many couriers and elderly consumers find it more convenient to deposit and withdraw express deliveries. Looking at Fengchao's main competitors, compared with express cabinets, they are all focusing on the layout of express post stations. As of 2023, the number of Cainiao post stations has exceeded 180,000, and JD Logistics has 80,000 express post stations and 23,000 sets of express cabinets.
However, looking at the overall competitive pattern, China's terminal logistics market still shows a highly fragmented pattern. In 2023, the top five terminal logistics participants accounted for only 14.6% of the total market share by revenue, with Fengchao's market share at 6.1%, terminal logistics revenue of 2.9 billion yuan, ranking first; Cainiao and JD Logistics' businesses are more diversified than Fengchao, with their terminal logistics business板块 revenue ranking second and third at 1.9 billion yuan and 1.2 billion yuan respectively, with market shares of 4% and 2.5% respectively.
The prospectus shows that Fengchao's total operating income from 2021 to May 2024 was 2.526 billion yuan, 2.891 billion yuan, 3.812 billion yuan, and 1.904 billion yuan respectively. With the large-scale layout of express cabinet capacity, the operating income has maintained a relatively fast growth rate. However, Fengchao has been in a state of loss for a period of time.In the years 2021 to 2023, Fengchao reported losses of 2.071 billion yuan, 1.166 billion yuan, and 0.541 billion yuan, respectively, accumulating to a total loss of 3.778 billion yuan over the three years. It was not until 2024, when Fengchao submitted its application for an initial public offering (IPO), that the company managed to report a profit on its financial statements, earning 71.6 million yuan in the first five months.
Fengchao attributed the turnaround to the significant increase in profitability of its last-mile delivery services, rapid growth in consumer intelligent delivery services and value-added services, as well as improvements in operational efficiency, as stated in its prospectus.
Financial statements indicate that the main reason for the continuous losses was the high depreciation costs associated with the expansion of the parcel locker network in the past. Fengchao had been depreciating the parcel lockers over a five-year period. From 2021 to 2023, the combined depreciation of its right-of-use assets and properties, plants, and equipment reached 2.408 billion yuan, 2.303 billion yuan, and 1.936 billion yuan, respectively, accounting for 95.33%, 79.66%, and 50.79% of the corresponding revenue.
It is noteworthy that Fengchao previously approved a change in the depreciation period for parcel lockers from five years to five or ten years, effective from January 1, 2024. This change in accounting standards has helped Fengchao to turn its net profit from loss to profit to some extent this year.
In its prospectus, Fengchao mentioned that in the first five months of the year, the depreciation of properties, plants, and equipment decreased by 63.0% from 217 million yuan in the same period of the previous year to 80 million yuan.
Industry insiders pointed out: "As a continuous investment in heavy asset projects, the cost of investment and expenditure for parcel lockers is relatively high, affecting Fengchao's profitability. Fengchao's adjustment of the depreciation period for parcel lockers will, to some extent, increase its net profit, which is beneficial for its listing on the Hong Kong stock market."
Fengchao also mentioned in its prospectus that as the company expands its intelligent locker network, strengthens its value-added service capabilities, and invests in technology development and operational efficiency improvements, costs and expenses may continue to rise. If the company fails to drive revenue growth and control management costs and expenses, it may not be able to maintain its profitability.
"The entry barrier for Fengchao's parcel locker business is not high; it is more about scale advantages, but the profitability is not very clear. The capital market will be relatively more cautious, which will have some impact on Fengchao's road to listing. Even if it goes public smoothly, it is likely to be difficult to obtain a high valuation," further stated the industry insiders.
Behind the IPO: The Betting Agreement
As an important member of the SF Group, Fengchao was actually founded by Xu Yubin, a former SF courier and now the chairman of Fengchao Holdings. In April 2015, with the support of Wang Wei, Xu Yubin established the predecessor of Fengchao Holdings, Fengchao Technology, with the goal of solving the last-mile delivery challenge in the express delivery industry. SF Investment contributed a registered capital of 50 million yuan and held 100% of the shares in Fengchao Technology.Two months later, in June 2015, SF Investment, STO Express, ZTO Express, Yunda, and Shanghai Yunyun, along with Suzhou Prologis, jointly subscribed to the newly added registered capital of 450 million yuan in Fengchao Technology. After the capital increase, SF Investment held 35% of the shares, while STO Express, ZTO Express, and Yunda each held 20%, and Suzhou Prologis held 5%. From then until 2018, the "two Tongs and one Da" further invested in Fengchao through multiple rounds of funding, and Fengchao introduced new investors such as Wei Rong Development, Mingde Holdings, and CDH Fuhong from 2017 to 2018.
In 2017, SF Express and Cainiao had a conflict over the "information interface" of Fengchao's express cabinets. A year later, on June 14, 2018, the Alibaba-affiliated ZTO Express, STO Express, and Yunda each transferred all their Fengchao shares to Wei Rong Development. Since then, the "two Tongs and one Da" completely exited Fengchao, with Wei Rong Development holding 48.24% of the controlling shares in Fengchao, and SF Investment holding 14.43%. The prospectus shows that Wei Rong Development is a directly wholly-owned subsidiary of Mingde Holdings, which is directly held by Wang Wei with 99.9% of the shares.
Public data shows that since the establishment of Fengchao in April 2015, it has completed a total of 11 rounds of financing, with investors including Sequoia China, CDH Investments, Zhongding Capital, and other well-known investment institutions. Currently, Fengchao has not conducted financing for over three years, with the most recent round dating back to January 2021, securing a total of $400 million in strategic financing, with a post-investment valuation of about $3.4 billion, equivalent to 24 billion yuan.
It is worth noting that in this round of financing, Fengchao Holdings signed an investment agreement with the Series B-4 common shareholders, which included a listing bet clause. The clause mentioned that if Fengchao did not complete a qualified listing within four years of the investment (i.e., by January 27, 2025), the Series B-4 common shareholders could exercise a redemption right.
However, on August 26, just before Fengchao's submission to the Hong Kong Stock Exchange this year, Fengchao amended the aforementioned agreement. According to the new agreement, the redemption right of the Series B-4 common shareholders is suspended before Fengchao submits its listing application to the Hong Kong Stock Exchange. If Fengchao fails to complete a qualified listing before January 31, 2027, the redemption right will be restored.
To extend the bet time by two years, Fengchao also paid a certain price. According to the revised agreement in 2024, Fengchao Holdings will pay a special rights adjustment fee to the Series B-4 common shareholders at a rate of $0.165435 per share, totaling about $80 million, equivalent to 560 million yuan. This amount is approximately 20% of the total capital contributed by the Series B-4 investors at the time. For Fengchao, which has not received financing for more than three years and is not financially well-off, this is also a significant sum. As of May 30, 2024, Fengchao Holdings had cash and cash equivalents of 859 million yuan on its books, in addition to 1.807 billion yuan in financial assets. At the same time, bank loans due within one year were 272 million yuan, and bank loans due after one year were 1.358 billion yuan.
Affected by the above betting agreement, whether Fengchao can successfully go public in the next two years is crucial.