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with the world's largest number of smart express lockers, fengchao plans to go public in hong kong, but there is much controversy in the market about whether its listing will be smooth.

text｜kang guoliang, special contributor to caijing

editor｜yang xiuhong

with fengchao's application for listing, sf holding founder wang wei is expected to add another listed company to his portfolio.

recently, hive group limited (hereinafter referred to as "hive group") submitted a listing prospectus to the hong kong stock exchange, intending to be listed on the main board of the hong kong stock exchange.

according to fengchao's prospectus, wang wei and mingde holdings, which he actually controls, hold 36.54% of fengchao's shares through multiple companies. at the same time, through a concerted action agreement signed with fengchao holdings chairman xu yubin and other fengchao executives, they ultimately control approximately 48.45% of the voting rights of fengchao's total issued share capital, becoming fengchao's controlling shareholder. in addition, fengchao's shareholder list also includes china post group and prologis group, holding 17.01% and 5.52% of the shares respectively.

if fengchao is successfully listed on the hong kong stock market, wang wei will usher in his fifth ipo (initial public offering) after sf holdings, kerry logistics, sf express and sf reit. the total market value of the five sf companies is 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 its recently released semi-annual report, sf holding updated the progress of its listing in hong kong: it plans to issue overseas listed foreign shares (h shares) and apply for listing on the main board of the hong kong stock exchange.

currently, a major focus of the market is whether fengchao can knock on the door of the hong kong stock exchange before cainiao.

after all, before fengchao submitted its application, its main competitor cainiao had voluntarily withdrawn its listing application in march this year, on the grounds that the ipo could not highlight the intrinsic value of cainiao now.

the profit model of express lockers

fengchao's main business is the smart express locker business, and its core is to make money in the last mile of the terminal express logistics market. the company's prospectus mentioned that according to data from frost & sullivan, based on the number of express lockers as of december 31, 2023 and the volume of parcels in 2023, fengchao is already the world's largest smart express locker network operator.

according to the prospectus, fengchao's current business mainly consists of three parts, namely express terminal delivery service, consumer smart delivery service and value-added services and others. among them, express terminal delivery service is fengchao's largest revenue business, which is to charge couriers and express companies a service fee for parcels stored in express cabinets, usually 0.2 yuan to 0.4 yuan per piece. from 2021 to the first five months of 2024, fengchao's express terminal delivery service achieved operating income of 1.455 billion yuan, 1.686 billion yuan, 1.836 billion yuan, and 777 million yuan, respectively, accounting for 57.6%, 58.3%, 48.2%, and 40.8% of the total revenue, respectively.

(note: all the above units are rmb 100 million. data source: compiled based on the data in the prospectus)

however, the market has some doubts about the sustainability of fengchao's express delivery service. on march 1 this year, the ministry of transport announced the formal implementation of the revised "express delivery market management measures" (hereinafter referred to as the "management measures"), which stipulates that without the user's consent, no express delivery can be made by using smart express lockers, express service stations, etc., and violations will be punished.

fengchao also mentioned in its prospectus: changes in current laws, regulations or policies regarding industries and businesses 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 illegal delivery behaviors. this is indeed a compliance risk for the terminal express logistics industry including fengchao, but the specific risk is still not quantifiable."

in addition, the overtime charging model for express lockers launched by fengchao has also caused some controversy among consumers. in 2020, fengchao began to charge users for temporary storage fees, also known as storage fees or retention fees. according to fengchao's regulations, users' express deliveries in fengchao express lockers have a 12-hour (now changed to 18 hours) free storage period. after the timeout, a temporary storage fee of 0.5 yuan will be charged for every 12 hours until the maximum of 3 yuan is reached. no fees will be charged during statutory holidays. although this regulation is controversial, it has objectively improved the turnover rate of fengchao's express lockers. data shows that fengchao's express locker turnover rate has 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 by relying on the overtime charging model. the prospectus shows that from 2021 to the first five months of 2024, fengchao charged storage fees for approximately 430 million, 460 million, 517 million and 208 million parcels stored in express lockers, accounting for 6.9%, 7.9%, 8.0% and 7.5% of the total number of parcels delivered to fengchao express lockers during the same period, respectively. if calculated based on the minimum charging standard of 0.5 yuan, from 2021 to the first five months of 2024, the detention fees collected by fengchao for detained parcels reached 215 million yuan, 230 million yuan, 259 million yuan and 104 million yuan, respectively, accounting for 8.51%, 7.96%, 6.79% and 5.46% of fengchao's total operating income during the same period, and a total of 808 million yuan in detention fees were collected in the past three and a half years.

fengchao's second largest business is consumer smart delivery service. in short, it mainly involves consumers using express lockers to send parcels when returning or exchanging goods. its customers are mainly express companies and consumers on e-commerce platforms. fengchao charges a service fee for each parcel sent through the express locker. this is fengchao's fastest growing business in recent years.

since 2021, domestic mainstream e-commerce platforms have increased freight insurance to improve consumers' online shopping experience, which has invisibly pushed up the return and exchange rate and brought about the rapid growth of "reverse logistics". data shows that the number of parcels sent by domestic end-to-end delivery has increased from 500 million in 2019 to 2.8 billion in 2023, with a compound annual growth rate of 52.1%, which is much higher than the 32% compound annual growth rate of the end-to-end logistics market during the same period.

with its price advantage and cooperation with mainstream e-commerce platforms and logistics platforms, fengchao has seized the reverse logistics market opportunity of "returns and exchanges". from 2021 to 2023, fengchao's consumer smart delivery service revenue increased significantly from 149 million yuan to 1.02 billion yuan, an increase of 584.56%. in the first five months of 2024, it achieved revenue of 692 million yuan, and its contribution to revenue has increased significantly from 5.9% in 2021 to 36.3%, approaching the proportion of the largest business. regarding the rapid growth of consumer smart delivery services, fengchao stated in its prospectus that it was mainly driven by the development of e-commerce return and exchange comprehensive services, which made the demand for delivery to the cabinet grow faster than the demand for pickup at the cabinet.

in addition to charging couriers, courier companies and courier users, fengchao also uses the traffic value accumulated by express lockers to further expand its value-added services including advertising and local life services, including advertising business on fengchao smart lockers and online platforms, clothing laundry services, and home life services such as door-to-door cleaning and door-to-door repairs.

according to the prospectus, fengchao has provided services to approximately 6,000 advertisers in 35 industries. the number of orders for cleaning services has increased from approximately 60,900 in 2022 to approximately 548,000 in 2023, and reached 962,000 in the first five months of this year; the number of orders for home life services has increased from approximately 17,300 in 2022 to approximately 98,300 in 2023, and approximately 71,400 in the first five months of this year.

it is worth noting that fengchao did not disclose the specific revenue of each segmented value-added service. although the business volume has increased significantly, its revenue from value-added services and others from 2021 to the first five months of 2024 was 922 million yuan, 896 million yuan, 956 million yuan and 435 million yuan, respectively, with limited year-on-year growth. the revenue share of this business has dropped 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 affected by the overall advertising demand and has been weak in growth. at the same time, fengchao's local life business faces competition from major internet platforms and its advantages are not obvious."

losses of nearly 3.8 billion in three years

since its establishment, fengchao has continued to expand its express locker network with the help of capital. from 2015 to 2017, fengchao, zhongyou express easy and e-stack were the three major players in the express locker competition. in 2017, fengchao spent 810 million yuan to acquire cimc e-stack. in 2020, fengchao acquired zhongyou express easy, which had the second largest market share at the time, for a transaction price of 5.599 billion yuan through cash and issuance of new shares. fengchao's market share in the express locker market has approached 70%.

after that, fengchao continued to accelerate the layout of the express locker network. from 2021 to 2023, fengchao put into operation 38,800 sets of express lockers, 14,700 sets of express lockers, and 16,600 sets of express lockers respectively. in the first five months of this year, 15,600 sets of express lockers were put into operation. according to the prospectus, as of may 31, 2024, fengchao's smart express lockers reached 330,200 sets, with a total of about 29.9 million slots, covering about 209,000 communities in 31 provinces across the country.

in addition to express lockers, post stations are also one of the last-mile solutions in the terminal logistics market. since the post stations are equipped with dedicated staff, it is more convenient for many couriers and elderly consumers to store and retrieve express parcels. from the perspective of fengchao's main competitors, compared with express lockers, they are all focusing on the layout of express stations. as of 2023, the number of cainiao stations has exceeded 180,000, and jd logistics has 80,000 express stations and 23,000 sets of express lockers.

however, from the perspective of the overall competitive landscape, china's terminal logistics market is still highly fragmented. in 2023, the top five terminal logistics participants by revenue only accounted for 14.6% of the total market share. fengchao's market share was 6.1%, and its terminal logistics revenue was 2.9 billion yuan, ranking first; cainiao and jd logistics' businesses were more diversified than fengchao, and their terminal logistics business segments ranked second and third with revenues of 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 revenue from 2021 to the first five months of 2024 was 2.526 billion yuan, 2.891 billion yuan, 3.812 billion yuan and 1.904 billion yuan, respectively. thanks to the large-scale layout of express locker production capacity, the operating income maintained a relatively fast growth rate. however, fengchao was once in a loss-making state.

from 2021 to 2023, fengchao's losses were 2.071 billion yuan, 1.166 billion yuan, and 541 million yuan, respectively, with a total loss of 3.778 billion yuan in three years. it was not until 2024, when it submitted its listing application, that fengchao turned losses into profits on the financial statements, with a profit of 71.6 million yuan in the first five months.

as for the reasons for turning losses into profits, fengchao stated in its prospectus that it was mainly due to the significant increase in the profitability of express delivery services, the rapid growth of consumer smart delivery services and value-added services, and the improvement in operational efficiency.

judging from the financial statements, the main reason for fengchao's continued losses comes from the high depreciation costs caused by the expansion of the express locker layout in the past. fengchao used to depreciate the express lockers over a five-year period. from 2021 to 2023, the total 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 its operating income in the same period, respectively.

it is worth noting that fengchao previously approved the adjustment of the depreciation period of express lockers from five years to five or ten years starting from january 1, 2024. this change in accounting standards has helped fengchao turn its net profit from loss to profit this year to a certain extent.

in its prospectus, fengchao mentioned that in the first five months of this year, depreciation of property, plant and equipment decreased by 63.0% to 80 million yuan from 217 million yuan in the same period last year.

industry insiders pointed out: "as a heavy asset project with continuous investment, express lockers have relatively high investment and expenditure costs, which affects fengchao's profitability. fengchao's adjustment of the depreciation period of express lockers will increase its net profit to a certain extent, which will facilitate its listing on the hong kong stock market."

in its prospectus, fengchao also mentioned that with the expansion of the smart locker network, the strengthening of value-added service capabilities, and the investment in technology development and improved operational efficiency, costs and expenses may continue to rise. if it fails to drive revenue growth and control management costs and expenses, it may not be able to maintain profitability.

"the entry threshold for fengchao's express box business is not high, and it is more of a scale advantage, but its profitability is not very clear. the capital market will be relatively cautious, which will have some impact on fengchao's path to listing. even if it is successfully listed, it may be difficult to obtain a high valuation." industry insiders further stated.

the bet agreement behind the ipo

as an important member of the sf express group, fengchao was actually founded by xu yubin, a former sf express deliveryman and current chairman of fengchao holdings. in april 2015, with the support of wang wei, xu yubin established fengchao technology, the predecessor of fengchao holdings, with the goal of solving the last-mile delivery problem in the express delivery industry. sf express invested 50 million yuan in registered capital and holds 100% of the shares of fengchao technology.

two months later, in june 2015, sf investment, sto express, zto express, yunda express's shanghai yunyun, and suzhou prologis jointly subscribed to the additional 450 million yuan of registered capital of fengchao technology. after the capital increase, sf investment held 35% of the shares, sto express, zto express and yunda express each held 20%, and suzhou prologis held 5%. from then until 2018, the "two expresses and one delivery" further injected capital into fengchao in multiple rounds. at the same time, fengchao further introduced new investors such as weirong 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 express lockers. one year later, on june 14, 2018, alibaba's zto express, sto express and yunda express transferred all of their fengchao shares to weirong development. thus, the "two express and one delivery" completely withdrew from fengchao. weirong development thus held 48.24% of fengchao holdings and sf investment held 14.43%. the prospectus shows that weirong development is a direct wholly-owned subsidiary of mingde holdings, which is directly held by wang wei with a 99.9% stake.

public data shows that since its establishment in april 2015, fengchao has completed 11 rounds of financing, and investors also include sequoia china, cdh investments, zhongding capital and other well-known investment institutions. at present, fengchao has not raised funds for more than three years. the most recent round of financing dates back to january 2021, with a total of us$400 million in strategic financing, and a post-investment valuation of approximately us$3.4 billion, or approximately rmb 24 billion.

it is worth noting that in this round of financing, fengchao holdings entered into an investment agreement with class b-4 common shareholders, which included a listing bet clause, which mentioned that if fengchao failed to complete a qualified listing within four years of the investment (i.e. january 27, 2025), class b-4 common shareholders would be able to exercise their redemption rights.

however, on august 26, the eve of fengchao's filing for listing on the hong kong stock exchange, fengchao modified the above agreement. according to the new agreement, the redemption rights of class b-4 common shareholders will be suspended before fengchao submits its listing application to the hong kong stock exchange. if fengchao fails to complete the qualified listing before january 31, 2027, the redemption right will be restored.

in order to extend the gambling period for two years, fengchao also paid a certain price. according to the revised agreement in 2024, fengchao holdings will pay a special rights adjustment fee of us$0.165435 per share to each holder of class b-4 common stock, totaling approximately us$80 million, or approximately rmb 560 million. this amount is approximately equivalent to 20% of the total investment of the original b-4 round of investors. for fengchao, which has not received financing for more than three years and is not in a good financial situation, this is also a considerable amount of money. as of may 30, 2024, fengchao holdings had cash and cash equivalents of rmb 859 million on its books, in addition to rmb 1.807 billion in financial assets. at the same time, bank loans within one year were rmb 272 million, and bank loans over one year were rmb 1.358 billion.

affected by the above-mentioned gambling agreement, it is crucial whether fengchao can successfully go public in the next two years.