By PANG Yu

SF Holding, the largest integrated express logistics service provider in China, is confident about its performance, but the market thinks that in the current climate, that confidence may be misplaced.

Being the fourth largest express outfit in the world, SF is expecting to record its best half-year figures since it went public in 2017.

In its semi-annual performance forecast on July 7, the company predicted a net profit of as much as 4.2 billion yuan (US$580 million) for the first half of 2023. That's two thirds more than a year ago, and where analysts begin to express misgivings. Net profit, SF says, will come in around 3.6 billion yuan also up by around two-thirds.

But the securities market does not seem to appreciate the performance, at least not to the company's starry-eyed extent. This year, SF’s stock price has fallen by more than 20 percent. In 2021, with the pandemic showing no signs of abating, the courier's stock hit a record high of 124 yuan. The price today hovers around 45 yuan.

One of SF's high-profile subsidiaries, Kerry Logistics, expects a significant performance gap compared to the last year. Kerry's net profit for the first 5 months of the year came in at HK$290 million. That's a long way short of the net profit recorded in H1 of 2022. This time last year, Kerry Logistics made a net profit of HK$2.4 billion.

Kerry Logistics explained that its outstanding performance during the supply-demand imbalances caused by the pandemic came about through flexible supply chain solutions. From Q3 of 2022, business had returned to what is described as normal levels. Pre-pandemic financial reports are four years old now, and the landscape has changed beyond all recognition. It's hard to pick out the "normal" level that SF wants to benchmark itself against.

Global freight prices have gone through an unprecedented decline, leading to a reduction in profits from the international freight division, which became the main reason for the profit decline during this period.

Kerry Logistics expects the recovery of freight rates to be slow in Q3. This continues to be a problem for the entire freight-forwarding industry. Kerry's board of directors believes that the company's overall performance bottomed out in Q1 and a recovery will be evident in the second half of 2023. If profits do come in at around HK$300 million for H1, recovery will be essential. It's a long hard climb back up to the successes of just a year ago.

In the past two years, SF Holding grew rapidly with important contributions from the supply chain side and from the international market, generating revenue of 87.9 billion yuan in 2022, a year-on-year increase of over 120 percent. The proportion of supply chain and international business has risen from less than 5 percent in 2020 to 33 percent last year.

It's not the only bright spot for SF, but there are very few others. Various segments of SF Holding’s logistics business show little cause for confidence. In 2022, the growth of time-specific deliveries was less than 7 percent, while economy deliveries and freight forwarding were flat. The business model and product matrix are showing signs of fatigue.

SF Holdings is also planning equity financing in the Hong Kong capital market, though no details have been given. In the A-share market, several top investment institutions that participated in SF's previous private placement have taken a big hit with the sharp decline in the company's stock. It will be hard to convince them to put their hands back in their pockets.

In 2021, SF raised 20 billion yuan through a private placement at a price of 57.18 yuan per share. A total of 20 institutions subscribed, including UBS AG and Shenwan Hongyuan. During the lock-up period, SF stock dropped from 72 yuan in early January 2022 to 42 yuan at the end of March that year. By May 2022, the stock price had crept back up to 54 yuan.

Based on the closing price of 47.2 yuan per share on May 19, the institutions participating in the previous placement lost over 17 percent in six months. Both UBS AG and Shenwan Hongyuan sold out SF Holding as soon as possible.