SF's listing in the same city broke, the more losses the more the same city distribution is a good business

Economic Observation Network reporter Ren Xiaoning

SF Tongcheng (09699. HK), unsurprisingly, the listing broke.

SF Tongcheng issue price of HK$16.42. It opened at HK$15.200 per share, down more than 11% intraday, and as of press time, it was trading AT HK$14.8 per share, down 9.87%.

On the morning of December 14, SF Tongcheng held a listing bell ringing ceremony. When SF Chairman Wang Wei rang the bell, he answered the question of why it was listed at this moment. He quoted a conversation with a friend and said that instant delivery is a big trend, and SF has this condition, then, "We have all the conditions, we are a good company, a good business model, a good team, no problem going public at any time." ”

More noteworthy than the break is the business model of SF Tongcheng. Like Dada, Flash Delivery, Meituan Delivery, Hungry Hummingbird and other same-city delivery, SF Tongcheng relies on riders to provide merchants and users with instant delivery services in the same city. The high labor cost of this model has increased the loss of SF in the same city year after year. Once, O2O who tried to walk through the local life service left a chicken feather, now, the same city delivery business that does local delivery business, will it be a good business?

The listing break is not a surprise

SF's listing in the same city broke, which is not surprising.

On the eve of the listing, on December 13, SF's dark market in the same city broke down, and the decline expanded to 10%. SF itself has no confidence in the share price, after SF's offer price ranged from HK$16.42 to HK$17.96 per share, and in the end, SF priced at the lower limit of HK$16.42.

"The competition in the same city express is fierce, SF's share is small and the advantages are not obvious, it has been in a state of loss, and the market confidence is insufficient." Zhang Xiaorong, president of the DeepIn Science and Technology Research Institute, analyzed to the Economic Observation Network reporter that this is one of the reasons for the poor performance of the stock price on the first day of SF's listing in the same city. Moreover, this industry is labor-intensive, the technical content is relatively low, and the labor cost remains high, "everyone can do the hard work, can only fight the price, and lacks imagination space." ”

However, even if it breaks, SF Tongcheng also has a listing demand, "if the capital is not enough, the business can not be started quickly, it will fall behind in the competition." SF Tongcheng hopes to develop rapidly, so it has a strong need for IPO financing. Zhang Xiaorong thought.

Originally a division of SF Holding Group, SF Tongcheng began to get involved in the same city distribution business in 2016 and operated independently in March 2019. From its inception to listing, it took 5 years.

SF Tongcheng has completed a total of 5 rounds of financing, including star shareholders such as Saifu Investment, BAI Capital, CITIC Capital, Himalaya Investment, TrustTrust Capital, and Legend Capital. Among them, the most notable is its cornerstone investor Alibaba. Taobao China Holdings Limited subscribed for HK$851 million at a minimum offer price of HK$16.42 and the corresponding number of shares was HK$5,184,400, assuming that the over-allotment interest was not exercised, representing approximately 5.55% of the issued share capital. Hello Travel, which is also an Ali family, also subscribed for HK$38.79 million, corresponding to 2.36 million shares.

For the listing of SF in the same city, Zhao Xiaomin, an express logistics expert and CEO of Guanshuo Capital, analyzed that China's instant delivery market has been the scale of nearly a trillion market, which can accommodate more players to participate in market competition, the market space is still very large, and the priority of the head enterprise is to occupy a larger market share during this period, achieve scale effects, and do fine work.

The listing of SF In the same city also brought Wang Wei the fourth IPO in his life after SF Holdings, SF RealTory and Kerry Logistics.

The more orders you order, the greater the loss

SF's business model in the same city is similar to flash delivery, providing businesses and individuals with errands such as helping, buying, and helping, such as helping to buy fresh vegetables, flowers and fruits, drugs 3C, etc., charging service fees, and the biggest cost is the labor cost of running errands.

Judging from the prospectus data, SF Tongcheng is a loss-making business, and with the increase of orders, the more it loses.

From 2018 to 2020, SF's order volume in the same city was 79.8 million, 210 million and 760 million, respectively. In the past three years, SF Tongcheng lost 328 million yuan, 470 million yuan and 758 million yuan respectively, with a total loss of 1.556 billion yuan in three years.

As of the first five months of this year, the total number of SF orders in the same city reached 514 million, an increase of 151.2% year-on-year, and the loss reached 353 million yuan, an increase of nearly 64% year-on-year.

Real-time delivery platforms are labor-intensive and require enough riders to provide timely, high-quality delivery services. Labor costs have also become the main reason for SF's losses in the same city. From 2018 to 2020, the cost of manpower outsourcing and the welfare expenses of employees in SF Tongcheng were 1.198 billion yuan, 2.377 billion yuan and 4.921 billion yuan respectively, which were higher than the operating income of the current period, accounting for 97.8%, 97.3% and 97.8% of the operating costs respectively.

The SF prospectus expects the current financial position to continue for an additional 3 to 5 years until it surpasses its early development and builds economies of scale. SF said that the company is currently focused on long-term success in the fast-growing market and will continue to focus on expanding its customer base, service network, etc., rather than seeking immediate financial returns or profitability.

SF's rival Dada faces the same problem, and the company has been unable to achieve profitability.

At present, there is also a trend in same-city distribution, and the dependence on the parent company is getting bigger. Revenue from SF Holdings accounted for 33.6% and 38.6% of the total revenue for the same period in each year of 2020 and for the five months ended 31 May 2021, respectively, and SF's largest customers in the same city were its largest shareholder, SF Group. Meituan delivery and Hungry Hummingbird rely on Meituan and Hungry's takeaway business. Dada Group's JD.com business revenue accounted for 63.6%, and its dependence on JD.com is also further improving.

In the 12 months ended May 2021, SF's revenue from the same-city platform was RMB3.046 billion, with a total of 1.07 billion orders, corresponding to 220,000 active merchants and 7.5 million active consumers. If there is no order support from major shareholders, there are still doubts about the growth rate of instant delivery revenue.

Is same-city delivery a good business?

Same-city delivery is a new business that has risen with the local consumer market, especially the takeaway market. In 2011, there were only 26 same-city distribution companies nationwide, in 2016, there were 510 same-city distribution companies, and in 2021, there were more than 3100 existing same-city distribution-related enterprises nationwide.

Among the more than 3,000 enterprises, most of them are small and medium-sized enterprises, and the same city distribution related enterprises with a registered capital of less than 1 million yuan are the main force in the market, accounting for 57% of the total; while the registered capital of more than 10 million yuan accounts for only 6% of the total.

With a registered capital of 800 million yuan and backed by SF Group, SF Tongcheng is undoubtedly a big player in the same city delivery track. The same big players have also gone to the United States to list JD.com, as well as the unlisted Meituan delivery and Hungry Hummingbird, as well as startup flash delivery.

The increase in same-city delivery players is related to the expansion of the market scale. According to iResearch' report, the annual order volume of the real-time delivery service industry increased from 4.6 billion in 2016 to 21 billion in 2020, with a compound annual growth rate of 46%. Considering the continuous expansion of service scenarios and the innovation of new formats and consumption models, it is expected that the annual order volume of China's real-time delivery service industry will further increase to 79.5 billion in 2025, with a compound annual growth rate of 30.5% from 2020 to 2025.

Compared with competitors, SF Tongcheng does not have an advantage at present. In 2020, Dada's order volume was about 1.1 billion, and SF's same city was 760 million, which is still a big gap. According to the average revenue per order, SF's single order in the same city is 2.85 yuan, and the revenue per order of Dada Group in the whole year last year has reached 5.19 yuan. However, Dada is also currently losing money. According to Dada's financial report for the third quarter of fiscal 2021, Dada Group's net loss for the third quarter of 2021 was 542.7 million yuan, compared with a net loss of 324.0 million yuan in the same period last year. Year-on-year loss widened.

SF Tongcheng expects the net loss in 2021 to further expand compared with 2020, mainly because it will further expand the coverage of services. As of May 31, 2021, SF's same-city business covers more than 1,000 cities across the country.

Players who continue to increase investment in the same city hope for the scale effect of the network, which is also the inertial thinking and common practice of the Internet platform. When the order volume is dense enough and the rider's full load rate increases, the bargaining power of the platform for the rider will also continue to increase, and eventually reduce its own cost without reducing or even increasing the rider's unit time income.

"The instant delivery business is in the initial stage of development, and the overall threshold is not high, which is also the reason for the fierce competition in the market." Zhang Xiaorong told reporters that in the future, same-city distribution can be combined with unmanned distribution and big data operation to form technical barriers. At present, it is "the world is undecided, the crowd is chasing deer", and everyone has a chance.

However, whether this track is a new future or a chicken feather, it must be verified by the market.