“Investor Network” Hou Shuqing

Recently, Jitu Express (01519.HK), which has been on the market for nearly half a year, announced its 2023 results announcement. The company's total revenue and package handling volume increased throughout the year, but net profit changed from profit to loss. The loss during the year was US$1,156 billion, a clear gap with the profit gap of US$1,573 billion in 2022.

Financial reports show that in 2023, Jitu Express's “sales, general and administrative expenses” soared from US$1,095 million to US$2.557 billion, almost doubling. However, the company's market share did not improve significantly compared to the same period in 2022; it only increased by 0.76 percentage points over the same period last year.

After listing on the Hong Kong Stock Exchange on October 27, 2023, due to the market's optimism about the company's growth, the stock price of Jitu Express experienced a period of increase of close to 40%. However, since the last month, this increase has returned. Currently, there is only half a month left until the ban on GeRabbit Express is lifted, but the company has already fallen below the issuance price.

Increased revenue did not increase profit

Financial reports show that throughout 2023, Jitu Express's business volume and revenue maintained a high growth rate.

Total revenue was US$8.849 billion, up 22% year-on-year from US$7.267 billion for the full year of 2022. Goku Express handled a total of 18.8 billion packages throughout the year, an increase of 29% over 14.6 billion parcels in the same period last year. By market, the growth rate of package volume in the Southeast Asian and Chinese markets remained at 28%. The number of packages in the new market increased from 49.1 million to 230 million, a growth rate of 369%.

In terms of market share, all three markets have achieved success in 2023. The new market has just started and may not have much reference value. The market share of Jitu Express increased by 2.9% in the Southeast Asian market, while the market share of the Chinese market only increased by less than 1%.

Judging from the growth rate, Jitu's business volume growth rate is slightly higher than revenue growth. The two are generally in sync, but this has not brought more profit to the company. In 2022, the company's profit for the year was US$1,573 million, but by 2023, it changed from profit to loss of US$1,156 billion.

Financial reports show that the operating cost of GeTu Express in 2023 was US$8.849 billion, up from US$7.267 billion in 2022, but the increase was quite in sync with revenue growth. The main reason for the annual loss is “sales, general and administrative expenses” on the expense side.

In 2022, Jitu Express spent $1,096 million on this cost, while in 2023, this cost soared to $2.557 billion.

Moreover, Jitu Express is also facing great pressure in terms of single ticket revenue and single ticket costs in the two major markets.

Judging from the scale of revenue, the Chinese market is a well-deserved largest market for Jitu Express. Financial reports show that here, the company's single ticket revenue is the same as the cost of a single ticket, all 0.34 US dollars. The only difference is that in 2022, Goku's single ticket cost is 0.4 US dollars, and the single ticket revenue is the same as in 2023. The Chinese market went from “losing money in exchange for the market” in 2022 to a balance of payments.

However, in the Southeast Asian market, although Jitu has a market share of more than 20%, its single ticket revenue and single ticket cost performance are not optimistic enough. Among them, the revenue for a single ticket fell from $0.95 to $0.81, and the cost of a single ticket fell from $0.75 to $0.67. The rate of decline in the cost of a single ticket in the Southeast Asian market is lower than the rate of decline in single ticket revenue.

Under the double pressure of a sharp increase in expenses and poor business revenue performance, Jitu Express's annual loss has also become less surprising.

The price war won't end so easily

In March 2020, Jitu Express, which started in the Southeast Asian market, first entered the domestic market and picked up items at a low price of 30%-50% lower than its peers. This move later became a landmark event in the price war in the express delivery industry. As a result, Yuantong, Shentong, and Yunda's three companies' single ticket revenue declined markedly as a result.

In April of that year, Jitu Express, along with some distribution centers in Yiwu of Baishi Express at the time, were suspended by the local postal administration due to low price dumping restrictions. The pioneering launch of Goku Express clearly opened Pandora's box, but as can also be seen from the cost and revenue of a single ticket in the 2023 financial report, Goku is gradually reversing this situation.

In 2020, Jitu Express's single ticket revenue was only 0.23 US dollars. At the time, Jitu had not yet acquired Baishi or Feng.com, so the single ticket cost was as high as 0.51 US dollars. However, the effect of this is also very obvious. By 2022, Goku Express will have a 10.9% domestic market share.

But price wars are like any war: you have the right to choose when to start, but it's hard to choose when to end. Entering 2024, some express delivery companies that used to painstakingly follow the price tag behind Jitu got the script for “Reverse Tiangang.”

From January to February 2024, the business volume of Yuantong, Yunda, and Shentong grew rapidly year-on-year, at 26.6%, 27%, and 40%, respectively, while their single ticket revenue was 2.49 yuan, 2.28 yuan, and 2.22 yuan respectively, down 5.68%, 14.77%, and 13.28% year-on-year.

This is a very dangerous sign for an express delivery company like Jitu Express, which relies on a price advantage to “lay the ground” in the domestic market. Based on the US dollar exchange rate on April 10 and the domestic single ticket price in 2023, the price of a single ticket of 0.34 US dollars is equivalent to 2.45 yuan. In other words, in the face of Yunda and Shentong, Jitu has lost its price advantage.

Since entering the domestic market, Jitu has seized the market through financing, burning money, price wars, etc., and has also quickly made up for its own hardware shortcomings through acquisitions such as Fengwang and Baishi. Essentially, these measures are all “making up for lessons.” However, compared to local express delivery companies that have been deeply involved in the country for many years, Jitu's roots still seem too shallow.

What should I do after the ban is lifted?

Judging from the current market capitalization and Goku's listing process, its IPO may not be a decision beneficial to both secondary market investors and institutional investors. However, the half-year ban lifting period is within easy reach, and Polar Rabbit will have to face quite a bit of trouble.

The story also starts before it went public. Before going public, Jitu Express probably experienced a reduction in the scale of IPO fundraising at least two times.

In June 2023, the Securities Times reported that after deducting underwriting fees, commissions, and estimated expenses due to the global sale, the capital raised by the GeRabbit Express Program was between US$5-10 billion (approximately HK$3,909 billion to HK$7.818 billion at the time). In the end, Goku Express revealed in an announcement that it is expected to raise HK$3,528 billion in the IPO. The scale of such fund-raising is even lower than the lower limit previously reported by the Securities Times.

According to the prospectus, the issuance price of Jitu Express Series D financing preferred shares was 7.65 US dollars/share, raising a total of 200 million US dollars. In the case of the C1 round of financing, the financing price was 14.1 US dollars/share.

Furthermore, prior to its listing, Goku Express had gone through multiple rounds of financing and had already reached a valuation of HK$105.7 billion. Compared to other domestic peers, valuations at this level are also somewhat “inflated.”

Based on the number of packages handled in 2022, Jitu handled 14.6 billion items, Zhongtong 24.4 billion, Shunfei 11.14 billion, Shentong 12.947 billion, and Yuantong and Yunda each handled 17.5 billion pieces. Compared with the market capitalization at the time, Zhongtong was about HK$148 billion, SF Express was HK$188 billion, and Yuantong and Yunda were RMB 46 billion and RMB 26.5 billion respectively. The market value of Shentong Express, which is similar in order volume and size to that of Polar Rabbit, is only about HK$15 billion.

The valuation or market value of listed companies in the express delivery industry is not simply proportional to order volume and revenue scale; this necessarily includes the market's growth expectations for a company. However, from the above comparison, it is not difficult to see that in the valuation of Jietu exceeding HK$100 billion at the beginning of its listing, “growth expectations” probably accounted for quite a bit of it.

According to the launch date, Goku Express will lift the ban on April 27, 2024. As of the close of trading on April 10, the market value of GeRabbit Express was only HK$92,528 billion, which is still below the issue price. (Produced by Thinking Finance) ■