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SF Express Announces USD 300 Million in Convertible Notes
COVID-19 and China
White van parked beside brown concrete building during daytime. Image Credit: Norbert Kundrak/Unsplash

SF Express (002352:SZ) announced that it has entered into a definitive transaction document phase with investment funds (the “Purchasers”), including CITIC Capital Partners, CDH Investments and Genuine. Under the agreement, SF Freight, the subsidiary of SF Express, will issue and sell convertible notes in an aggregate principal amount of USD 300 million to the Purchasers through private placement.

Witnessing the ever-increasing freight market in China, SF Freight will use the proceeds to bankroll technology development and logistic network expansion.

SF Express established the freight business in 2015 and launched the standalone brand SF Freight in 2019. The company has a full in-house courier network, which costs a lot more to hire couriers and establish logistics depots but brings better user experience to customers.

On the other hand, the company witnessed a decrease in parcel volume in the first half of 2019, compared with industry levels. The company thus rolled out the budget delivery services to fulfill e-commerce orders in May 2019, which will keep a limited price premium compared with such competitors as ZTO Express and STO Express.

Since then, the company has boosted parcel volume and surpassed industry growth levels. In November 2019, it grew its business by 47.92% (year-over-year), while the industry saw 21.5% growth.

Meanwhile, the company aims to keep and even enhance its traditional fast-delivery business in 2020, with better value-added services and fast speed. The unique two-pronged direct model is also called a ‘two-network operation’ by the company. Using the same data middleware, the model helps to cut costs and improve efficiency.

KPMG estimated that SF Freight is valued at CNY 9.9 billion (USD 1.3 billion) – CNY 11.2 billion (USD 1.6 billion) as of August 31, 2019, according to a Discounted Cash Flow (DCF) modeling.

Editor: Luke Sheehan
ANALYST
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