Company Reports

We have trimmed our fair value estimate of wide-moat SF Holding, or SF, by 6% to CNY 51 per share, mainly due to increased labor cost assumptions in the next decade. Despite this, we think the shares remain cheap, and earnings will be underpinned by growing economies of scale. While we reduce our 2032 gross margin forecast to 13.7% from 15.2%, this is still an improvement from 12.8% in 2023. We expect gross margin to increase to 13.8% by 2033.

Through organic growth and acquisitions, SF Holdings has become the largest integrated logistics services provider in China and Asia and the fourth-largest globally.

Wide-moat SF Holding, or SF, reported fourth-quarter revenue and net profit both lower than the Refinitiv consensus estimates as of March 26 by 10% and 17%, respectively. Net profit in the quarter was 16% lower than our estimate, due to less-than-expected cost control and a weaker-than-expected supply chain and international segment. Revenue in the fourth quarter rose 2% year on year. Net profit dropped 6% year on year in the quarter. SF’s parcel volume was 3% higher year on year in the quarter, an improvement from the 1% drop in the September quarter. We are pleased that management plans to steadily increase the dividend payout ratio during 2024-28 from 20% in 2022 and 35% in 2023. The company guided that share buybacks during 2024 would amount to a 1.3%-1.6% reduction in share count, based on the closing price on March 26. Our fair value estimate of CNY 54 per share is unchanged.

SF’s 51.5%-owned subsidiary Kerry Logistics Network’s, or KLN's, plan to distribute its 52.1% stake in Thailand-listed Kerry Express (Thailand), or KEX, to KLN shareholders gives SF a direct 26.8% stake in KEX and triggers a mandatory tender offer of KEX by SF. Assuming 100% acceptance of the offer, the move will cost SF CNY 1.4 billion, which makes up less than 3% of SF’s cash as at end-September 2023 figures. As KEX is loss-making, the move is expected to be initially negative to SF’s operating profit by around 3% in 2024, assuming the offer is completed by the end of April 2024. Given the relatively limited impact, we retain our fair value estimate for SF at CNY 54 per share. We remain buyers of SF and do not expect this move to affect our wide moat rating.

We initiate wide-moat SF Holding, or SF, with a fair value estimate of CNY 54.00; narrow-moat ZTO Express with a fair value estimate of USD 14.70 per ADS and HKD 115.00 per share; no-moat Yunda Holding with a fair value estimate of CNY 10.00; no-moat YTO Express with a fair value estimate of CNY 7.80; no-moat STO Express with a fair value estimate of CNY 9.60; no-moat Kerry Logistics Network, or KLN, with a fair value estimate of HKD 11.90; and no-moat JD Logistics, or JDL, with a fair value estimate of HKD 10.70. We think SF and KLN are undervalued; Yunda, STO, and JD Logistics are fairly valued; and ZTO and YTO are overvalued.

Through organic growth and acquisitions, SF Holdings has become the largest integrated logistics services provider in China and Asia and the fourth-largest globally.