Online shopping has delivered a windfall to Chinese couriers. YTO Express, a company backed by e-commerce behemoth Alibaba, will list in Shanghai at a valuation of $2.7 billion. China's e-commerce boom means demand for logistics has soared. Though higher wages are denting margins, growth will continue.
YTO is going public by exchanging shares with Dalian Dayang Trands, a clothing maker listed in Shanghai. At the same time, the company is raising 2.3 billion yuan through a private placement, and transferring the clothing business to two of YTO's existing shareholders, including a fund backed by Alibaba chairman Jack Ma.
The backdoor listing comes as China's 688 million web users increasingly turn to the likes of Alibaba and JD.com to buy goods from electronics to groceries. This has pushed up demand for express delivery services: Chinese couriers dropped off a total of 20.7 billion packages last year, 48 per cent more than in 2014, according to government data. YTO expects revenue this year to soar by a further 56 per cent to 18.9 billion yuan.
But costs are rising as wages increase. Most Chinese logistics companies rely on local franchisees to deliver parcels across the country. Last year, YTO paid out 4.2 billion yuan in fees to these independent companies, an increase of 62 per cent. That is why the company's gross operating margins have fallen from 21 per cent in 2013 to just 13 per cent last year.
For backers like Alibaba, however, growth prospects should compensate for the margin crunch. Pressure to improve efficiency by consolidating may be another reason why privately held delivery firms are seeking outside investors: rival STO Express obtained a Shenzhen listing through a $2.6 billion reverse takeover last December. Another logistics company, ZTO Express, is planning a $1 billion initial public offering in Hong Kong this year, according to sources cited by IFR.
Besides, at 16 times forecast 2016 earnings, YTO's valuation doesn't look excessive. American delivery giant FedEx trades on a forward multiple of 14. As long as e-commerce keeps booming, Chinese couriers should share in the windfall.
