EQUITIES
● TRANSPORTATION AND LOGISTICS
12 February 2019
Big numbers: 50bn parcels in 2018, rising to 75bn in 2020e
It’s easy to become blasé about large numbers in China, but sometimes they are simply too big
to ignore. Take the express delivery parcel service industry. A decade ago it barely existed, but
by 2018, it was delivering 50.7 billion parcels a year, according to State Post Bureau. That’s an
average of about 137m a day, or 5.7m an hour, 95,000 a minute, or 1,500 a second. And it’s
pretty much all down to one thing – e-commerce. There’s just no stopping it. Express delivery
volumes have risen 32x (a 42% CAGR) in the last 10 years and revenues 13x (a 31% CAGR).
According to the Ministry of Commerce, China’s online retail gross merchandise value (GMV)
totalled RMB7.2trn in 2017, up 32% y-o-y. The percentage of online retail sales of physical
goods reached 15% in 2017, up from 10% in 2014. Home appliances and electronics have the
highest rates of online sales but apparel/footwear and beauty products are catching up.
As this is a relatively new industry, growth rates are inevitably slowing, but they remain at a high
level. We expect the number of parcels delivered to rise to 75bn in 2020e and bring in revenue of
RMB848bn, rising to more than RMB1trn in 2022e. The express delivery parcel service is the
fastest-growing segment in the logistics service industry. We expect the volume of express
deliveries to increase at a CAGR of 24% over 2018e-20, driven by three catalysts – a broader
range of goods, wider geographical reach and lower prices for packages. Meanwhile, industry
concentration is still increasing. We try to identify the long-term winners as competition between the
tech-savvy private sector companies that dominate the industry intensifies. In this report, we:
Examine the structure and scale of the industry
Identify areas where it is likely to grow fastest
Look at how a high level of industry concentration should boost market cap significantly
Initiate coverage of S.F. Holding, STO Express and YTO Express with Buy ratings, and
Yunda Holding with a Hold; we explain why we prefer STO Express and YTO Express.
Delivering the goods
In China, an average of 1,500 express parcels are delivered every
second. Volumes have risen 32x in the last decade and revenues 13x.
While the growth rates are inevitably slowing, we still forecast a volume
CAGR of 24% in the next three years. We believe the e-commerce
boom will create industry giants that will dominate the business as the
number of categories rises, geographical reach expands, and costs fall.
We initiate coverage of S.F. Holding (Buy), STO Express (Buy), YTO
Express (Buy), and Yunda Holding (Hold); we prefer STO Express and
YTO Express.
