Full Truck Alliance Moves Back Into Fast Lane With Strong Government Support

Company’s shares surge 15% on Tuesday after separate media reports signal strong regulatory backing at the national and provincial levels

Summary

• Full Truck Alliance’s shares surged after separate media reports showed strong government backing by both Beijing and its home province.
• Shares rally 15% following reports of government support

By Doug Young

Trucking specialist Full Truck Alliance Co. Ltd. (YMM) is showing once again just how important syncing with government policy is to a company’s success in China. And it’s also showing just how important it is to tell the world when you have that government support.

Several important new signals of such government support sparked a rally for the company’s New York-traded shares on Tuesday, lifting them as much as 21% in intraday trade before they closed up 15.2% on the day. The rally came on double the company’s usual trading volume, moving the stock back to within spitting distance of its IPO price from June.

China stock watchers will know that June represents a different time for Chinese stocks, which were all the rage in the first half of the year as investors bet on China’s post-pandemic rebound and its strong growth prospects in general. But then things came to a screeching halt in July as China’s internet regulator signaled that many companies – including Full Truck Alliance – would be subject to data security reviews.

A new important development has come for the company in two sets of headlines making the rounds in Chinese media.

One of those discussed Full Truck Alliance’s release of a research report on its contribution to carbon emissions reduction at the Second United Nations Global Sustainable Transport Conference that took place from Oct. 14 to 16 in Beijing. China places huge importance on this kind of UN-sponsored event, and thus Full Truck Alliance’s participation at such a high level can be seen as quite significant. Underscoring that importance, Full Truck Alliance’s report was conducted together with China’s Transport Ministry, the reports said.

The second report released around the same time showed Full Truck Alliance vice president Xu Qiang meeting with top officials from Guizhou province, one of China’s poorest provinces and where the company is headquartered.

While light on actual news, one article detailing the meetings includes a photo and description of Xu meeting with numerous high-level provincial and city officials from Guizhou, all praising the company for its contributions to the local economy. Guizhou has become a focus for China’s separate, but equally high-profile, poverty alleviation campaign in recent years, and thus this latest acknowledgement of Full Truck Alliance’s contribution also looks like a big show of local government support.

This huge, sudden shower of government support is a major boost for Full Truck Alliance, and should certainly bode well for the company in the near term.

Accelerating Business

Full Truck Alliance’s big vote of government support should come as no surprise, at least from a policy perspective. China has placed a huge emphasis on carbon emissions, with goals of reaching peak carbon emissions by 2030 and going carbon neutral by 2060.

Companies like Full Truck Alliance can help to achieve that goal by bringing greater efficiencies to China’s truck industry, which is highly fragmented and still relies heavily on low-tech and inefficient methods to match truck drivers to customers needing goods delivered. What’s more, many of China’s worst-polluting vehicles are the many older trucks still on the road, which Beijing is trying to gradually remove in favor of newer, cleaner-burning vehicles.

Full Truck Alliance and rival ForU, whose previously disclosed plan for a New York IPO appears to be on hold, both look well positioned to make the industry more efficient and thus assist in China’s carbon-reduction goals.

Full Truck Alliance’s first post-IPO financial report released in August showed its revenue doubled in this year’s second quarter to 1.1 billion yuan ($172 million). That growth came as it posted 36 million fulfilled orders with gross transaction value (GTV) of 74 billion yuan, representing 87.9% and 57.8% year-over-year growth, respectively.

Perhaps most important, the company posted an adjusted profit, which excludes costs related to share-based compensation, of about 100 million yuan for the quarter, reversing a 39 million yuan loss a year earlier. It still posted a hefty net loss of 2 billion yuan on a GAAP basis, compared with a loss of about 300 million yuan a year earlier.

The company’s shares have rallied about 25% since the results were announced, which includes the big jump on Tuesday. At their latest close of $16.56, the American depositary shares (ADSs) are still about 13% below their IPO price of $19. But that’s not too bad when one considers the stock fell to a post-IPO low of $7.95 in July at the height of concerns about the data security review.

From a valuation perspective, the company’s stock has always looked quite high when compared with more traditional logistics peers. It currently trades at a price-to-sales (P/S) ratio of 32 – a level usually associated with very high-growth companies. By comparison, the more traditional JD Logistics (JDLGF) (2618.HK) and Yunda (002120.SZ), which provide actual trucking services, trade at more normal-looking P/S ratios of 1.7 and 1.5, respectively.

Whether Full Truck Alliance can provide the kind of growth to justify such a high valuation will be one of its biggest challenges going forward. But at least from a regulatory perspective, the company should be able to move ahead full-throttle knowing it has very strong government support.

This story has been corrected to remove a previous reference saying Full Truck Alliance’s apps were removed from Chinese app stores. The apps were never removed, but the company was banned from registering new users.

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