SFWL.US

The logistics company’s shares have more than doubled since their March IPO, including a 36% jump on a single day this week

Key Takeaways:

  • Shengfeng’s shares have risen sharply since their IPO, giving the company valuation ratios well ahead of its Chinese and global peers
  • The company is the latest in a recent flurry of new listings by Chinese logistics providers, which may be attracting investors for their growth potential and relatively low risk

  

By Bamboo Works

They may not sound sexy, evoking images of big-rig trucks and warehouses stacked high with pallets of boxes waiting for delivery. But logistics companies are suddenly driving onto the investor roadmap, becoming the latest flavor of the day for China stock buyers.

Maybe it’s their relative lack of controversy, since such companies don’t handle the types of sensitive information that have raised concerns from Beijing for Chinese companies listing abroad. Or perhaps it’s the end of China’s tough Covid restrictions that severely crimped many logistics companies’ operations last year. And there’s also China’s booming e-commerce sector, which saw more than 100 billion parcels delivered domestically last year alone.

Whatever the reason, Shengfeng Development Ltd. (SFWL.US) is one of the latest to cash in on the logistics craze in its brief time as a listed company on the Nasdaq. The company’s shares have more than doubled in the three months since its trading debut, including a 36% gain on Monday.

The big gains followed a modest IPO in March that raised about $10 million, making Shengfeng one of the few Chinese companies to go public in the U.S. this year.

Here, we should point out that companies with low public floats do tend to see this kind of sharper movements in their stock prices due to scarcity of shares for trading. The company’s float is relatively low at just 8.18% of its total shares. By comparison, global peers Hub Group (HUBG.US) Radiant Logistics (RLGT.US) and Air Transport Services Group (ATSG.US) have much bigger floats of anywhere from 78% to as much as 97%.

Notably, Shengfeng has no institutional investors, according to the latest publicly available data, in contrast to the three other peers.

Established in 2001, Shengfeng has found a comfortable niche in the B2B logistics space, steering clear of the bigger-volume but extremely competitive 2C space providing services to consumers. It has built up a three-pronged business comprising B2B freight transportation, cloud storage and value-added services, covering 341 cities in 31 provinces.

With the rise of e-commerce, alongside China’s role as the factory to the world, the importance of logistics and other supply chain-related services have become critical industries both domestically and for international delivery of goods. According to third-party data cited in Shengfeng’s prospectus, China’s independent B2B contract logistics market was expected to grow from 832 million yuan ($115 million) in 2019 to 1.23 billion yuan by next year.

Investor site Simply Wall St noted Shengfeng’s “highly volatile share price over the past three months.” But it gave a positive ranking to the company’s fundamentals, including debt level, the quality of earnings and profit margins. The company employs more than 1,500.

Logistics pipeline

Shengfeng is just one of several Chinese logistics companies testing out the IPO market this year, despite an anemic year for new listings in general. This week we also brought you the story of J&T Global Express, a larger, more aggressive player that has filed for a Hong Kong IPO with an aim of becoming one of China’s top three delivery companies just eight years after its founding.

And e-commerce giant Alibaba is preparing to spin off its Cainiao logistics unit, most likely for a separate listing, as part of its high-profile plan to break itself up into six companies covering each of its major businesses.

Both of those deals are expected to raise $1 billion or more.

Despite the market’s big potential, Shengfeng’s revenue isn’t growing particularly fast. The company logged $370 million in revenue last year, up just 6.8% from the $347 million it recorded in 2021. The vast majority of that revenue, about 94%, comes from transportation services, with most of the rest from warehousing services.

Its profit grew by a higher 18% to $7.8 million last year from $6.6 million in 2021. The company counts big names like Xiaomi, Schneider Electric, SF Express, Bright Dairy and CATL among its customers.  

Shengfeng’s transportation volume totaled 3.5 million tons in the first six months of last year, up 18.6% from the same period a year earlier. It did not provide full-year figures. The company had the equivalent of $23.3 million in cash in its coffers at the end of last year, meaning the IPO would have raised that amount to more than $30 million.

Shengfeng has wasted little time putting some of the new funds from its IPO to use, announcing earlier this month that it purchased 16 electric heavy-duty trucks worth a total of $1.55 million. The company said it would also build battery swapping stations in its regional sorting centers, cloud-based order fulfillment centers, and service outlets, to better serve its electric vehicles.

The move to such green energy vehicles is one of China’s big priorities as it tries to clean up the country’s air and meet its carbon emissions reduction targets. Both companies and consumers have answered Beijing’s call to action, partly spurred by government incentives and also to sync with government priorities that often helps to grease the wheels of business.

“Shengfeng will follow the trend by utilizing green energy to reduce logistics costs, while also striving to make contributions to energy conservation, emissions reduction, and environmental protection,” said Chairman Liu Yongxu of the electric truck purchases.

Shengfeng’s strong debut contrasts sharply with the weaker recent performance for its global peers. Air Transport is currently down by nearly half from its 52-week high, while Hub Group and Radiant Logistics are down by a milder 26% and 18%, respectively. Followers of Shengfeng consider sentiment on the stock to be “bullish”, according to a sentiment chart on Investing.com.

That bullish sentiment shows up in the company’s price-to-earnings (P/E) ratio, which stands at a lofty 92, based on its profit last year. Hub Group trades at a ratio of 8, while Radiant and Air Transport Services trade at around 10. Shengfeng also boasts a high price-to-sales (P/S) ratio of 2.16, much more than the 0.65 for Air Transport, 0.26 for Radiant and 0.49 for Hub Group.

Chinese logistics giants S.F. Holding (002352.SZ) and ZTO Express (ZTO.US; 2057.HK) trade a bit higher than the American companies with P/E multiples of about 32 and 20. Still, even those numbers are well below Shengfeng’s, leading one to wonder if perhaps this New York newcomer’s shares are perhaps slightly overpriced after their post-IPO run-up. 

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