Shengwei faces long road to profit with ride-hailing losses 

The transport services firm has filed for a Hong Kong IPO, looking to build on its success as a ticketing hub for road, rail and air travel

Key Takeaways:

• Hit by competition in the ride-hailing sector, Shengwei has made a run of losses and is unlikely to turn a profit in the short term
• Its pre-IPO backers include the likes of Alibaba, Hundsun Technologies and GCL Technology

By Bai Xinrui 

The company behind China’s 365 travel platform is offering investors a ticket to a Hong Kong IPO.

Shengwei Times Technology Co. Ltd. provides ride-hailing services and operates an online platform for bus, rail and flight bookings for longer journeys. The company is now seeking investor support for its business model with an application to list on the Hong Kong Stock Exchange.

Mobile communications have quickly transformed the business of passenger travel. Shares in trailblazer Uber (UBER.US) continue to rise, while the equivalent provider in Southeast Asia, Grab(GRAB.US), also reported sizable profits in the third quarter. 

China’s ride-hailing market is fiercely competitive, but Shengwei will be hoping that its ability to facilitate journeys across multiple modes of transport will stand out from the crowd as an investment opportunity.

The firm was founded in 2012 by Jiang Shengxi, a former vice president of Shanghai-listed Yonyou Network Technology (600588.SH). Under the name Beijing Shengwei Nanling Information Technology, the company launched a website for the China Highway Ticket Network in 2013 that was the precursor to the Chuxing 365 travel hub. Three years later the company linked up with major online travel companies such as Tongcheng and Fliggy, adding ride-hailing services to its business in 2018. Two years ago the company changed its name to Shengwei Times Technology. 

Shengwei has enlisted some prestigious backers for its journey so far. The biggest shareholder is Alibaba (BABA.US; 9988.HK) with a 27% stake through its fully owned subsidiary Ali Trip. Shengwei founder Jiang holds 20.7% of the company’s shares, while Jiangsu Jiequan Jingshifeng, a joint venture of GCL Technology Holdings Ltd. (03800.HK), owns 2.1% and Hundsun Technologies (600570.SH) controls 0.86%. 

Mainstay ride business 

Ride-hailing has become the company’s core business line, dwarfing the revenue from other Shengwei divisions such as digitization solutions and passenger transport services. 

The ride-hailing operations accounted for 86.2%, 85.3% and 88.5% of turnover in 2022, 2023 and the first half of 2024, with revenues of 703 million yuan ($97.12 million), 1.03 billion yuan and 643 million yuan respectively. 

The ride business relies on online platforms to match would-be passengers with vehicles and drivers. How does the model make money? When passengers hail a ride using Gaode navigation software or Shengwei’s Chuxing 365 platform, their payments are divided up between the driver, the aggregator and the platform. 

During the pandemic, China’s ride-matching sector went into a tailspin. Its gross transaction value (GTV) fell 12.8% in 2022 to 194.2 billion yuan compared to the previous year. When Covid controls were lifted in 2023, the sector bounced back, helped by government support, with GTV rising 15.9% to 255 billion yuan. According to Frost & Sullivan data in the prospectus, the market is projected to grow at a compound annual growth rate of 19.5% to reach a value of 647.4 billion yuan by 2028 

Slim margins

Shengwei’s income has also picked up in recent years. Its revenues rose 47.4% to 816 million yuan in 2022, followed by a 47.9% rise in 2023 to 1.21 billion yuan. In the first half of 2024 revenues rose 25.7% from the year-earlier period. But gross margins over the same timeframe were dismal, at only 6.6%, 7.1% and 3.5%. 

The average transaction value in the first half of 2024 was a paltry 22 yuan, down 4.8% from 2023. The figures for gross profit were even more troubling, going from 5.22 million yuan in the first half of 2023 to a negative 3.11 million yuan in the first six months of this year, taking gross margin to -0.5%. The company blamed the need to boost financial incentives for drivers and passengers, as it battled for custom in an industry rife with competition. 

As far as margins are concerned, Shengwei’s strength lies in integrated passenger transport services. Revenue from this source was just 35.74 million yuan in the first half of 2024, or 4.9% of total takings, but gross margin was an impressive 57%. Gross profit came in close to 20.4 million yuan, more than enough to offset a deficit from the ride-hailing part of the business. But after deducting sales and marketing expenses as well as R&D costs, the company still landed in the red, with losses widening 21% to 285 million yuan in the first half from the same period of 2023.

To ride into the black, the company may have to wean itself off a reliance on ride-hailing and further expand the passenger transport business. 

In fact, the ticketing business is thriving. According to the prospectus, Shengwei was China’s largest provider of information services for road passengers last year in terms of tickets sold. Chuxing 365 is its flagship product, allowing passengers to use computers, mobile apps, Wechat official accounts, Wechat mini-programs or ticket vending machines to check bus schedules, book tickets, manage orders and contact customer support. Users can also use the platform to book airline tickets and railway journeys.

Online ticketing boom

The internet has boosted ticketing efficiency in China, especially in air and rail travel, with nearly 90% of flights and train tickets handled online last year. But when it comes to road travel, the online penetration is much less impressive. Only 10.8% of road transport tickets were sold online, implying ample room for growth. Shengwei stands to make much more profit from the higher margin passenger transport services than from ride-hailing.

The breakeven point seems some way off for Shengwei. For now, the firm should probably focus its efforts on stemming the losses from ride-hailing and improving its gross margin, before looking to expand its other business.

Otherwise the path to profitability may stretch long into the future.

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