Delivery Company Backed by Logistics Giant SF Holding Files IPO in Hong Kong

A subsidiary of leading Chinese logistics firm SF Holding, Tongcheng Industrial Co., Ltd., submitted a listing application to the Hong Kong stock exchange on Wednesday, aiming to gain a leg up in the intensifying price war across the industry.

Focusing on intra-city logistics, the listing aims to optimize Tongcheng’s delivery system and expand its services to rural areas, according to the prospectus issued by the firm.

Launched in 2016 and conducting fully independent operations since March 2019, Tongcheng Industrial has grown rapidly over the past few years. With 126 million registered users, it provides services to both individual and corporate customers, as well as assigning delivery staff to pick up packages at doors. The average delivery time for urban settings is around 30 minutes within a distance of 3 kilometers, according to the company’s website.

However, the business has yet to achieve profitability since the introductory period. According to the recently-issued prospectus, Tongcheng’s revenue reached 4.84 billion yuan in 2020 – double the amount of the previous year – while cumulative net losses stood at 1.56 billion yuan.

(Source: Prospectus of Tongcheng Industrial Co., Ltd.)

Labor outsourcing contributes the most to Tongcheng’s operating costs. The prospectus above shows that in 2020, the firm spent 4.86 billion yuan, higher than their total annual revenue that year and accounting for 96.6% of all operating costs.

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As competition in the delivery market continues to intensify, Tongcheng pointed out in the prospectus that the company may have to increase marketing expenses and provide more incentives to consumers and riders. This may pose a “significant disadvantage to its profitability,” causing net losses and negative cash flows to persist.

Southwest Securities estimated that by 2025, the total volume of the instant delivery e-commerce industry will reach 93.1 billion yuan, with takeaway orders and home shipments of fresh food accounting for about 90% of the sector.