China Postal Express & Logistics Co., the nation’s biggest courier, is seeking 9.98 billion yuan ($1.6 billion) in an initial public offering as it struggles to keep pace with a domestic delivery market growing 20 percent a year.
The courier has trailed industrywide growth over the past three years, according to its IPO prospectus, as it restructured operations and missed out on an online-shopping boom because of a focus on business-to-business shipments. The company, a unit of the state-owned postal monopoly, also has to face competition from more than 7,500 local couriers who have largely shut FedEx Corp. (FDX:US) and DHL out of the domestic market.
China Postal “desperately needs additional capital to cope with the huge growth in the domestic express market,” said John Manners-Bell, chief executive officer at Brinkworth, England- based Transport Intelligence Ltd. “It has lost significant market share to private competitors in the past few years.”
The Beijing-based company, which retains about 30 percent of the market, intends to buy trucks, airplanes and distribution centers following the IPO, which was approved this month, and will be Shanghai’s largest since October. The company also plans a greater focus on an online-shopping market that will quadruple by 2015, according to a state plan.
“Logistics networks are definitely going to benefit from fast growth in China’s e-commerce,” said Elinor Leung, head of Asia telecommunications and Internet research at CLSA Asia- Pacific Markets.
Online purchases by Chinese consumers surged 66 percent last year by sales, compared with a 12 percent growth in the overall retail market, according to the research unit of Alibaba Group Holding Ltd., the nation’s biggest e-commerce company.
Most Shanghai IPOs take place within a couple of months of them being approved by the China Securities Regulatory Commission. China Postal Board Secretary Ma Zhanhong wasn’t able to comment, according to his office. The prospectus said the sale will take place this year.
The courier’s customers include Apple Inc. (AAPL:US), Dell Inc. and cosmetics-maker Mary Kay Inc., according to its prospectus. Its net income rose 80 percent last year to 902 million yuan because of rising demand and cost-cutting measures.
China’s e-commerce market, including consumer and business purchases, will grow to 18 trillion yuan by 2015, from 4.5 trillion yuan in 2011, according to a five-year plan by the Ministry of Industry and Information Technology.
The government is bolstering consumer protection and encouraging state agencies to buy goods online as part of plans to boost the sector. Still, Chinese consumers only bought an average of two items online for express delivery in 2010, compared with 4.1 worldwide and 26 in the U.S., according to Transport Intelligence.
Unreliable and late shipments industrywide, particularly around peak-holiday periods, have constrained the growth of e- commerce in China, according to the logistics-research company.
“Quality has become a key issue with express carriers,” said Transport Intelligence’s Manners-Bell. “The domestic sector is primarily serviced by local players without the systems or maturity to cope with the growth.”
Only 52 of China’s couriers have sales networks expanding beyond one province, according to the IPO prospectus. Closely held S.F. Express (Group) Co., which has more than 3,000 services branches in mainland China, declined to comment.
Nationwide express-delivery sales may increase 20 percent annually, reaching 143 billion yuan in 2015, China Postal said in the share-sale document, citing a government plan.
Overseas couriers have struggled in China’s domestic market. Deutsche Post AG (DPW)’s DHL and partner Sinotrans Air Transportation Development Co. (600270) sold their loss-making operations in the country last year to instead focus on international shipments, according to statement.
FedEx has only a small share of the domestic market, China Postal said in its prospectus, without elaboration. The Memphis, Tennessee-based company declined to comment, according to Ketchum Hong Kong, which handles its regional media relations.
United Parcel Service Inc. (UPS:US) is waiting for a license to operate in China’s domestic market, Dan Brutto, its international president, told analysts on a March conference call. TNT NV, which UPS is buying, doesn’t have one, he said.
China Postal has built up a chain of 45,418 outlets, predominately in post offices run by parent China Post Group, including in remote areas, such as Tibet. It also has 889,000 employees, more than FedEx and UPS combined, according to data compiled by Bloomberg.
“The extensive network gives China Postal a competitive advantage when China’s economy starts to shift from coastal regions to inland area,” said Richard Tai, an analyst at Shanghai-based research firm China Research & Intelligence. “But as a state-owned company, China Postal also inherited inefficiency from previous monopoly, which can’t be remedied by IPO alone.”
For instance, the company is slow in parcel delivery and complaint handling, he said. China Postal intends to improve operations and management, including hiring Stephen Roach, former non-executive chairman for Morgan Stanley in Asia, as an independent executive director, according to its prospectus.
The sale, arranged by Citic Securities Co. (600030), will be Shanghai’s largest IPO since builder Sinohydro Group Ltd. (601669) raised 13.5 billion yuan last year. The new funds will help China Postal expand its network and lure customers from competitors, said Sun Chao, a Shenzhen-based analyst at Ping An Securities Co.
“The IPO will definitely add to pressure on rivals,” Sun said. “It will make the competition even fiercer.”
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