STO Express expands business amid booming Chinese courier market

PUBLISHED : Wednesday, 02 August, 2017, 4:32pm
UPDATED : Wednesday, 02 August, 2017, 4:34pm

STO Express, one of China’s largest delivery companies, said it will increase its investment in Chinese domestic courier Fast Express by 133 million yuan (US$19.8 million), according to a filing to the Shenzhen Stock Exchange on Wednesday.

After the new investment, Shenzhen-listed STO will hold a 10 per cent stake in Shanghai-based Fast Express, becoming its third largest shareholder after the reinvestment.

Fast Express operates delivery networks in most major mainland Chinese cities and also offers service in Hong Kong, Macau and Taiwan.

STO Express shares pared back earlier gains to close 0.4 per cent higher at 25.53 yuan on Wednesday.

“We will carefully differentiate the business of delivering big and small parcels after the cooperation with Fast Express,” STO Express said in the announcement, which also warned of the risks, saying the return on investment is dependent on the performance of Fast Express.

Wu Chuanlong, the co-founder of Fast Express, expects the company’s annual net profit to be no less than 20 million yuan, 180 million yuan and 400 million yuan respectively in the coming three years.

Fast Express will bear compensation liability if it cannot achieve the promised profits, according to the terms of the deal.

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“Currently competition in the courier industry is not only about parcel delivery but also data sharing and technology,” said Liu Zheng, an analyst from Citic Securities. “When choosing an investment target, a company will be a good choice if it can independently operates its business, even without support from some specific [online] platforms.”

STO Express is not the only courier to aggressively expand amid explosive growth in China’s delivery business. In May, rival YTO Express announced it would purchase a majority stake in Hong Kong courier On Time Logistics.

China has remained the world largest market for the express courier business since 2014, driven by the popularity of e-commerce in the world most populous country. In the second quarter of this year, an average of 100 million parcels were delivered every day.

Industry revenue reached 397.4 billion yuan in 2016, up 43 per cent from 2015, according the latest data from Chinese authorities. The number of delivered parcels jumped 51 per cent to 31.28 billion in 2016, from 20.67 billion the previous year.

Average delivery price per parcel, however, declined from 18.6 yuan in 2012 to 12.7 yuan in 2016 amid fierce competition among major operators and higher delivery efficiencies from the application of artificial intelligence.

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