Translate to English: Losing 3.8 billion in three years, is Fengchao trying to s

The smart parcel locker at the doorstep, Fengchao, is also going public.

Fengchao has recently submitted its prospectus for listing on the Hong Kong Stock Exchange, with Huatai International as the sole sponsor. Its largest shareholder is SF Express founder Wang Wei, holding a 48.45% stake. If everything goes smoothly, Fengchao will become Wang Wei's fifth IPO following SF Holding, SF REIT, Kerry Logistics, and SF Same City.

However, Fengchao's operational data is not particularly impressive. According to the prospectus, Fengchao has only recently turned profitable—recording a net profit of 71.6 million yuan in the first five months of this year, marking its first positive profit.

Over the past three years, Fengchao's operational data shows: a cumulative revenue of over 9.2 billion yuan, while the cumulative losses amount to a staggering 3.768 billion yuan.

Fengchao's revenue contribution mainly comes from the last-mile delivery service of parcels, that is, charging a service fee for each parcel deposited into the parcel locker. Its main customers are couriers and courier companies; in addition, Fengchao's consumer intelligent delivery business is also continuously expanding its contribution to revenue, which mainly serves consumer scenarios for sending parcels. On this basis, Fengchao has also extended to value-added services such as laundry care, home living, and interactive media.

Fengchao claims to be the "world's number one" in the number of smart parcel lockers owned. Although Fengchao has a leading market share, competitors like Alibaba's Cainiao and JD.com's self-operated self-pickup lockers are constantly encroaching on its territory, making Fengchao's survival environment full of challenges.

Fengchao's "Business Foundation"

In the prospectus, Fengchao describes its business model as promoting the transformation of last-mile logistics through the Fengchao smart locker network, supporting the e-commerce industry, and improving overall logistics efficiency. Specifically, the Fengchao smart locker network provides a hub for parcel delivery and pickup, building the foundation for the last-mile delivery service of express parcels nationwide, and changing the final stage of parcel delivery.

Fengchao claims to have the world's largest number of smart parcel lockers. As of May 31, 2024, the Fengchao smart locker network consists of 330,000 Fengchao smart lockers, with a total of approximately 29.9 million compartments; during the reporting period, the service coverage of the Fengchao smart locker network extends to about 209,000 communities across 31 provinces in China.

These smart parcel lockers form the business foundation of Fengchao.Breaking it down, Fengchao's main businesses include last-mile delivery for express parcels, intelligent consumer delivery, and value-added services. Among them, the last-mile delivery service for express parcels is the largest contributor to Fengchao's revenue, with a service fee for each parcel ranging from 0.2 to 0.4 yuan.

From 2021 to 2023, the revenue recorded by Fengchao from this business was 1.46 billion yuan, 1.69 billion yuan, and 1.84 billion yuan, respectively, accounting for as much as 57.8% of the total; however, in the first five months of this year, the business recorded a revenue of 777 million yuan, dropping to 40.8%.

There is some skepticism in the capital market about whether Fengchao's business can continue. On March 1st this year, the "Regulations on the Administration of the Express Delivery Market" (Order No. 22 of 2023) officially came into effect, stipulating that those who deliver parcels using intelligent express parcel boxes or express service stations without the consent of the user, if the circumstances are serious, will be fined between 10,000 and 30,000 yuan.

An unnamed analyst of Hong Kong stocks told the 21st Century Economic Report reporter, "The express cabinet itself does not have a very high technical threshold, and Fengchao's profit performance is not good either. Even if the policy is not very restrictive, investors will be more cautious."

However, while the last-mile delivery business is shrinking, the intelligent consumer delivery business is quietly expanding. Data released by Fengchao shows that in the first five months of 2024, the number of e-commerce return and exchange parcels supported by Fengchao was 77.2 million, achieving a revenue of 692 million yuan. The contribution to revenue has quickly increased from 5.9% in 2021 to 36.3%.

The growth of this part of the business is mainly due to the increase in e-commerce return parcels, and Fengchao also has high hopes for this part of the business. Fengchao pointed out in its prospectus that the number of e-commerce reverse shipments (return shipments) increased from 3.6 billion in 2019 to 8.2 billion in 2023, with a compound annual growth rate of 22.7%, and it is expected to further increase to 20.9 billion in 2028.

At the same time, the number of e-commerce reverse shipments processed by consumer intelligent delivery solutions increased from 200 million in 2019 to 1.2 billion in 2023, with a compound annual growth rate of 66.5%, and it is expected to further increase to 4.9 billion in 2028, with a compound annual growth rate of 32.1% from 2023 to 2028.

If we compare this business with e-commerce return shipments, in consumer research, Fengchao is favored by some consumers mainly because it has a certain price advantage. "Using Fengchao is more flexible in time, and there is a Fengchao downstairs that can be delivered at any time, and the price will be cheaper," a Fengchao member user told the 21st Century Economic Report reporter.

The vague "second curve"

Fengchao once suffered a "huge loss".According to the prospectus, from 2021 to 2023, Fengchao achieved revenues of 2.527 billion yuan, 2.891 billion yuan, and 3.812 billion yuan, respectively. However, the cumulative operating losses amounted to 2.96 billion yuan, and the adjusted net losses also reached 2.441 billion yuan. In the first five months of this year, Fengchao turned a profit for the first time.

The reason for Fengchao's profit turnaround is the increased profitability of the last-mile delivery service, the growth of consumer smart delivery services and value-added services, as well as the improvement in operational efficiency. However, Fengchao also frankly stated that as it expands the Fengchao smart locker network, strengthens its value-added service capabilities, and invests in technology development and operational efficiency improvements, costs and expenses may continue to rise. If it fails to drive revenue growth and successfully manage costs and expenses, it may not be able to maintain profitability.

Fengchao plans to improve revenue and profitability by expanding and optimizing the Fengchao smart locker network, leveraging the growth potential of e-commerce, and collaborating with e-commerce platforms to improve return and exchange processes. It aims to promote the continuous growth of consumer smart delivery services and expand the scope of value-added services such as interactive media business, laundry, and home life services.

For Fengchao, the growth methods of the last-mile delivery and consumer smart delivery businesses are relatively certain, while the expected growth of the value-added services it is optimistic about carries a significant degree of uncertainty. Fengchao's value-added services include storage services, interactive media services, laundry services, and home life services.

According to the prospectus, in the first five months of this year, Fengchao's value-added services recorded a revenue of 435 million yuan, accounting for 22.9% of the total. Fengchao did not disclose the revenue details of each segmented value-added service but used service data to depict the current development status. For example, as of the end of May this year, the number of orders for Fengchao's laundry service was 962,000; the number of orders for home life services was 71,400.

At the same time, Fengchao has also ventured into the "advertising business." Fengchao stated that by utilizing the large user traffic accumulated offline and online, and the visibility and frequent use of the Fengchao smart locker network and user access matrix, it benefits advertisers. As of the end of May this year, Fengchao has provided services to approximately 6,000 advertisers across 35 industries.

However, Fengchao's laundry and home life services have long been under market scrutiny. A middle manager of a property service company told a reporter from the 21st Century Economic Report, "The businesses that Fengchao is doing are also being done by internet companies and property service companies. Internet companies have strong user stickiness, and property service companies have more offline connections. It is difficult for Fengchao to compare its advantages with other competitors, and the only way to open up the market is through pricing."

Huang Lichong, President of Huisheng International Capital, said in an interview with a reporter from the 21st Century Economic Report that Fengchao is facing issues such as large capital investment, unclear profit model, and fierce market competition in its actual operations. To turn losses into profits, Fengchao needs to optimize its operational model, may need to diversify its services, and develop a more sustainable revenue model to adapt to the competitive landscape of the express delivery market.

Huang Lichong added that although Fengchao's accounts showed a profit in the first quarter of this year, there was no significant improvement in performance from the perspective of operating cash flow. Moreover, this is an industry with low technological content and no obvious moat.

In the first quarter of this year, Cainiao, which has similar business to Fengchao, withdrew its IPO. Although Cainiao made the decision based on its own considerations, the capital market indeed found it difficult to give a high valuation. Whether Fengchao, as a latecomer, can surpass others remains to be seen.