Recently, Fengchao Holdings Limited (hereinafter referred to as "Fengchao") has submitted its prospectus to the Hong Kong stock market.

Originally established by SF Holding (002352.SZ) in conjunction with STO Express (002468.SZ) and other courier companies, Fengchao has undergone multiple equity adjustments and the introduction of investors. It is currently controlled by Mingde Holdings, the controlling shareholder of SF Holding, with shareholders including well-known investment institutions such as HSBC Investment, Prologis, and Sequoia China.

As a sister company of SF Holding, Fengchao's business operations are highly dependent on SF Holding. In the first five months of 2024, Fengchao purchased services worth 633 million yuan from its largest supplier, SF Holding, accounting for 45% of the company's total procurement for the period. It is worth noting that, despite being backed by the large tree of SF Holding, Fengchao, which was established in 2015, still recorded losses as of the end of 2023. The company's cumulative losses from 2021 to 2023 amounted to 3.7 billion yuan, and since 2016, when Fengchao began to expand, the cumulative losses of the company have approached 6 billion yuan.

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The implementation of the "Express Market Management Measures" on March 1, 2024, which clearly stipulates that express companies shall not deliver parcels to intelligent parcel lockers, express service stations, and other terminal service facilities without the consent of the user, will undoubtedly have a significant impact on Fengchao's terminal delivery business. Tianyancha shows that Fengchao has faced lawsuits from users due to multiple express delivery disputes.

In addition, with the entry of Jitu Express, the competition in the express industry has intensified, and the market value of related companies has also plummeted. Under such circumstances, whether the previous investors of Fengchao can smoothly "unwind" after the company goes public remains to be seen.

The business model is challenged

Fengchao was established in 2015, at a time when the mobile internet industry was rapidly developing, and the scale of online shopping experienced explosive growth, thereby creating a huge demand for logistics. In order to improve the efficiency of terminal delivery for express companies, SF Holding, in conjunction with STO Express, Yunda Shares (002120.SZ), and other express companies, jointly invested in the establishment of Fengchao, providing users with terminal mailing and collection services through the form of express cabinets.

However, with the entry of Jitu Express, the competition in the express industry has become increasingly fierce, and the terminal delivery model of the industry has also undergone significant changes. Alibaba relied on its shareholding in Yunda Shares and STO Express to establish Cainiao Stations to solve the problem of terminal delivery of express parcels; in addition, express companies such as ZTO Express (02057.HK) and YTO Express (600233.SH) have also invested in the establishment of TuXi to enter the terminal delivery track. Compared with Fengchao's unmanned express cabinets, the services of the manned Cainiao Stations and TuXi outlets are more humanized.

It should be pointed out that the delivery of goods to express stations or express cabinets without the consent of consumers has sparked discussions among consumers, and the regulatory authorities have paid close attention to this issue. To this end, the regulatory authorities have formulated the "Express Market Management Measures," which clearly stipulate that express companies shall not deliver parcels to intelligent parcel lockers, express service stations, and other terminal service facilities without the consent of the user. This regulation has been officially implemented since March 1, 2024.In addition to policy risks, the business model of Fengchao, which charges storage fees overdue, has also been criticized by the market compared to the free storage offered by Cainiao Station and Tuxi. Tianyancha shows that several subsidiaries of Fengchao have had legal disputes with users due to courier delivery issues.

Of course, to cope with the changes in the last-mile delivery market, Fengchao has also actively diversified its layout to reduce risks. For example, relying on its own express cabinet layout, Fengchao provides community marketing services for corporate customers; in addition, Fengchao has also entered the laundry service and home service. According to Fengchao's disclosure, by May 2024, the last-mile express delivery service only contributed 40.8% of the company's revenue.

However, from the perspective of procurement, the consumer intelligent delivery service provided by Fengchao for users, its main supplier is SF Holding. According to Fengchao's disclosure, by May 2024, the procurement amount from SF Holding accounted for 45% of the company's total procurement amount during the period.

The 12315 consumer complaint website shows that the laundry service provided by Fengchao for consumers also has a relatively high number of complaints. Searching for Fengchao on the 12315 website, with the region selected as the whole country, there are more than 10,000 complaints related to outerwear in the past month. It is understood that 58's Swan Home and JD's JD Home have already laid out home services.

The company's valuation is upside down.

With the support of SF and established for more than 9 years, Fengchao still finds it difficult to achieve profitability. From 2021 to 2023, Fengchao's cumulative loss amounted to 3.7 billion yuan. Since 2016, when Fengchao began to expand, the company's cumulative loss is close to 6 billion yuan. Although by May 2024, affected by other income, the company achieved a profit of 71 million yuan; similar to 2023, the company's gross profit still cannot cover the company's administrative expenses, and the company's gross profit margin in 2021 and 2022 was even negative.

After a long-term loss, Fengchao's liquidity pressure is also relatively large. As of the end of 2023, the company's asset-liability ratio has reached as high as 64%. In Fengchao's liabilities, accounts payable and lease liabilities have a relatively large book balance. As of the end of 2023, their total amount exceeded 4.8 billion yuan, while the company's cash and cash equivalents book balance was only around 2 billion yuan.

It is understood that large capital expenditures and acquisitions of related media companies are the main reasons for the increase in Fengchao's debt ratio. According to incomplete statistics, from the A round of financing in 2015 to the end of the B-4 round of financing in 2021, Fengchao has attracted nearly 10 billion yuan in financing, but as of the end of 2023, the company's net asset book balance was only 4.897 billion yuan. In the company's assets, the book balance of goodwill and intangible assets is as high as 8.116 billion yuan, and after providing for depreciation, the company's fixed asset book balance is still more than 1.6 billion yuan.

Backed by SF Holding, Fengchao has been favored by investors since its establishment. In 2015, when it was established, Fengchao obtained an increase of 450 million yuan; in January 2017, January 2018, and June 2018, Fengchao obtained more than 2 billion yuan in investment three times; in January 2021, when the B-4 round of financing was carried out, Fengchao attracted a financing of 400 million US dollars.Based on the company's financing in January 2018, the post-investment valuation at that time had already reached as high as 9 billion yuan; whereas according to the calculation of four institutions acquiring a total of 2.57% of the equity of Fengchao at a cost of 400 million US dollars in 2021, the corresponding valuation of the company has exceeded 100 billion yuan. A search on Tianyancha for Shenzhen Fengchao Technology Co., Ltd. shows that its estimated value has also exceeded 160 billion yuan.

It should be pointed out that after the recent surge, the market value of STO Express, which had a revenue of over 40 billion yuan in 2023, is currently only below 20 billion yuan; the market value of Yunda Shares, which had a revenue close to 45 billion yuan in 2023, has not exceeded 30 billion yuan; and the brother company SF Holding, which had a company revenue of over 250 billion yuan in 2023, its market value is also only around 200 billion yuan.

Fengchao, which has been in a long-term loss and had a revenue of only 3.8 billion yuan in 2023, can the listing on the Hong Kong Stock Exchange allow institutional shareholders to exit smoothly?