Logistics, Talking Point

The complete package

How SF Express is going global via its offer for Robert Kuok’s Kerry Logistics

SF Express w

SF Express launched its airline freighter fleet in 2009 and now has 60 planes serving 60 cities

Throughout Chinese history emperors surrounded their heirs with the most trustworthy of court officials in a bid to ensure the longevity of their dynasty.

At 97, Robert Kuok is probably the oldest businessman of his generation yet to fully retire. And last week, the Malaysian Chinese tycoon’s Kerry Group agreed a deal that brings together the most acquisitive logistics firms in both China and Southeast Asia. In doing so, Kuok’s youngest son Kuok Khoon Hua will join hands with Wang Wei of SF Express, a self-made billionaire. Should the partnership work out, the pair of ambitious 40-somethings will co-steer a flagship firm that plans to ride on China’s massive marketplace in online shopping, as well as tapping into the next generation of intra-Asian trade.

What is the deal?

SF Holdings, which operates under the brand SF Express, has offered to buy a 51.8% stake in Kerry Logistics Network (KLN) for HK$17.6 billion ($2.28 billion). Under the terms of the deal, SF Holdings will take a majority stake in KLN, although Wang Wei, 49, insisted it was “not an acquisition by SF but a collaboration” after more than three years of negotiating with Kuok Khoon Hua, KLN’s chairman.

“Perhaps they [Kerry Group] needed the time to size me up to see if I’m reliable,” Wang joked in fluent Cantonese during a press conference in Hong Kong – his debut appearance in front of local journalists – with the 41 year-old Kuok sharing the same stage.

KLN will become the Chinese partner’s “primary vehicle for international expansion” with all operations outside Greater China – including global freight forwarding flows – to be carried out by KLN.

KLN will also retain a “clear brand identity and culture” and keep its existing management team, Kerry executives said.

KLN is selling its stake to SF at HK$18.8 a share, a 19% discount to its trading price prior to the announcement. Yet investors clearly liked the tie-up – and the expanded scope that the partners are promising – driving KLN’s share price up to more than HK$24 as of Wednesday this week.

KLN’s market value is about $5.6 billion, which is dwarfed by SF’s market capitalisation of Rmb533 billion ($83.3 billion) after a 70% surge in the SF share price in Shenzhen over the last 12 months (for comparison, FedEx is worth about $70 billion).

Let the ambition fly

Air cargo is the key market segment that is going to glue SF and KLN together. Established in 2009, SF Airlines has grown its own fleet of aircraft to 60 freighters, serving more than 60 cities. The company’s decade-long investment in the sector was already paying off as the Covid-19 pandemic took hold last year, supporting much of SF’s stellar share price performance, according to Guandian, a news portal. During months of lockdown and disruption, the Shenzhen-based firm won plaudits as a reliable courier for local governments and businesses nationwide.

Now SF is planning to expand further afield. In a circular to the Shenzhen Stock Exchange, the company said the KLN tie-up will help to develop its international footprint, drawing on KLN’s strengths in trade lanes across Southeast Asia and from flows into North America and Europe.

The deal also comes in a year in which SF is planning to launch operations at a new hub for its air freight network at Hubei International Airport in central China. The facility has two runways, an apron with 124 parking slots for aircraft and a major expanse of new warehousing, all intended to support delivery of 3.3 million tonnes of cargo by 2030.

KLN was established in Hong Kong in 1981 as a warehouse operator. After going public in 2013 it expanded through a slew of overseas acquisitions. It bought Spain’s Bofill & Arnan in 2016, the Middle East-focused Globalink Logistics in 2017, South Africa’s Shipping and Airfreight in 2018, and a 49% stake in Apex of the US last year.

SF explained that KLN’s air (and ocean) freight forwarding will complement its own supply chain solutions and international cargo capacity. The newly combined entity will also give KLN access to airfreight capacity that is currently in very short supply, as well as providing better bargaining power with external airlines for both parties.

An added bonus in Hainan

International delivery firms have often been outmuscled by local rivals in the Chinese market. Despite the booming e-commerce sector, KLN’s business grew 8% in China last year compared with 20% growth across Southeast Asia.

Cut-throat competition has seen some of the smaller players go under or look to exit. For instance, two major shareholders in China Logistics Property are reported to be trying to sell their 50% stake in the Hong Kong-listed firm for about $1 billion.

KLN will rely on SF’s network to tap into the local market more deeply. Indeed, as demand from Chinese consumers for cross-border internet shopping grows, KLN will be guaranteed new business from its major shareholder.

Synergies should also be on offer in Hainan, where demand for delivery services has spiked after the Chinese government’s efforts to turn the island province into a haven for the duty-free trade. Last July Hainan’s tax-free shops were opened up further to domestic tourists, with an annual spending quota set of Rmb100,000 per person. Duty-free sales in the free trade port more than doubled last year, compared to 8.2% growth in Chinese imports of consumer goods.

Typically tourists need to queue up in the duty-free shops (there are nine in Hainan at the moment, operated by five companies including the state-backed China Duty Free Group) and wait for extended periods to complete their purchases. But there was more good news for the island earlier this month when the government said that visiting tourists could choose to have their goods “delivered by mail” – i.e. by couriers.

KLN set up a Hainan branch as long ago as 1987 and it serves as a distribution partner for two duty-free shops on the island. In December it announced that it was building a new bonded logistics centre in Haikou. The 50,000- square metre facility is expected to commence operations in 2023.

Is SF eyeing a bigger presence in Hong Kong?

In a filing to the Hong Kong Stock Exchange this week, JD.com said it had applied to spin-off its own delivery unit JD Logistics in an IPO. The Hong Kong Economic Times said the debut could value the company at about $40 billion. This would be JD’s third listing in the territory, following the secondary listing of the parent company and its spin-off of JD Health last year.

SF is also looking to raise money. Last week it announced plans to generate up to Rmb22 billion in fresh funds by selling about 10% of its enlarged A-share capital to a group of about 35 investors in a private placement. A quarter of the proceeds will be used for upgrading its delivery network.

Wang started SF Express in Hong Kong nearly 30 years ago (see WiC183) and his company is the most popular of the cross-border service providers in the city. It seems logical that Wang might want to take SF public in a territory that he also calls home and Bloomberg reported last year that the courier was eyeing a secondary listing in Hong Kong that could raise about $5 billion.

SF has also applied to put some of its property assets into a real estate investment trust (REIT) in Hong Kong. According to local media reports, the SF REIT could raise about $3 billion by going public in the first half of this year.

The REIT will initially comprise logistics assets in three Guangdong cities across the border from Hong Kong. Its parent group might then decide to inject other properties into the vehicle.

Wang himself is already an avid property investor. Citing information from the city’s property registry, the Hong Kong Economic Times reported last month that Wang and “connected parties” had spent nearly HK$500 million on three properties in the territory’s luxury Peak district.

Is SF a Greater Bay Area play too?

Many decades ago Kerry boss Robert Kuok chaired Malaysia-Singapore Airlines. He stayed in the role for about a year before the two countries decided to part ways and set up their own flag carriers. The original airline, which Kuok described as “Siamese twins set for separation” in his memoir, ceased operations shortly afterwards.

Much more recently plans were announced for the creation of Greater Bay Airlines, backed by property magnate Bill Wong (see WiC516), on the premise that the carrier can help to better integrate the economies of the Greater Bay Area in Guangdong, Hong Kong and Macau.

According to Hong Kong’s Ming Pao newspaper, SF’s Wang was recently appointed as one of the directors of Greater Bay Airlines. Also sitting on the board is Stanley Hui, formerly chief executive of Dragonair (a now defunct unit of Cathay Pacific, Hong Kong’s largest carrier).

SF hasn’t invested in Greater Bay Airlines. Nonetheless don’t be too surprised if some of Wang’s capital-raising supports his firm’s attempt to forge a fuller partnership with the new carrier as well.

Meanwhile the SF-KLN deal is subject to shareholder and regulatory approval, which is expected to take six months.

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