March 2, 2017 / 8:27 AM / 9 months ago

Market delivers crazy love letter to China's FedEx

HONG KONG (Reuters Breakingviews) - Stock-market investors have sent a love letter to China’s FedEx. A rally in the newly listed firm behind SF Express makes boss Wang Wei one of China’s richest men. At roughly $40 billion, his company is now worth nearly as much as Deutsche Post. That looks like an overreaction, driven by hype over e-commerce and a shortage of tradable shares.

Vehicles of S.F. Express parked at a logistic centre of the company, in Huizhou, Guangdong province, November 11, 2014. Diesel has found an unexpected ally in the growing legion of delivery trucks spawned by China's rapidly expanding e-commerce, forestalling any drop in the country's consumption of the fuel as the economy shifts its focus away from manufacturing. Picture taken November 11, 2014. To match CHINA-DIESEL/DEMAND REUTERS/Stringer

Few foreigners will have heard of Wang or his delivery group. But shares in SF Holding have shot up more than 70 percent since it finalised a reverse listing in Shenzhen last week, making it the most valuable company on China’s second bourse.  On Wednesday, the 46-year-old briefly overtook Alibaba boss Jack Ma as China’s second-richest man with a $29 billion fortune, according to Forbes.

SF Express, which focuses on business-to-business deliveries, has emerged as a leader in China’s fast-growing logistics sector. But the figures are still hard to justify. At Wednesday’s closing price of 70 yuan ($10.19) the stock is worth 53 times this year’s earnings, according to Sinolink forecasts. Even allowing for considerably greater growth potential, that is a huge premium over U.S. peers FedEx and United Parcel Service, which both trade at less than 20 times forward earnings.

China’s wonky markets deserve some blame. A lack of flotations in Shanghai and Shenzhen means reverse listings will typically lure lots of retail investors. Many punters focus on concepts more than valuation – and the delivery sector looks like an attractive bet on China’s new economy.

SF Holding’s small free float makes matters worse. Last year, it agreed a reverse merger with a little-known metals company to gain a backdoor listing. The deal means most SF shares are under a three-year lockup and other restrictions: Eikon categorises just 3 percent of its total shares as “negotiable”, suggesting the rest cannot be easily bought and sold.

The craze may be starting to fade, however. Caixin says regulators are looking at the rapid ascent. And as of early afternoon on Thursday, SF shares had dipped, making Wang merely China’s third-richest man. The country’s fickle investors can blow hot and cold.


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