Date
23 March 2017
SF Holdings founder Wang Wei (right) gave out generous bonuses to staff to celebrate the company's listing. Photo: Jianshu
SF Holdings founder Wang Wei (right) gave out generous bonuses to staff to celebrate the company's listing. Photo: Jianshu

What’s the secret behind SF Holding’s share surge?

Shares of China’s leading express delivery firm SF Holding (002352.CN) surged after its backdoor listing last month, catapulting its founder Wang Wei to number two spot on the country’s rich list.

While there is no doubt SF Express is a very well run and highly successful business, it’s still hard to understand why it has a very high price earnings ratio of over 70 times, far exceeding the P/E ratios of its rivals, both domestic and international.

The company, which started out in Hong Kong as a teeny-weeny operation, now has a market capitalization of about 260 billion yuan (US$37.71 billion), against core earnings of about 3.7 billion yuan.

By contrast, global peers UPS and FedEx have P/E ratios of 27 and 28 respectively. Domestic rival YTO Express Group (600233.CN), the nation’s second largest courier service company with a 15 percent market share, also trades at a much lower valuation than SF Express.

A key reason why SF shares are so expensive is that there are not too many of them around.

Thanks to a backdoor listing, SF has a small public float of 130 million shares, only 3 percent of its total issued share capital.

Therefore, its free-float market cap only stood at around 9 billion yuan.

Such a small float allows speculators to easily push up share prices with little capital.

It’s possible that SF will capitalize on the huge share price gain to issue additional shares soon.

Although SF is a quality company and a leader in its field, given its size and the nature of its industry, it’s unrealistic to expect exponential growth to justify its ultra-high P/E ratio.

In view of the good possibility that SF will issue more shares, rushing into the counter does not seem a good idea.

This article appeared in the Hong Kong Economic Journal on March 3

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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