Jun 27, 2017
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China’s latest logistics IPO is hard to unpack

Jun 27, 2017

China's latest logistics flotation is hard to unpack. Alibaba-backed Best Inc wants to list in New York just a few months after a rival's disappointing debut. The loss-making group is faster-growing and more diverse. But the extra complexity could make this a hard sell for already wary investors.

Hangzhou-based Best is looking to raise around $1 billion, according to someone familiar with the deal. That would make this the largest Chinese flotation in the United States since a competing delivery outfit, ZTO, raised $1.4 billion in October. But ZTO is now trading about 26 percent below its initial public offering price. That is partly because of an overly aggressive IPO price. But competition is robust, costs are rising, and ZTO is becoming more capital-intensive.

Best is hoping to stand apart. Demand for logistics in China is soaring as both brick-and-mortar shops and online giants Alibaba and JD race to deliver goods to web-savvy consumers. Unlike the $11 billion ZTO, which focuses on the fiercely competitive delivery sector, Best wants to offer a far wider range of services. These include helping sellers manage supply chains, for example by operating warehouses, and sourcing merchandise for corner stores.

That bid for differentiation is a bit of a stretch. It is true that top-line growth has been impressive. Last year, revenue jumped 68 percent to $1.3 billion. But Best is not yet profitable. And it remains heavily reliant on delivery: express and freight services accounted for almost 80 percent of total sales. To make matters worse, the group is playing catch-up with the likes of ZTO for market share.

Prospective buyers will need to believe in the potential of the newer businesses, and to understand clearly how it all fits together. The closest competitors are the logistics arms of JD and Amazon – but these are not standalone, profit-making companies. And like ZTO, its delivery unit is heavily dependent on business from Alibaba’s sites. This adds up to a less-than-straightforward package.


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