Rise of SF Express' Wang Wei Shows Absurdity of A-Share Market, Huxiu.Com Says
Yicai Global
/SOURCE : Yicai
Rise of SF Express' Wang Wei Shows Absurdity of A-Share Market, Huxiu.Com Says

(Yicai Global) March 2 -- The A-share market's ability to create overpriced stocks appeared once again as shares in SF Express Co. [SHE:002352] soared to make founder and Chief Executive Wang Wei one of China's richest men, according to a commentary on Huxiu.com.

Shares in the company, a leading player in China's express delivery sector, have risen by the daily maximum for four straight days since its back-door listing on the Shenzhen Stock Exchange, bringing Wang's personal fortune to CNY180 billion (USD26 billion) and making him wealthier than Pony Ma (CNY175 billion) and not far behind Jack Ma (CNY205 billion) and Wang Jianlin (CNY215 billion).

Last year, the company brought in CNY57.4 billion for a CNY4.18 billion profit, the commentary said. Based on its closing price two days ago, it had a market capitalization of CNY297 billion with a price-to-earnings ratio of 71.1 and price-to-sales ratio of 5.2, it added. Some of SF Express's competitors include STO Express Co., YTO Express Group Co., ZTO Express Inc., Best Express Holdings Ltd, Yunda Express Co., China Post Group Corp. and many small- to medium-sized companies. Annual industry revenue is estimated at CNY400 billion.

Compared with competitors, one of SF Express' most striking characteristics is that it directly manages all of its stores, the commentary added, whereas its rivals tend to operate franchises to cut costs and improve flexibility. Its business model is more easily managed but also more expensive. Customers, however, are prepared to pay extra for SF's premium brand, it said.

Both business models have pros and cons, and it would be unreasonable to say one is better than the other, it continued. For example, ZTO Express, which uses franchises, had almost CNY9.79 billion in sales last year, but turned a profit of nearly CNY2.17 billion, making it more profitable than SF Express.

SF is a good, hard-working company, the author said. The logistics industry is very traditional, akin to the steel and auto sectors but less technical. It would be ridiculous to say the logistics industry enjoys a promising future and is set to experience exponential growth, it added, saying the sector has already hit its ceiling.

It is utterly ridiculous that SF's profit-to-earnings ratio exceeds 70, the commentary said. It easily surpasses Apple Inc. [NASDAQ:AAPL] at 16, Google at 30, and Tencent Holdings Ltd. [HKG:0700] and Alibaba Group Holding Ltd. [NYSE:BABA] which are both below 50. The logistics firm is not the only company with such a high ratio in the A-share market, it is a common phenomenon.

Excluding banks, steelmakers and carmakers, most companies on the A-share market have a ratio of over 50, with some over 100. The market value of many advanced industries, not necessarily in tech, is more than 10 times their sales, it's ridiculous, it said. The stock market is bearish right now; the ratio would be even more absurd in a bull market, the commentary added. This has been the case since the market launched, not just over the past few years.

Value investment is not necessarily correct and speculative investment not definitively wrong, the author said. The market is a voting machine with rules made by the people. However, this has a number of harmful effects on the system. It greatly undermines fairness, makes a joke of the saying that 'wealth should be earned,' and exacerbates the Matthew effect and unfair distribution of social wealth, the commentary added.

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