The sub-IPO Fanyuan International (02516), which was listed at the end of 2023, hit the “big test” of the capital market as soon as it went public.

In the first two weeks of the new year, the Hong Kong stock market changed, and the three major indices fluctuated downward to find their bottom. Being in a weak market, Fanyuan International's stock price volatility has also increased.

The Zhitong Finance App noticed that on December 22, 2023, Fanyuan International, a well-known cross-border e-commerce logistics service provider, went public with a lower selling price of HK$0.9. On the first day of listing, Fanyuan International once hit HK$1.32, the biggest increase of nearly 50%. However, since then, due to a downward trend in the general market and growing pessimism in the market, the upward trend of Panyuan International came to an abrupt end. As of the close of trading on January 11, Fanyuan International closed at HK$0.9. At one point, it fell below the issue price during the intraday period, hitting a low of HK$0.81. The next day, Fanyuan International's stock price continued its weak trend.

Despite an unfavorable start, bad luck prevails, and fluctuations caused by fluctuating market sentiment may lead to medium- to long-term buying points.

Returning to a fundamental perspective, in fact, the cross-border logistics circuit where Fanyuan International is currently located can still be considered a growing industry. In recent years, with the rise of Temu, TikTok Shop, etc., with unique business models and advanced technical methods, these emerging forces are driving the rapid iteration of the industry pattern, and at the same time, this has also brought more business opportunities to cross-border logistics companies.

The industry is changing rapidly. While this will certainly present challenges for players like Fanyuan International, it may also bring unavoidable development opportunities.

A potential stock that Ali “backs up”?

Fanyuan International was founded in 2004. At the beginning of its establishment, it mainly provided customers with port-to-port freight forwarding and package delivery services. After nearly 20 years of development, Fanyuan International has now grown into a large-scale cross-border e-commerce logistics service provider, providing end-to-end cross-border logistics services to the market.

It is worth mentioning that probably due to its proximity to the water tower, Fanyuan International, which is headquartered in Hangzhou, still has quite a connection with Ali. According to public information, in December 2018, Fanyuan International and Yidatong, a subsidiary of Alibaba Holdings, began cooperation to provide logistics services to its customers by being included in the list of logistics service providers. In 2021, Hangzhou Fanyuan was introduced to Alibaba China; in the same year, Hangzhou Fanyuan received the first customer award from Alibaba's cross-border supply chain (China-US Charter Flight Project Team).

The close relationship between Fanyuan International and Alibaba is also reflected in the former's financial statements. In 2020-2022, Fanyuan International achieved revenue of 1,512 billion yuan (RMB, same unit), 1,354 billion yuan, and 1,252 billion yuan. In the same period, Fanyuan International's revenue from Yidatong was 37.88 million yuan, 219 million yuan, and 153 million yuan respectively, accounting for 2.5%, 16.1%, and 12.3% of the corresponding revenue. It can be seen that the business ties between the two sides continued to deepen.

In the first 6 months of 2023, Fanyuan International achieved revenue of 674 million yuan, of which revenue from Yidatong was 855.48 million yuan, and the share stabilized at around 13%.

Looking back on track record, Fanyuan International's profitability has always been relatively stable. From 2020 to the first half of 2023, the company's gross profit was 123 million yuan, 99.8.56 million yuan, 105 million yuan, and 54.45 million yuan respectively, with corresponding gross margins of 8.1%, 7.4%, 8.4%, and 8.1%, respectively.

In the same period, Fanyuan International's net profit to mother was 52.7515 million yuan, 36.932 million yuan, 257.66 million yuan, and 11.342 million yuan, respectively. After deducting listing expenses, the company's adjusted net profit in 2022 was approximately RMB 39.03 million.

Endogenous extrinsic preemption to grab the “second half” of the beach?

2023 has already turned upside down. Looking back on the past year, it must be acknowledged that in the face of the uncertainty of the macroeconomic environment and the weak overseas consumption situation, the performance of many cross-border logistics companies generally failed to meet expectations.

Under multiple pressures such as rising costs, regulatory upgrades, and increased internal volume, cross-border logistics companies urgently need to find growth paths that match their characteristics in a rapidly changing new environment.

According to Frost & Sullivan's data, the growth rate of China's cross-border e-commerce logistics market will “shift gears and decelerate” in the next few years. According to the data, in 2018-2022, the compound annual growth rate of China's cross-border e-commerce logistics market was about 20.4%, while in 2027 this figure will drop to 9.2%, which means that the potential growth rate of this market will be less than half of the past few years.

The pace of development of the industry is changing, but this is also forcing market participants to adjust their own development strategies as soon as possible. Looking back at Panyuan International, positive changes are already taking place. A recent example is Panyuan International's development of new customer Q in January 2023, which is famous for operating e-commerce platforms in China. Starting in the third quarter of 2022, Client Q will expand its business overseas and develop related business in the US.

After Fanyuan International established a cooperative relationship with Customer Q, the cooperation between the two parties quickly brought considerable benefits to Fanyuan International. During the 23H1 period, Fanyuan International's revenue from customer Q was about 151 million yuan, accounting for 22.4% of the company's total current revenue. In the third quarter of 2023, customer Q recorded a billing weight of about 3 million kg. Compared to the 23H1 period, this means that the close business ties between the two parties have achieved a qualitative leap in the past few months, and this is expected to be reflected in the subsequent performance trend of Panyuan International.

In addition to developing new KA customers, Fanyuan International has also keenly captured the trend of digitalization, specialization, and diversification in the industry, and has made a positive layout around these trends. According to information, at this stage, Fanyuan International is focusing on investing in and upgrading its IT system to further improve the efficiency of the Group. According to public information, the functions of the system include three aspects: logistics chain management, business and financial management, and customer service. The improved new system is expected to drastically reduce the amount of manual processing required during the company's business operations, improve efficiency, reduce the risk of errors, and release limited labor to meet its rapidly growing service needs.

In a critical period of alternating economic cycles, it is inevitable that the pattern of all walks of life will be full of variables due to the conversion of old and new kinetic energy. For cross-border logistics companies that need to link internal and external markets, they will have to face multiple forces in future competition, and the competitive dimension will inevitably be more diversified, and this also places higher demands on companies such as Panyuan International.

How to find as much certainty in growth as possible in the midst of uncertainty will be a “winner and loser” affecting the subsequent trend of Panyuan International's stock prices. As far as the present is concerned, Fanyuan International, which has some potential for growth and the current price has already fallen below the issue price, may become a “golden egg” in the stock pool of enterprising investors.