Pan-China International (02516), whose stock price soared upon its listing, is about to face a new challenge with the upcoming lifting of its sales ban.

Zhitong Finance and Economics APP has noticed that Pan-China International, which was listed in Hong Kong on December 22, 2023, will have its sales ban lifted on June 22, 2024. One group of the company's controlling shareholders, namely, Wang Quan, Ziyue Control Limited, Tianyuan Holdings Limited and Hangzhou Ai Yuan Investment Management Enterprise (Limited Partnership), needed to have about 263 million shares banned from sale when the company was first listed, accounting for 33.74% of the total share capital. The last day of the sales ban period was June 21, 2024 (during the first six months).

In addition, Pan-China International also introduced three cornerstone investors in its IPO, namely, Yang Yingwu, Liu Lijun and Guo Shaojun, who collectively subscribed to 55.548 million shares of Pan-China International, accounting for 39.68% of the global offering and 7.12% of the total issued capital. The last day of the sales ban on the restricted shares held by the three cornerstone investors is also June 21, 2024.

It is worth noting that after a brief initial surge in its stock price, the stock price of Pan-China International has been oscillating downward. On May 22, the company's stock price once fell to HK$0.1, a decline of 88.9% from its highest IPO price of HK$0.9, and a maximum decline of 92.4% from its historical high of HK$1.32. Will the lifting of the sales ban on shares bring new selling pressure after June 21 and can the company's fundamentals withstand this potential challenge?

Cross-border e-commerce logistics service provider

Zhitong Finance and Economics APP has learned that Pan-China International is a cross-border e-commerce logistics service provider whose history can be traced back to 2004, when its indirectly wholly owned subsidiary Hangzhou Pan-China International Logistics Co., Ltd. (referred to as "Hangzhou Pan-China") was established, marking the beginning of its cross-border e-commerce logistics service business. The company has since created several "milestone" events.

In 2005, Hangzhou Pan-China became a service contractor for a Fortune 500 multinational logistics company group based in the United States and successively obtained exclusive operating rights in several regions of Zhejiang Province. Ten years later in 2015, Hangzhou Pan-China became one of the OGP operators of a Fortune 500 multinational logistics company group based in the United States.

In 2017, Pan-China International acquired HANGGANG, becoming a business partner of Supplier Group A (a Fortune 500 German logistics company group founded in the United States and listed on the Frankfurt Stock Exchange) and completing its business layout in southern and southwestern China. Afterwards, in 2018, Pan-China International started cooperating with Alibaba Holding's affiliate Yida Tong. In 2021, Alibaba China subscribed to 10% of the registered capital of Hangzhou Pan-China for a price of approximately RMB 139 million.

After 20 years of development, Pan-China International's business model mainly involves providing the following services: (i) end-to-end cross-border delivery services: the company provides comprehensive international logistics services to customers throughout the end-to-end logistics process, transporting parcels to destination countries or regions. The company's services cover all major aspects of the cross-border logistics process, including parcel receipt, warehousing, security inspection, packaging, labeling, sorting, export customs clearance, international long-distance transportation, customs clearance and final mile delivery. (ii) Supply chain solutions: the company provides customized supply chain solutions tailored to the specific needs of different customers. The company provides customers with flexibility, enabling them to select the services they require the company to perform during the logistics process, such as freight forwarding, customs clearance, pickup, warehousing operations, transportation, and final mile delivery.

Poor prospects for business performance improvement

In recent years, Pan-China International's progress in catching up with industry leaders has been relatively slow due to unfavorable factors such as the pandemic. In 2020, 2021 and 2022, the company's revenue was approximately RMB 1.512 billion, RMB 1.354 billion and RMB 1.252 billion, respectively; its annual net profit was RMB 52.695 million, RMB 36.892 million and RMB 25.797 million, respectively, trending downwards.

In 2023, Pan-China International's business performance rebounded significantly, achieving revenue of RMB 2.05 billion, a budget fulfillment rate of 118.99%, and a year-on-year growth of 63.41%; the estimated annual net profit (adjusted net profit) adjusted for listing expenses in 2023 is approximately RMB 54.93 million, with a budget fulfillment rate of 108.20% and a year-on-year growth of 40.76%. Unfortunately, the rebound in business performance in 2023 had a limited impact on the company's stock price, and its prospects require further observation.

Breaking it down, Pan-China International's significant revenue growth in 2023 was mainly due to Customer A's revenue reaching RMB 1 billion, accounting for more than 48% of the company's 2023 revenue. Pan-China International mainly provides end-to-end cross-border delivery services, freight forwarding services, and other logistics services to Customer A. According to data disclosed by Pan-China International in its prospectus, sales from the company's top five customers in 2022 amounted to RMB 357 million, accounting for 28.5% of total revenue, and revenue from the largest customer was RMB 153 million, accounting for 12.2%.

It is worth noting that Pan-China International's gross margin in 2023 fell from 8.36% in 2022 to 7.67% due to the decline in the gross margin of end-to-end cross-border delivery services and other logistics services, despite the substantial increase in revenue brought about by the sudden rise of Customer A.

In addition, Far Eastern International also disclosed that the trade receivables increased due to one of its five major customers, with the company's trade receivables reaching approximately 488 million yuan as of December 31, 2023, a year-on-year increase of about 369.54%. On the product side, 10-30 billion yuan products generated operating revenues of 401/1288/60 million yuan, respectively.

Affected by the increase of trade receivables by about 393 million yuan, Far Eastern International's net cash used in operating activities in 2023 was 175 million yuan, which was significantly different from the net inflow in 2022. Therefore, investors need to closely monitor the subsequent collection of trade receivables of the company.

The industry competition is fierce, and the long-term development prospects are uncertain.

On the other hand, whether Far Eastern International can continue to maintain high growth in the future is also a point worth noting. According to Frost Sullivan data, in the next few years, the growth rate of China's cross-border e-commerce logistics market will usher in a "shifted slowdown." The data shows that from 2018-2022, the compound annual growth rate of China's cross-border e-commerce logistics industry's market was about 20.4%, while this data will drop to 9.2% from 2022-2027. meaning that the potential growth rate of the market will be less than half of the past few years.

During the process of the slowing development of cross-border e-commerce logistics, industry competition is also becoming increasingly fierce. According to Far Eastern International's prospectus, China's cross-border e-commerce logistics industry is highly competitive and fragmented. According to the Frost Sullivan report, based on the revenue generated from cross-border e-commerce logistics services in 2022, the combined market share of the top five local participants in the cross-border e-commerce logistics industry in China is only 1.6%. In 2022, based on the revenue of cross-border e-commerce logistics, Far Eastern International ranked between 25th and 30th among local cross-border e-commerce logistics service providers in China, with a market share of only 0.03%. Far Eastern International pointed out that the company competes with existing market participants and potential new participants, including other cross-border e-commerce logistics service providers, and it is foreseeable that future market competition may be even more intense.

During the past performance period, Far Eastern International maintained business relationships with over 1,100 suppliers. With a well-established supplier network, the company has delivered parcels to over 220 countries and regions. However, even though Far Eastern International has a wide business coverage and achieved significant income growth in 2023 with customer A, the company is still in a 'follower' position in the cross-border e-commerce logistics service market. In the process of catching up, the company may need to find a better balance between development speed and development quality in order to gain more favor from secondary market investors.