Profits for Alibaba-backed STO Express rebound in 2018 despite industry slowing

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(Image credit: STO Express)

Express delivery giant STO Express reported 37.7% profit growth in 2018, a recovery following three years of lackluster results in the slowing Chinese courier market.

According to a filing released Wednesday, the Shenzhen-listed company earned RMB 17 billion ($2.5 billion) in revenue, a 34.4% year-on-year increase. Net profits surged 37.7% year-on-year to RMB 2 billion, which the company attributed to a rebound in its courier business in the last two quarters, and pointing to a marked pickup from the 17% year-on-year growth seen a year earlier. Improved performance in the back half of the year follow a significant uptick in research and development spend in 2018 from which significant IT upgrades and the development of intelligent business solutions resulted, reported media outlet Jiemian (in Chinese).

After going public in Shenzhen in 2016, STO’s growth slowed significantly. Its market share shrank to 9.7% from 16.5% in the period from 2014 to 2017, falling from the top of the heap to the bottom in its competition with peers ZTO, YTO, and Yunda, Jiemian reported citing Chinese broker Pingan Securities.

The Shanghai-based courier company has resurfaced in the public eye following a RMB 4.6 billion investment from Alibaba for a 49% stake in March. However, this is Alibaba’s fourth investment deal in the Chinese courier sector after the e-commerce titan poured $1.38 billion into US-listed ZTO Express for 10% share in May 2018. It had also previously acquired minority stakes in Shanghai-based YTO Express and Best Express.

Chinese internet giants are elbowing their way into the country’s massive courier market; STO and peers are working with Alibaba’s logistics division, Cainiao, to take on JD Logistics, JD.com’s supply chain and delivery subsidiary that boasts 100,000 delivery drivers. It is a move that paid off for the embattled e-commerce platform: Two years after JD.com spun off its logistics division and began offering its services to enterprise clients, its revenues in the segment swelled 141.95% year-on-year to RMB 12.3 billion in 2018.

China’s express delivery firms handled 50.7 billion parcels in 2018, making up more than 50% of global volume, according to the State Post Bureau (in Chinese). Still, growth rates in the privately held express delivery segment have slowed over the past five years, halving to 26.6% in 2018 compared with 2014. Chinese authorities expect the deceleration to continue in 2019, with just 18% year-on-year growth  in revenues to RMB 700 billion forecasted for the express delivery sector.