YTO International ships in new CEO as its revenue fails to deliver

By Li Shih Ta

Despite the gradual restoration of global supply chains post-pandemic, demand for international freight delivery services to and from China stayed sluggish last year as a slowing economy dampened demand. That slowdown was apparent in the 2023 from YTO International Express and Supply Chain Technology Ltd. (6123.HK), headlined by significant declines in the company’s maritime and air transportation businesses.

The international arm of Chinese express delivery giant YTO Express Group (600233.SS) said its revenue dropped 21.2% last year to HK$5.29 billion ($676 million). Its profit fell even more, down 29.2% to HK$96.8 million, as it proposed a final dividend of HK$0.023 per share.

Established in 2006, YTO International was originally the overseas arm of YTO Express. It made a backdoor listing with its acquisition of On Time Logistics in 2017, and renamed the listed company with its current name. Its main businesses include international logistics, cross-border e-commerce logistics, international freight forwarding and integrated cross-border e-commerce-related warehousing, distribution and customs clearance.

Air freight services, accounting for more than half of the company’s revenue, fell by 22.3% year-on-year to HK$2.86 billion in 2023, even as the unit’s gross profit rose 22% to HK$190 million; maritime freight revenue plunged 62.7% year-on-year to HK$650 million, with gross profit down 47.5% to HK$130 million; while revenue from its international express and parcel business bucked the downward trend to grow by 47.4% to HK$1.63 billion.

The company attributed last year’s profit decline to decreasing demand for maritime freight services, coupled with a reduction in maritime and air freight rates that were the result of growing supply of capacity.

China’s economic slowdown last year was largely due to domestic factors, though slumping global demand for nearly all Chinese goods other than vehicles also played a role. According to data from China’s General Administration of Customs, the total value of exports last year was worth $3.4 trillion, down 4.6% year-on-year, marking the first such decline since 2016. The value of imports also fell 5.5% to $2.6 trillion.

At the same time, the global maritime and air freight markets have stabilized from their highly volatile state during the pandemic, when rates soared. Those rates have now fallen sharply with the expansion of capacity and reduced demand. According to air freight data company WorldACD, average global air freight rates fell by 19% in 2023 compared to 2022. Meantime, the average China export composite container freight index (CCFI), which reflects maritime rates, was 937.29 points last year, down 66.43% year-on-year.

Houthi rebel attacks on merchant vessels in the Red Sea last October, shortly after Israel invaded the Gaza Strip, initially pushed up sea shipping rates. But prices quickly fell back. Danish shipping giant Maersk’s CEO Vincent Clerc recently said that market weakness characterized by global overcapacity and falling freight prices might last for years.

YTO International isn’t alone in its declining performance. Kerry Logistics (0366.HK) reported an even larger 42% revenue decline to HK$47.4 billion last year, and a 78% profit decline to HK$790 million, which included a 70% profit decline for its international freight business. Revenue for freight forwarding leader Sinotrans (0598.HK) also fell by 6.9% last year, including declines in both its maritime and air freight business. But the company managed to eke out a profit gain, with its net profit up 3.5% to 4.22 billion yuan.

The same day it released its annual results, YTO International  its CEO Sun Jian was stepping down. It cited his plans to “devote more time and energy to developing the group’s freight business,” though the company’s weak results may have also been a factor. He was replaced with industry veteran Zhou Jian.

Before joining YTO International, Zhou was the CEO of Shenzhen Fengwang Express until it was bought out by J&T Express. Before that, he was the general manager of the international division of Hangzhou BEST, a unit of BEST Inc. (BEST.US). 

Zhou is YTO International’s third CEO in four years. The company has accelerated the development of its international express and parcel business in recent years, with revenue from that part of its mix growing 47.4% to HK$1.63 billion in 2023 from HK$1.11 billion in 2022. Following the strong growth, that part of the business accounted for 30.8% of the company’s revenue last year, up from only 16.5% in 2022.

YTO International said it would try to jumpstart its growth by speeding up expansion of its international network, attracting more partners through strategic cooperation and franchising, and by enhancing the company’s global service capabilities. The company aims to equip its subsidiaries in key overseas markets with more robust infrastructure and operational capabilities in the next three to five years.

YTO isn’t alone among its Chinese rivals with its push overseas. JD Logistics (2618.HK) recently launched an international express delivery service, and Zhejiang Jiahong Logistics (2130.HK) also launched cross-border air charter services last December. That same month, Kerry Logistics also announced it would boost its international service offerings with its purchase of 70% of the Alashankou International Express Railway.

While it’s moved plenty of freight over the years, YTO International’s own share price hasn’t really budged in the seven years since its backdoor listing through the On Time Logistics acquisition. Its current price-to-earnings (P/E) ratio is quite low at about 4 times, well behind Kerry Logistics’ 12 times and Sinotrans’ 6 times. Clearly investors aren’t impressed by the company just yet.

The company’s business is dependent on its related transactions with YTO Express, which handles domestic shipments in China, as well as sister air freight operator YTO Airlines. In the first two months of this year, YTO Express’ revenue reached 8.4 billion yuan, up 19.7% year-on-year, second only to STO Express’ 22.7% revenue growth. The parent company may need to pay more attention to its international offspring, though global macroeconomic headwinds certainly aren’t working in YTO International’s favor at the moment.