YTO’s global expansion drives into Central Asia with KazPost

By Lau Chi Hang

China’s efforts to build up global alliances to counter the West are taking a turn into Central Asia with a new business tie-up in Kazakhstan, one of China’s regional neighbors and a fellow member of the Shanghai Cooperation Organization (SCO).

Speaking at the SCO Summit earlier this month in the Kazakh capital Astana, Chinese President Xi Jinping spoke of the need to “safeguard the right to development” and “join hands to resist external interference” and to “firmly grasp the future of our countries and regional peace and development in our own hands.”

Answering that call for greater regional cooperation, China’s YTO International Express and Supply Chain Technology Ltd.(6123.HK)  a new partnership with Kazakhstan’s national postal service, KazPost, on the summit’s sidelines. The pair will set up a joint venture with authorized capital of $1 million to develop express delivery services in Kazakhstan and Central Asia, with YTO holding 60% and KazPost 40%.

With China’s logistics market already crowded and rife with cutthroat competition, overseas expansion has become a major path forward for players in search of new growth. YTO Express Group Co. Ltd. (600233.SH) drew a clear line between its domestic and international operations by carving out YTO International as a separately listed company. YTO international has yet to deliver impressive results since its separate listing in Hong Kong in 2017 under the name of Cinda Logistic, with its shares fluctuating widely over that time.

YTO International’s performance has stumbled over the past two years, with revenue down 11% year-on-year to HK$6.7 billion ($858 million) in 2022 and dropping another 21% last year to HK$5.29 billion. Its profits have performed even worse, falling 50% to HK$137 million in 2022, and dropping another 29% last year to HK$96.8 million. The company blamed the slide on a spike in air transport and shipping prices in the first two years of the pandemic, followed by a return to more normal levels over the last two years as capacity increased and demand waned.

The company’s shipping business plunged last year, with revenue falling 62.7% to HK$648 million year-on-year, mainly due to lower shipping prices amid the decline in demand. Its air transport revenue also fell, but by a milder 22.3%, to HK$2.86 billion. Despite that, the company’s gross profit increased by 22.8% for the year due to good cost controls. But such controls have limited potential over the longer term, and business is unlikely to pick up much this year if a current market slowdown continues.

The slipping performance has created pressure for change. The company announced in March that CEO Sun Jian resigned and was replaced by Zhou Jian who only joined YTO International two months earlier. Zhou previously worked various positions in Hangzhou BEST Network Technologies Co and was the assistant chief marketing officer of Shenzhen S.F. Taisen Holding before joining YTO. Investors will be looking to see whether he can use his rich experience to show a return to growth when YTO International reports its interim results next month.

YTO is hardly the only Chinese logistics company looking overseas for growth, even as it lags behind many of its peers in terms of resources, network and manpower. SF Express, which  for a Hong Kong IPO, has been building an overseas presence for years. Its fleet includes 103 planes alone, and its international division pocketed 62.9 billion yuan last year in revenue – well ahead of YTO International’s HK$5.29 billion.

Even J&T Global Express (1519.HK), a younger and smaller logistics company, is also doing well overseas, with revenue from Southeast Asia and emerging markets up to 21.5 billion yuan last year, well ahead of YTO.

It remains to be seen whether YTO’s new KazPost tie-up will make a dent in Kazakhstan, one of the region’s largest countries, and in Central Asia. Despite its large size and strategic significance as a producer of oil, gas, minerals and grain, the landlocked country’s potential for express delivery services remains a question. After all, the country’s GDP of $226 billion in 2022 and population of 20 million are both smaller than Malaysia, and are just a tiny fraction of China’s $18 trillion GDP in 2022 and 1.4 billion people.

A slowing global economy also doesn’t bode well for YTO’s overseas aspirations. A report released by the World Bank in January predicted the world economy would grow just 2.4% this year, slowing from 2.7% in 2023. The International Monetary Fund (IMF) shared a similar view, forecasting the growth rate would fall slightly to 2.9% from 3% over that period.

According to China’s customs statistics, China’s trade in goods for import and export was worth 41.8 trillion yuan last year, up 0.2% year-on-year. Of that figure, exports made up 23.8 trillion yuan, up 0.6% year-on-year, and imports were nearly 18 trillion yuan, down 0.3%. That shows that China’s trade was largely stagnant last year.

With the global economy slowing and China’s trade stagnating, now may not be the best time for Chinese logistics companies to be expanding overseas.

But YTO International is hoping to defy the odds with plans to build up its global footprint. The company is building a main global aviation hub and multimodal transport center with Dongfang Tiandi Port in the city of Jiaxing near Shanghai. That will sit at the center of nine sub-hubs in the cities of Hefei, Yiwu, Guangzhou, Kunming, Nanning, Haikou, Suifenhe, Korgos and Hengqin near Macau. The network will also include international nodes in Los Angeles, Rio, Sydney, Bangkok, Dubai, and Budapest to cover the world with air, rail and sea transportation.

But the main hub in Jiaxing won’t be complete until later this year, after which it will enter full operation in 2025 and ramp up through 2026. As that happens, it will likely require three to five years to build up complementary infrastructure in China and throughout the world. By then, the company could well find itself falling even further behind its other globally minded rivals.