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China Eastern Airlines affiliate gains 44% in Shanghai IPO

Debut positive sign for logistics sector hungry for capital amid price war

Eastern Air Logistics has posted strong growth, utilizing the network and resources of China Eastern Airlines.    © AP

HONG KONG -- Investors rallied around Eastern Air Logistics on Wednesday, sending shares of the corporate sibling of China Eastern Airlines climbing by the maximum 44% allowed on their first day of trading on the Shanghai Stock Exchange.

The impressive debut, coming on the heels of JD Logistics' $3.16 billion initial public offering in Hong Kong two weeks ago, is a positive sign for Chinese freight companies in need of fresh capital to cope with soaring package volumes and a vicious price war.

Courier services SF Holding and Best Inc. are each going into the market for fresh funds after posting losses for the January-March quarter. At the same time, the State Post Bureau has reported that 30.43 billion parcels were delivered in China over the first four months of the year, 59.9% more than a year earlier.

Eastern Air Logistics' IPO raised a net 2.4 billion yuan ($376 million).

"All of it will be used for projects related to the company's main business," pledged President Li Jiupeng during an online investor meeting last month. Plans include construction of a comprehensive air cargo logistics center at Shanghai Pudong International Airport as well as the upgrading of other infrastructure.

Eastern Air Logistics' success is likely to impact the potential listing of peer companies linked to rival state aviation groups China Southern Airlines and Air China.

Liu Shaoyong, chairman of China Eastern Airline Group, said at Wednesday's listing ceremony in Shanghai that going public "is not the end of the mixed ownership reform, but a new starting point to deepen reform," a reference to a process that started in 2018 with the sale of 55% of Eastern Air Logistics shares to Legend Holdings, parent of computer maker Lenovo, and five other investors.

Eastern Air Logistics shares, sold at 15.77 yuan each in the IPO, closed Wednesday at 22.71 yuan.

Despite heavy competition, the Shanghai-based company saw its net profit triple last year to 2.36 billion yuan while revenue rose 34% to 15.11 billion yuan. It has forecast continued strong profit growth for the first half of 2021, with an earnings estimate of 1.42 billion yuan to 1.74 billion yuan.

At the same time Eastern Air was making its debut in Shanghai on Wednesday, Johnny Chou, founding chairman and chief executive of Chinese logistics company Best Inc., was telling analysts, "We are looking at various ways to raise more capital to support our turnaround efforts in the next six to nine months."

His comments came as New York-listed Best reported a loss for the January-March quarter of 612.89 million yuan, improving from a loss of 742.89 million yuan a year earlier. Revenue, meanwhile, rose 30% to 6.49 billion yuan, with average delivery prices failing to keep pace with the volume growth.

"Our focus today continues to be on cost reduction across the entire organization," said Chief Financial Officer Gloria Fan, adding the company will strive to "align our cost structure with our growth initiative, and adapt to evolving, competitive market conditions."

New funding would not only facilitate Best's corporate restructuring, she said, but also "enhance liquidity and the financial flexibility for future growth."

Speaking again later Wednesday at a supply chain forum in Hangzhou, Chou said Best was eyeing cooperation with Cainiao Smart Logistics Network, Alibaba Group Holding's logistics arm, around China as well as possibly Southeast Asia.

"Digitalization is an essential part of the operation and Cainiao has an unmatched advantage in computing technology that Best could partner with," said Chou, also known as Zhou Shaoning.

Alibaba is Best's third-largest shareholder with a 4.1% stake, according to Refinitiv data.

Meanwhile, SF Holding, China's biggest courier service, last week raised 500 million yuan through a domestic bond issue, a few days after announcing that its board had approved a plan to list intra-city delivery subsidiary Hangzhou Shunfeng Tongcheng Industrial in Hong Kong. Earlier in May, it raised 2.6 billion Hong Kong dollars ($335 million) by listing subsidiary SF Real Estate Investment Trust there.

Shenzhen-listed SF Holding also won regulatory approval on May 31 to make a private placement of shares worth up to 22 billion yuan. It already got the regulator's permission last year to issue up to 2 billion yuan in bonds.

SF reported a net loss of 988 million yuan in the first quarter, reversing a profit of 907 million yuan a year before, even as its revenue grew 27% to 42.62 billion yuan. The company is also spending HK$17.55 billion to acquire a majority stake in Hong Kong-listed Kerry Logistics Network to expand its reach into Southeast Asia.

Analysts are unsure how long investor enthusiasm will last for the sector.

Shares of JD Logistics, a subsidiary of Alibaba rival JD.com, ultimately closed up just 3.3% on their debut in Hong Kong after initially rising as much as 18%.

Ahead of Eastern Air Logistics' trading launch, Guoxin Securities analyst Jiang Ming wrote that the "logical price range" of the shares based on his earnings forecast through 2023 was between 15.26 yuan and 17.44 yuan -- well below Wednesday's 22.71 yuan close.

Additional reporting by CK Tan in Hangzhou, China, and Cora Zhu in Hong Kong.

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