The IPO of 33% of the company’s stock is expected to raise nearly RMB 10 billion (USD 1.6 billion), making it the largest initial public offering in China so far this year.
As a precursor to the IPO, China Post will be merging two of its units, express parcel unit EMS Corporation and China Postal Logistics. It will also have to untangle the new company from the parent, China Post. The separation is expected to be very complex with many customer contracts overlapping the two companies.
China Post is a state owned entity facing pressure on two fronts to do the deal. The first is practical. China Postal Express & Logistics (CPEL) is the country’s largest express courier business but it needs capital to expand its network to keep up with demand and to prevent international players taking market share. Trucks, warehouses and freight aircraft are all expensive and the capital raised from the share sale will partly go towards these new assets.
The other pressure comes from the government itself, which is keen to see the various State Owned Entities exposed to more market forces and become more efficient. Various influential economists, including most recently a group from the World Bank, have warned that without reform of the SOEs, the economy risks seizing up.
CPEL reported a net profit of RMB 902 million in 2011 from revenue of RMB 25.9 billion. The 3.5% profit margin is below that of the leading logistics operators in the industry. UPS for example, has a profit margin of 7.2%, double that of CPEL. Investors would be hoping that the strong market share of CPEL combined with more commercial practices and better assets would deliver improved returns.
According to the prospectus, CPEL employ’s network covers 31 provinces and links to more than 200 countries.