New Stock Analysis | LeCang Logistics: Performance Fluctuations and Who Will Pay the Bill After the Cooling Down of Cross-border Logistics?

In recent years, the cross-border logistics industry has experienced a surge, followed by a sharp decline and then a period of calm, causing fluctuations among companies in this field. One such company is LeCang Logistics, which underwent a hearing on September 5th at the Hong Kong Stock Exchange.

According to the prospectus, LeCang Logistics was established in 2004 and focuses on providing cross-border logistics services. It has also accumulated resources and capabilities in vessel operations through its ship leasing business, thereby strengthening its ability to offer cross-border logistics services. Based on its 2022 revenue, LeCang Logistics ranks 15th in the market with a market share of approximately 0.2%.

Performance Fluctuations Amid Industry Volatility

To date, LeCang Logistics has established a logistics network that reaches global destinations, covering major destinations in North America, Latin America, Europe, Australia, East Asia, and Southeast Asia.

In terms of performance, LeCang Logistics has closely followed the industry's development trends.

From 2020 to 2021, global cross-border logistics service rates reached a peak. Looking at the monthly average comprehensive index of China's container export rates, there was a significant increase in 2021 and the first half of 2022. The index rose from 970.6 (calculated as the annual monthly average) in 2020 to 2601.9 in 2021, and further increased to 2807.0 in 2022.

LeCang Logistics began operating its own cross-border logistics services during the period of rising market rates in 2021 and 2022, seizing the market opportunities brought about by the shortage of shipping capacity. As a result, its revenue increased from 782 million yuan in 2020 to 4.195 billion yuan, and further increased to 545 million yuan in 2022. Its gross profit increased from 63.8 million yuan in 2020 to 457 million yuan, and further increased to 545 million yuan in 2022.

It is worth noting that in 2021, LeCang Logistics experienced a peak growth rate in revenue, but in 2022, the growth rate dropped from 426% to 9.82%.

Starting from the second half of 2022, as congested ports were relieved and capacity was released to the cross-border logistics industry, global cross-border logistics service rates experienced a sharp decline. By 2023, the average comprehensive index of China's container export rates dropped significantly from 2807.0 in 2022 to 1001.3 in March 2023 (compared to 1913.6 and 3332.7 in March 2021 and March 2022, respectively), but still remained higher than pre-pandemic levels (856.4 in January 2019).

In the first four months of 2023, LeCang Logistics experienced a significant decline in revenue, with a decrease of approximately 80% compared to the same period last year, amounting to 454 million yuan. Its net profit also decreased by approximately 70% to 84 million yuan. At the same time, LeCang Logistics stated in its prospectus that it expects the total volume of cross-border logistics services in 2023 to be lower than that of 2022. Therefore, compared to the exceptionally strong performance in 2021 and 2022, the company anticipates a substantial decline in revenue, gross profit, and net profit in 2023. It should be noted that in 2020, Le Cabin Logistics relied entirely on third-party providers for its cross-border logistics services. However, the following year, the company focused on developing its own cross-border ocean freight services. In 2021 and 2022, the revenue contribution from the company's self-operated cross-border ocean freight services reached 1.939 billion yuan and 2.603 billion yuan, accounting for 46.2% and 56.5% respectively.

It is understood that the revenue of cross-border logistics services is mainly influenced by two variables: service volume and average price per TEU. In 2020, due to the outbreak of the pandemic, the industry's capacity, operations, and labor supply were disrupted. The increased demand for cross-border logistics services led to a rise in the average price per TEU, which greatly stimulated the rapid expansion of Le Cabin Logistics.

It is worth noting that the cross-border logistics services industry is highly competitive. In order to consolidate its market position, Le Cabin Logistics needs a large amount of operating capital to strengthen its existing fleet and meet customer requirements. During the period, the company purchased four second-hand container vessels with a total capacity of 4,109 TEU for 95.8 million yuan, and entered into agreements to order two new ultra-large container vessels with a capacity of 14,700 TEU each, at a total cost of 20.81 billion US dollars.

If the company is unable to maintain a sufficient level of operating capital to sustain its business operations, the financial condition and operating performance of Le Cabin Logistics may be adversely affected. However, the company has stated that it has sufficient operating capital, including ample cash and liquid assets, for the next 12 months from the date of the prospectus.

The industry's growth momentum has passed, and it is difficult to sustain business adjustments.

For Le Cabin Logistics, which has encountered a downturn in performance, the future growth prospects are still not optimistic.

As we all know, the cross-border logistics services industry is a typical cyclical industry that is highly correlated with the macroeconomic trend. Looking back at the recent ten years of global political and economic history, apart from the pandemic, disturbances such as the slowdown of the European economy, Brexit, and ongoing global trade and tariff disputes have had varying degrees of impact on the global economy. Against this backdrop, the volatility of the cross-border logistics services industry is more pronounced.

The company's strong performance in recent years is mainly attributed to the high prosperity of the container market and the increase in international freight rates, which "bluntly" thickened the company's profitability. However, based on the latest operating data in the industry, it may be difficult to sustain the continued rise in international freight rates.

It is predicted that the global cross-border logistics services market is expected to reach approximately 343.8 billion US dollars in 2023, a decrease of 50% compared to the previous year's 789.1 billion US dollars.

In addition, it is worth noting that the competitive landscape of China's cross-border logistics services market is also challenging. As mentioned earlier, based on the 2022 revenue, Le Cabin Logistics ranks 15th in the Chinese cross-border logistics services market, with a market share of only about 0.2%.

Compared to the leading companies in the industry, Le Cabin Logistics, which was established only in the early 21st century, does not have any outstanding advantages in terms of operating history, customer base, or market coverage.

It should be noted that Le Cabin Logistics has actively adjusted its business to adapt to changes in the market environment. For example, the company has suspended its self-operated cross-border ocean freight services this year, so it may not generate any significant revenue from this business line this year. In addition, based on the assumption that the current market conditions for the remainder of this year will still be unfavorable for the company to provide any self-operated cross-border shipping services, the company expects the overall gross profit margin of its cross-border logistics services to slightly decrease compared to 2022 and recover to the level of 6.9% in 2020.

In summary, Lecong Logistics once stood at the forefront of the cross-border logistics industry and made a fortune. However, with the passing of the trend, sustaining high growth has become difficult for the company. Can Lecong Logistics, which is currently actively seeking stability through transformation, wait for the next spring?