ZTO, a Chinese express company that won the title of the famous initial public offering (IPO) in the United States in 2016, was recently sued for "data fraud" by a retirement fund in Birmingham City in the United States. It was also mentioned that ZTO Express used a "network partner" system to handle package transfer and reception services with lower profit margins, so that even less profitable businesses disappeared from the company's account books. Many industry insiders and experts analyzed this matter and believed that some practices belong to special rules of the logistics industry under China's national conditions and cannot be assessed whether it is reasonable, but it is obviously inappropriate in the capital market.
In fact, before and after ZTO Express went public in the United States, industry insiders talked about the severe tests of information disclosure standards, financial transparency, and integrity rules when ZTO Express went public in the United States. Express expert Zhao Xiaomin said that whether ZTO Express has a phenomenon of spending (revenue and cost offsets when accounting), reducing revenue and costs, and increasing gross profit margins should be given clear explanations to Chinese and foreign investors.
Zhao Xiaomin believes that the prosecutor currently believes that ZTO data is falsified and profits are exaggerated, and the final result will be determined by the evidence submitted by both parties and whether other institutional investors around the world will follow the prosecutor. ZTO Express did not have rich enough data when submitting its listing application, and there was no detailed description in the prospectus. The transparency and detail of the data need to be further improved. In the face of mainland Chinese investors, the content provided by the financial report is relatively simple.
Industry insiders analyzed that compared with YTO and Shentong, ZTO Express ’s listing has different number of outlets included in the listing system, and the scale of individual outlets is also different, and the company’s revenue and cost recognition varies greatly. It is common for class action lawsuits in the US capital market, and it cannot be ruled out that it was done by short-selling institutions. The prosecution party also needs to provide more evidence. At the same time, ZTO Express needs to provide investors with more open and transparent data through this incident. He believes that ZTO Express's stock price has been in fluctuation since it released the repurchase of stocks in May, and the impact of this incident on stock prices may have an impact in the short term. However, some industry insiders have previously analyzed that ZTO has conducted a large-scale inclusion of franchisees in a short period of time, so the true level of ZTO's performance growth cannot be judged by simple financial data.
In fact, sending and receiving work is one of the core businesses of express delivery companies, but different companies will adopt different models of direct sales or franchise. Among them, the representative of the self-operated model is SF Express, while ZTO Express adopts the franchise model. "Foreign investors may not understand the franchise model of Chinese express delivery companies, but this is the long-term development model of domestic express delivery companies such as ZTO Express." Guo Hongxia, a veteran of the express logistics industry and CEO of Logistics Salon, believes this.
Guo Hongxia said that in express delivery business, the construction and operation of terminal outlets is one of the main links that bear the cost. At the beginning of the network establishment, the network can be quickly laid out through the franchise mode. The head office is responsible for the distribution and transfer of provincial and municipal outlets, and allocates smaller township and village outlets to franchisees through the franchise model. However, in the company's network layout, the overall warehousing operation and trunk logistics are still controlled by the head office. There is nothing unreasonable in the domestic market environment.
At the same time, Guo Hongxia said that before going public, the express delivery company will consider reclaiming all or part of its control over the terminal outlets to increase the company's size. Before its listing, ZTO Express revoked a large amount of control over terminal outlets. On the one hand, it was for listing and also to improve the stability of terminal services. At present, ZTO Express terminal outlet services are still relatively high in the "Four Connections and One Drive". (Source: NetEase News)
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