The DHL brand has a 50-year history and has crossed the global economic cycle and logistics industry cycle, becoming the world's largest integrated logistics provider by revenue. The company has gone through the dividend period of economic globalization and the rise of multinational companies, the fierce competition in the express logistics industry, until the current synergy period of oligopoly cooperation and monopoly. DHL has adopted corresponding strategies at different stages, with assets ranging from light to heavy, efficiency from low to high, and its return on capital as a whole began to gradually rise after a decline in the period of intense competition. In 2018, DHL posted a revenue of 63.6 billion euros, a net profit of 2.1 billion euros, an ROE of 14.9%, and an ROIC of 9.7% after deducting excess cash. This report will review the history of DHL and judge the stage and evolution trend of China's express logistics industry from the perspective of capital return.

Summary

Benchmarking A/H shares: SF Holdings, Zhongtong Express, Yunda, Yuantong Express, Shentong Express

The development history of DHL shows that in the express delivery sector, the "impossible triangle" of large market space, light assets, and high return on capital (ROIC) is still established. When the three characteristics are met at the same time, it is usually accompanied by the influx of a large number of competitors, resulting in industry fluctuations in which profits drop rapidly and assets become heavier. After the adjustment of repeated supply entry and clearing, a new equilibrium situation has been reached in which the industry generally has heavier assets, the concentration of leading players has increased, and the return of capital has rebounded from the bottom. We believe that this is what happened in the international parcel express market in the past 50 years, and it is also the evolution of the Chinese logistics market.

China¡¯s franchise/direct-operated express delivery system is in two different life cycles of DHL: DHL experienced a rapid increase in the assets of ¡°franchise-to-direct delivery¡± in the 1980s. By the end of the 1990s, DHL¡¯s core international express delivery business had All direct operation to ensure the timeliness of services to deal with competition. In the Chinese market, SF Holdings, which directly follows the direct management model, is growing into a comprehensive logistics provider, trying to release value on the basis of huge assets, so as to achieve an increase in capital return; and the "Tongda system" under the franchise model has begun to see capital expenditure peaks . We believe that franchise express delivery can also provide high-efficiency services in China, and the highly franchise model can last for a long time.

The final judgment of the development of China¡¯s express delivery industry: We believe that 1) ¡°Tongda¡± will not experience the same degree of asset heavier process as overseas express companies, and its final assets will still be lighter than overseas leaders; although SF Express has heavier assets, Continuously improve the utilization level, and the future can be expected; 2) Cainiao Network has opened up the logistics chain, reducing the pressure on the capital expenditure of express companies; 3) The differentiated demand of different e-commerce platforms will lead to the emergence of product tiering and increasing loading of express companies rate.

We believe that Cainiao will become the embodiment of "Fourth Party Logistics" in the Chinese market, formulate unified industry standards, and cooperate with logistics companies to operate. This is because the e-commerce platform competition is a higher-dimensional and larger-volume competition than express logistics. Alibaba¡¯s urgent need to improve logistics timeliness makes it willing and forced to undertake a large amount of external logistics infrastructure investment, thus making China Market express companies will present a higher return on capital.

Finance and valuation

DHL was completely merged into Deutsche Post Group in 2002, forming DHL Deutsche Post. DHL was listed in 2000 with a short financial history, and its business has stabilized at the time of listing. Its early dividends, industry competition, and business integration have been included in the stock price at the time of listing. Since then, it has mainly relied on generous dividends and steady free cash flow. Get a good return.

risk

The global economy and trade are declining rapidly, the unit price of logistics has fallen sharply, and industry competition has intensified.

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, DHL: a global integrated logistics provider across the cycle

DHL Cargo is the largest integrated logistics company in the world. It was founded in 1969. It started from the air mail service between San Francisco and Hawaii in the United States. It grew rapidly in the 1970s and was acquired and integrated by Deutsche Post in 2002. The merged DHL Group has four businesses: general mail and parcel service (PeP), global express service (Global Express), global forwarding and freight (DGFF), and supply chain business (DSC). In the 2018 fiscal year, the group recorded revenue of 63.6 billion euros (approximately US$73 billion, an increase of 1.8% year-on-year), gross profit of 9.8 billion euros (gross profit margin 15.9%), and operating profit of 3.3 billion euros (operating profit margin 5.3%). Among them, parcel services recorded revenue of 18.5 billion euros (accounting for 30.0% of revenue), 660 million operating profits (accounting for 20.7% of profit), and the global express segment recorded 16.1 billion euros of revenue (accounting for 26.2% of revenue), 1.96 billion Operating profit (61.9% of profit), global freight forwarding and freight segment recorded 14.98 billion euros in revenue (24.3% of revenue), 440 million operating profit (14.0% of profit), and supply chain segment recorded 13.4 billion Euro revenue (accounting for 21.7% of revenue), 520 million Euro operating profit (accounting for 16.4% of profit). The revenue of the four major business segments is balanced. The DHL Group has a comprehensive business layout in the logistics market without any shortcomings. The group is also the world¡¯s largest logistics group in terms of revenue, ahead of FedEx¡¯s US$69.7 billion in revenue and UPS¡¯s $71.8 billion.

However, DHL Group¡¯s profitability lags behind that of FedEx and UPS. In 2018, DHL posted a net profit of 2.08 billion euros (approximately US$2.34 billion) and a net profit margin of 3.4%. In the same period, FedEx recorded a net profit of US$4.57 billion. With a net profit margin of 7.0%, UPS recorded a net profit of US$4.79 billion and a net profit margin of 6.7%. This is also reflected in the valuation given by the market. The Deutsche Post DHL Group has the lowest market capitalization among the world¡¯s three largest logistics providers. The DHL Group¡¯s assets are also heavier than FedEx and UPS. Due to a large number of historical acquisitions. After 2007, the company did not have any major acquisitions, but focused on internal integration to release asset value, so the return on capital was improved and returned to the same level as FedEx and UPS.

This report attempts to analyze the history of DHL's rapid development and growth in business volume and business layout, especially the strategic choices and costs made by DHL Group during this period, in order to find some enlightenment for Chinese express companies.