China's ZJS Express upgrading ahead of Hong Kong IPO

ZJS Express Co Ltd, a Beijing-based private courier service, is upgrading its operations and management prior to an initial public offering planned for the second half of 2007 in Hong Kong, said company chairman and president Chen Ping.

ZJS Express plans to raise up to 200 mln hkd via its Hong Kong listing but prior to going public is investing in new technology and doubling its branch network.

After the company completes its restructuring and listing, it will significantly narrow the gap in operational quality with major global players who have entered the Chinese market, Chen told XFN-Asia in an interview.

'The international express firms currently have weak networks in China and operate on higher costs compared with ZJS. We should take this opportunity to further sharpen our competitive edge,' he said.

ZJS Express' volume is expected to increase from more than 35 mln items in 2005 to about 50 mln this year, according to Chen.

Earlier this year, the company said that it plans to invest around five mln yuan to expand its network, increasing the number of outlets to over 800 across the country from more than 400.

Chen said the biggest problem confronting the firm, which was founded 12 years ago, is that it relies too much on manual work and outdated technologies.

Low service quality frequently resulted in parcel damages or losses, the company said in a recent internal circular.

'The growth in our business calls for further operational and management reforms as well as more investment in technology and equipment,' said Chen.

Among measures to improve operational efficiency, the company will separate its contract logistics operations for corporate customers — 40 pct of its revenue — from services provided for individuals. It will also increase administrative staff at its Beijing headquarters by 52 pct to reinforce management, said Chen.

Chen said the firm will also implement personal digital assistants (PDA) and in coming months buy more equipment including automated picking and sorting systems, logistics vehicles and roll containers.

He said that ZJS Express has enough capital to fund its technology upgrade and expansion prior to listing.

'We are not short of money for these two years (2006 and 2007). In addition, we will soon obtain additional funds for future development from the Hong Kong IPO,' said Chen.

Chen did not say if the company will be listed on the mainboard or the small- and medium-sized enterprises board of the Hong Kong exchange.

ZJS Express has over 8,000 employees, eight logistics bases and 1,500 trucks.

The company had a net profit of around 60 mln yuan last year on total revenue of about 600 mln yuan.

Chen and senior executives from the company have repeatedly said that ZJS Express will maintain its position as a home-grown brand, despite the fact that most of its domestic counterparts have in the past two years been acquired either by multinational companies or state-owned rivals.

After China opened its domestic logistics sector to foreign investors at the end of last year as part of joining the World Trade Organization, global express service providers including TNT, DHL, UPS and FedEx started to offer domestic courier services, putting greater competitive pressure on Chinese firms such as ZJS Express.

Dutch postal and express company TNT NV signed a deal at the end of 2005 to acquire Heilongjiang-based Hoau Logistics Group, which is the largest privately owned transport network for freight and parcels in China.

Earlier this year, FedEx Corp paid 400 mln usd for the remaining 50 pct stake in a Chinese joint venture held by its long-term partner Tianjin Datian W Group Co Ltd (DTW), as well as DTW's domestic express network.

State-controlled Sinotrans Air Transportation Development Co Ltd (SHA 600270) also acquired a 51 pct stake in Shanghai STO Express Co Ltd, a major regional courier service in eastern China, for 360 mln yuan last Nov.

ZJS, however, has rejected several acquisition offers from major global rivals, said Chen.

'We will not be acquired by any rivals as our aim is to create a national brand in China,' he said.

ZJS plans to purchase or lease aircraft when its business volume increases, Chen added.