Results Review

3Q25 results slightly missed our forecast

S.F. Holding announced its 3Q25 results: Revenue rose 8% YoY and 2% QoQ to Rmb78.40bn; net profit attributable to shareholders fell 9% YoY and 27% QoQ to Rmb2.57bn; profit margin fell 0.6ppt YoY to 3.3%; recurring attributable net profit was Rmb2.23bn, down 14% YoY and 14% QoQ; and recurring profit margin fell 0.7ppt YoY to 2.8%. The firm’s 3Q25 results slightly missed our expectations, which we think was because profit growth slowed temporarily due to the firm's strategy of improving business operation.

Trends to watch

Strategy of improving business operation drove revenue growth; products of core business remained highly competitive. In 3Q25, the firm's parcel volume grew 33% YoY, outpacing the broader market's growth of 14% YoY, which we attribute to the dynamic growth of its front-line business under its strategy of improving business operation. In 1–3Q25, revenue from express logistics grew 12% YoY, and revenue from supply chain and international business grew 4% YoY. We believe the firm's core business has solid product strength.

Profit under temporary pressure; watch for effects of the “establish first, optimize later” strategy. We think the firm's profit came under temporary pressure as labor costs as a percentage of revenue and headcount of sales staff have increased under the strategy to improve business operation. We believe the firm's profit optimization efforts will gradually pay off, as the firm has launched a plan to optimize customer relationships and fine-tune the structure of parcel volume. In addition, we think sales staff may promote the company's transformation towards “selling solutions”.

Capex passed its peak; operating cash flow solid; increase in total share buyback shows confidence. In 1–3Q25, the firm's asset-related expenses fell 3% YoY to about Rmb6.7bn, with the input-output ratio falling steadily from the peak in 2021; its free cash flow reached about Rmb12.7bn, and the firm raised the total amount of its share buyback plan from Rmb0.5–1bn to Rmb1.5–3bn, which we think demonstrates the firm’s confidence in its long-term growth and its continued emphasis on shareholder returns.

Financials and valuation

We raise our 2025 and 2026 revenue forecasts 3% and 3% to Rmb315.5bn and Rmb344.8bn, as we believe the firm's improving business operation could drive revenue growth. We cut our 2025 and 2026 earnings forecasts 7% and 6% to Rmb10.9bn and Rmb12.8bn, given rising labor costs and selling expenses. Maintain OUTPERFORM.

We maintain our target price and switch our valuation method to 2026e P/E, as the firm may see profit growth in 2026 and its earnings may stabilize. H-shares are trading at 16x 2026e P/E and our target price implies 20x P/E with 30% upside. H-shares are trading at 13x 2026e P/E and our target price implies 18x 2026e P/E, offering 42% upside.

Risks

Weaker-than-expected demand growth; volatile competitive landscape; surging fuel and labor costs.