The 10 billion equity incentive "scared" investors, and SF HOLDING's stock price has fallen consecutively

On September 2, SF HOLDING closed at 41.82 yuan per share, with a total market value of 210.7 billion yuan. Since August 29, the company's stock price has continuously declined, with a cumulative drop of 13.60%.

On the eve of this price change, SF HOLDING initiated a stock ownership plan called "Growing Together," which will allocate no more than 200 million shares for employee equity incentives, with no capital contribution required from participants. Based on the stock price on the announcement date, the value of 200 million shares is approximately 9.68 billion yuan.

This plan has raised questions among some investors. Some investors believe that the assessment criteria for the plan are too lenient, and the resulting share-based payment expenses will erode the company's profits. Additionally, after the incentive shares are unlocked, the company's stock price may decline due to selling pressure. However, some investors argue that this incentive plan is a long-term benefit for the company.

What are the specific details of the "Growing Together" stock ownership plan?

According to the announcement from SF HOLDING, the shares for this ownership plan come from a donation by the company's controlling shareholder, Mingde Holdings, totaling no more than 200 million shares, accounting for approximately 4% of the company's total share capital. Mingde Holdings is 99.9% owned by Wang Wei, the chairman of SF HOLDING, and as of the end of the second quarter, Mingde Holdings held a total of 53.32% of the listed company's shares.

In terms of the incentive targets, this stock ownership plan has a broad coverage, including directors, supervisors, senior management, and core personnel, among which core personnel include couriers, operators, and other grassroots employees. The threshold for employee participation in the stock ownership plan is not high. At the company level, the performance assessment condition is simply a positive growth rate in net profit for the year. At the individual level, the performance assessment for incentive targets is either A or B, both of which can receive equity incentives, with only the allocation ratio differing.

It is worth noting that SF HOLDING does not directly issue shares to the incentive targets but instead issues "virtual share units," and based on these, calculates the final number of shares to be issued according to the appreciation of the grant price. During the 9-year duration, the "Growing Together" stock ownership plan is expected to issue 1.62 billion virtual share units, with the grant price from 2025 to 2027 set at 35 yuan per share.

The announcement indicates that this year, SF HOLDING plans to issue 81.144 million "virtual share units" to employees, with a total expense to be recognized of 425 million yuan, which will be amortized over 11 years. This also means that between 2026 and 2034, the company will need to incur an additional annual expense of 44.3109 million yuan.

If all "virtual share units" issued under the "Growing Together" stock ownership plan are amortized at this year's price (approximately 5.23 yuan per unit), the total expense that SF HOLDING will need to amortize in the future will reach as high as 8.47 billion yuan. Of course, the actual amortization expenses will be influenced by a series of factors such as stock price, grant scale, and grant price In the announcement, SF Holding also admitted that the amortization of relevant costs or expenses arising from the implementation of this plan may have a certain impact on the company's net profit in each year during the waiting period, lock-up period, and service period.

However, since the aforementioned equity is donated free of charge by the controlling shareholder, the corresponding amortization only affects the company's income statement and does not impact the company's cash flow statement, thus will not result in substantial cash outflow for the company. In addition, since the company’s equity grants must meet the condition of year-on-year growth in net profit, employees must also work hard to promote the company's performance growth to cover the impact of amortization on profits if they wish to receive equity incentives.

In simple terms, this shareholding plan means that Mingde Holding is giving shares for free to SF employees, but it requires the company to account for it. For the company, this will not incur losses, but it will be reflected in the income statement, resulting in a corresponding decrease in net profit in the coming years.

SF Holding stated that the shareholding plan is beneficial for promoting the core management personnel and key staff to shift their mindset from "managers" to "partners," exercising initiative, actively assuming the responsibility for the company's long-term growth, and being more motivated to promote the company's long-term sustainable and healthy operation, ensuring the company's long-term competitive advantage.

In addition, according to the announcement from SF Holding, the company has set a lock-up period and service period for the stocks granted to employees, with a uniform deadline set for ten years later. During this period, the holding employees only enjoy the dividend rights of the stocks, and will only be able to enjoy full rights after the expiration of the lock-up and service periods in ten years. In other words, the aforementioned incentive stocks can only be reduced in the secondary market at least ten years later.

Non-recurring net profit growth rate lower than expected

On the same day that the shareholding plan was officially announced, SF Holding also released its semi-annual report for 2025.

In the first half of the year, SF Holding achieved operating revenue of 146.858 billion yuan, a year-on-year increase of 9.26%; net profit attributable to the parent company was 5.738 billion yuan, a year-on-year increase of 19.37%; and non-recurring net profit attributable to the parent company was 4.551 billion yuan, a year-on-year increase of 9.72%.

However, looking at the quarterly results, SF Holding achieved revenue of 77.01 billion yuan in the second quarter, a year-on-year increase of 11.5%; net profit attributable to the parent company was 3.5 billion yuan, a year-on-year increase of 21.0%; and non-recurring net profit attributable to the parent company was 2.58 billion yuan, with a year-on-year growth rate of only 3.5%.

This growth rate of non-recurring net profit attributable to the parent company is far lower than the company's previous performance. From 2022 to 2024, the growth rates of non-recurring net profit attributable to the parent company for SF Holding were 190.97%, 33.67%, and 28.20%, respectively. In the first quarter of this year, this figure was also 19.12%, all showing double-digit growth. Huatai Securities also stated in its research report that the year-on-year growth rate of non-recurring net profit attributable to the parent company for SF Holding in the second quarter was slow.

Behind this change, SF Holding is lowering prices to seize market share. In the first half of the year, the unit price of SF Holding's express logistics business significantly decreased, with the decline exceeding 10% in five out of six months, except for January. For example, the unit price in June was 13.67 yuan, a year-on-year decrease of 13.32%. This rate of price reduction is much lower than that of Shentong, Yuantong, and Yunda, where the unit price reductions for these three companies in the first half of the year were all in single digits From the results alone, while the unit price has decreased, SF Holding's market share is also rapidly increasing. According to data from the State Post Bureau, the company's market share in the first half of the year was 8.17%, while in 2024, the company's market share is approximately 7.6%, making it the fastest-growing among the six major express delivery giants during the same period.

In addition, the supply chain and international business, which SF Holding has always regarded as its "second growth curve," continued to record losses, amounting to 296 million yuan, a year-on-year narrowing of 48.47%. SF Holding stated that if the losses of the overseas subsidiary KEX, amounting to 430 million yuan, and the financing interest expenses related to the acquisition of KLN, amounting to 290 million yuan, are excluded, this division achieved a net profit of 430 million yuan in the first half of the year, a year-on-year increase of 178%.

In recent years, to develop its international logistics business, SF Holding has invested heavily, such as spending 17.555 billion yuan to acquire Kerry Logistics in 2021 and investing over 30 billion to build the Ezhou logistics hub. In 2024, SF Holding will be listed in Hong Kong, with about 45% of the raised funds being used for international logistics capability construction. Since the beginning of this year, SF Holding has raised nearly 6 billion Hong Kong dollars through placements and convertible bonds in Hong Kong, with international business also being a key investment focus.

Similar to the domestic express delivery market, the global express delivery market is also highly competitive. To capture market share from the three major international express giants, SF Holding's high investment and unprofitable international business situation may continue for some time. Previously, Yu Guo, head of international business development at SF Group, stated that it is a long and arduous process for Chinese logistics companies to go overseas and catch up with international giants, which certainly requires a step-by-step and gradual approach.

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