Malaysia’s richest man Robert Kuok is best known for founding Shangri-La Hotels. A less glamorous part of his Kerry group, package delivery, is pulling its weight as hotel sales fall. Impressed, SF Holding, China’s answer to FedEx, is buying the business.

SF will take a 52 per cent stake in Kerry Logistics at $2.40 per share in cash in a deal with a value of $2.3bn. When combined with a special dividend Kerry has offered, that represents a premium of about a tenth to the previous closing price.

The deal makes sense for both sides. The pandemic has hit net profits at Kerry’s listed businesses. These are heavily exposed to property development in mainland China and Hong Kong. SF has meanwhile benefited from a surge in online shopping and unprecedented demand for express shipping. That has been especially strong in China.

The problem is that China’s courier market is now saturated. Shipping volumes increased nearly a third last year. Total combined revenue growth at courier companies has stalled at about half that figure. Growing competition between the top seven local companies has sparked a fierce price war. For smaller rivals, last year’s delivery fees were well below those of the previous year.

Until now, SF has managed to escape relatively unscathed thanks to scale advantages. Net profit rose more than 50 per cent in the third quarter. Shares have reflected that divergent performance. SF stock has risen over 160 per cent in the past year, valuing it at $75bn — $6bn more than FedEx, according to S&P Global. Smaller rivals such as Alibaba-backed STO Express are down about 50 per cent.

SF will have to rely on overseas markets for future growth. South-east Asian countries like Indonesia will be key. Here ecommerce had a late start but is now growing faster than China. Kerry’s broader Asian distribution network is therefore more valuable to SF. The rally, which has pushed the market worth of SF to levels on par with global peer DHL, has further to go.

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