S.F. Holding's Second-Quarter Operating Profit Was Broadly In Line, with International Business Taking Over as the Growth Driver, but Slower Time-Definite Express Growth and Fuel Costs Weighing on the Earnings Outlook

Overview

The report reviews the 2Q26 performance of S.F. Holding and KLN. Its core assessment is that S.F. Holding's operating profit was broadly in line with expectations, but slower domestic time-definite express growth, higher fuel costs, and macroeconomic weakness weighed on earnings forecasts. Meanwhile, supply chain and international business, synergies with KLN, improved shareholder returns, and deeper integration of AI into operations constitute the main positive factors.

Core views

S.F. Holding's 2Q26 results were mixed. Revenue was Rmb81.4bn, up 6% year on year and 2% below Goldman Sachs' forecast. Company-defined operating profit was approximately Rmb4.3bn, 1% below Goldman Sachs' forecast and down 5% year on year against a high 2Q25 base, and was therefore still viewed as broadly in line with expectations overall. Net profit attributable to the company's shareholders was approximately Rmb3.0bn, down 15% year on year and 8% below Goldman Sachs' forecast, with the variance mainly arising from non-controlling interests. The quarterly data indicate that revenue is still growing, but profits are constrained by the base effect, business mix, and cost pressures. The report believes that S.F. Holding's growth engine is shifting from domestic operations toward supply chain and international business. Revenue from this segment reached Rmb39.6bn in 1H26, up 15.6% year on year and 47% excluding KLN, and the segment turned profitable with support from synergies with KLN. The revenue mix disclosed by management for the first time shows that international supply chain accounted for approximately 10% of segment revenue and grew 155% year on year; international express delivery and cross-border e-commerce logistics accounted for approximately 10% and grew about 60% year on year; KLN international freight forwarding accounted for more than 60%; and domestic supply chain accounted for approximately 14%. Goldman Sachs therefore raised its forecast for S.F. Holding's 2026E supply chain and international business revenue growth from 8% to 15%. International expansion is proceeding along three paths. First, S.F. Holding is increasing the density of its air routes around the Ezhou hub. Management stated that Ezhou already ranks among the world's top three by freight throughput and plans to continue expanding overseas warehouses beyond the existing 2.75 million square meters. Second, the company is leveraging its end-to-end compliance capabilities to capture market share left by the exit of non-compliant freight forwarders as tariff and customs regimes tighten. Third, the company is shifting from simply reducing transportation costs to helping customers manage inventory and total manufacturing costs, supporting customers' capacity relocation to Vietnam and Southeast Asia through deep system integration with leading clients across industrial value chains. The transaction for the cooperation with J&T was completed in early June and covers 14 countries. The company guided that related-party business volumes will increase in 2H26 and that earnings will be recognized under the equity method. Domestic time-definite express delivery is undergoing a proactive adjustment. Revenue from time-definite express delivery, including e-commerce returns, was broadly flat year on year in 1H26. Premium time-definite products grew 5.3%, while the time-definite business grew approximately 5% excluding low-margin reverse-logistics e-commerce parcels from Douyin. The slowdown reflects both the high 2Q25 base and the company's proactive reduction of low-margin return parcels. S.F. Holding partially offset the pressure through scenario-based demand, serving 780 concerts and more than 2,000 exhibitions in 1H26, and plans to further penetrate campuses, CBD service points, and B2B parcels in 2H26. Goldman Sachs expects the company to remain focused on premium time-definite delivery, but competition in the mid-to-high-end market may intensify. It therefore lowered its 2026E time-definite express revenue growth forecast from 5% to 0%. Shareholder returns improved significantly. The 2026 interim payout ratio increased from 40% to 45%, corresponding to approximately Rmb2.5bn and growth of 8% year on year. The revised 2024-2028 shareholder return plan requires the payout ratio to reach 50% in 2027 and no less than 50% in 2028. S.F. Holding completed Rmb6bn of A-share repurchases in 1H26 and also conducted partial H-share repurchases, with the relevant shares intended for cancellation. The improvement in returns occurred against the backdrop of a 14% year-on-year decline in 1H26 operating cash flow to Rmb11.2bn. The company nevertheless maintained its FY26 capital expenditure guidance of approximately Rmb12bn, of which Rmb6bn was invested in 1H26, mainly in automation, unmanned equipment, new-energy vehicles, and AI. AI agents are becoming more deeply embedded in operations. Management disclosed that the company already has more than 10 primary agents and approximately 15,000 business application agents. The execution rate of AI dispatching instructions exceeds 90%, the automatic scheduling rate for trunk and feeder routes exceeds 98%, and network-wide route replanning time has been reduced from 3 days to 6.5 hours. Management aims for agents to handle more than 80% of routine decisions and for AI to fully support closed-loop business processes by 2027. The report views these advances as important levers for S.F. Holding to offset cost pressures and improve network efficiency. Due to slower time-definite express growth and margin pressure from higher fuel costs, Goldman Sachs lowered S.F. Holding's 2026E-2028E revenue forecasts by 1% to 2% and its net profit attributable to shareholders forecasts by 5% to 7%, with cost-efficiency measures only partially offsetting the impact. The revised revenue forecasts are Rmb325.982bn, Rmb349.477bn, and Rmb372.956bn, respectively, representing year-on-year growth of 6%, 7%, and 7%. Net profit attributable to shareholders is forecast at Rmb11.208bn, Rmb12.865bn, and Rmb14.562bn, respectively, representing year-on-year growth of 1%, 15%, and 13%. Over the same period, supply chain and international business revenue forecasts were raised to Rmb84.219bn, Rmb90.922bn, and Rmb98.294bn, while time-definite express revenue forecasts were lowered to Rmb131.035bn, Rmb137.658bn, and Rmb144.524bn, reflecting the continued shift in the business mix toward international operations. Goldman Sachs maintained its Buy rating on S.F. Holding H-shares and Neutral rating on A-shares, while lowering their 12-month target prices from HK$43 and Rmb44 to HK$39 and Rmb39, respectively. The A-share valuation uses an unchanged 6x 2026E EV/EBITDA multiple. The H-share valuation applies the average H/A discount over the past three months to the A-share valuation, with the report citing a 17% discount. The difference between the H-share and A-share ratings reflects differences in return potential arising from the valuation relationship between the same fundamentals in different listing venues. For KLN, Goldman Sachs adjusted its 2026E-2028E net profit forecasts by 0% to 2%, taking into account temporarily higher ocean freight rates, declining air freight rates, and changes to Europe's low-value duty exemption policy. The report maintained its Neutral rating and lowered the 12-month target price from HK$8.3 to HK$8.0 due to higher net debt in its sum-of-the-parts valuation. KLN's main uncertainties stem from freight-rate volatility, changes in international trade policy, and the execution of KLN 2.0.

Analysis framework

The report first compares actual 2Q26 revenue, operating profit, and net profit attributable to shareholders with the prior-year period and Goldman Sachs' forecasts, and then breaks down the sources of growth by segments including time-definite express, supply chain and international, and KLN. It subsequently revises its 2026E-2028E forecasts based on product mix adjustments, international infrastructure, customer capacity relocation, fuel costs, capital expenditure, shareholder returns, and AI-enabled efficiency. Finally, it values S.F. Holding using EV/EBITDA and the H/A discount, and values KLN using a sum-of-the-parts approach.

Methodology notes

• Valuation MethodEV/EBITDA valuation

  6x 2026E EV/EBITDA Valuation

  The report measures the value of S.F. Holding A-shares using a multiple of enterprise value relative to expected EBITDA. It maintains the 6x valuation multiple, with the lower target price mainly resulting from reduced earnings forecasts.

• Valuation MethodSOTP Valuation

  KLN Sum-of-the-Parts Valuation

  The report separately estimates KLN's international freight forwarding, logistics and express businesses, corporate expenses, associates, net debt, and non-controlling interests, and then aggregates them to derive equity value and the per-share target price.

• (Out-of-Vocabulary Method)

  Mapping Based on the Average H/A Discount over the Past Three Months

  The report first estimates the value of S.F. Holding A-shares and then derives the H-share target price using the recent average discount of H-shares relative to A-shares. The report cites a 17% H/A discount over the past three months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• S.F. Holding H-shares (06936.HK)

  The report maintains a Buy rating and lowers the 12-month target price to HK$39.

  Strengths

  Accelerating supply chain and international business, KLN synergies driving a return to profitability, higher shareholder returns, and improved AI-enabled operating efficiency.

  Weaknesses

  Slower time-definite express growth and greater exposure to air freight make it more vulnerable to higher fuel costs.

  Comparison

  The H-share target price is derived by applying the average 17% H/A discount over the past three months to the A-share valuation; its rating is above the Neutral rating on A-shares.

  Risks

  Macroeconomically sensitive parcel-volume growth, long-term price competition, capital expenditure and costs above peers, competition in new businesses, and execution risks across multiple business lines.

• S.F. Holding A-shares (002352.SZ)

  The report maintains a Neutral rating and lowers the 12-month target price to Rmb39.

  Strengths

  International business, premium time-definite delivery, intra-city operations, and supply chain business retain growth potential, while cost-efficiency measures can partially offset pressures.

  Weaknesses

  Revenue and net profit forecasts were lowered, while the adjustment of the time-definite express mix and fuel costs weigh on margins.

  Comparison

  Valued at 6x 2026E EV/EBITDA, with the target price lowered from Rmb44 to Rmb39; its rating is below that of the H-shares.

  Risks

  The pace of margin recovery, pricing discipline and competition, growth in high-quality businesses, and changes in fuel costs.

• KLN Logistics Group (00636.HK)

  The report maintains a Neutral rating and lowers the 12-month target price to HK$8.0.

  Strengths

  Synergies with S.F. Holding have helped the supply chain and international segment turn profitable, while ocean freight rates remain temporarily elevated.

  Weaknesses

  Declining air freight rates, higher net debt, and changes in trade policy affect valuation and earnings.

  Comparison

  Uses a sum-of-the-parts valuation based on 2026E EV/EBITDA, with the target price lowered from HK$8.3 to HK$8.0.

  Risks

  Freight-rate volatility, changes in international trade policy, and execution risks related to KLN 2.0.

Key data

• S.F. Holding 2Q26 RevenueRmb81.4bnUp 6% year on year and 2% below Goldman Sachs' forecast
• S.F. Holding 2Q26 Operating ProfitRmb4.3bn1% below Goldman Sachs' forecast and down 5% year on year
• S.F. Holding 2Q26 Net Profit Attributable to ShareholdersRmb3.0bnDown 15% year on year and 8% below Goldman Sachs' forecast
• 1H26 Supply Chain and International Business RevenueRmb39.6bnUp 15.6% year on year and 47% excluding KLN
• International Supply Chain Revenue Contribution and GrowthApproximately 10% of segment revenue, up 155% year on yearSegment revenue mix disclosed by management for the first time
• International Express Delivery and Cross-Border E-commerce LogisticsApproximately 10% of segment revenue, up approximately 60% year on yearAnother international business highlight identified by the report
• KLN International Freight Forwarding ContributionMore than 60% of segment revenueRevenue mix of supply chain and international business
• 2026E Supply Chain and International Business Growth15%Goldman Sachs' previous forecast was 8%
• 1H26 Time-Definite Express GrowthApproximately 0%Including e-commerce returns; premium time-definite products grew 5.3%
• 2026E Time-Definite Express Growth0%Goldman Sachs' previous forecast was 5%
• Interim Payout Ratio45%Increased from 40%, corresponding to approximately Rmb2.5bn and up 8% year on year
• Subsequent Payout Targets50% in 2027 and no less than 50% in 2028Revised 2024-2028 shareholder return plan
• 1H26 A-share RepurchasesRmb6bnPartial H-share repurchases were also conducted, with the relevant shares intended for cancellation
• 1H26 Operating Cash FlowRmb11.2bnDown 14% year on year
• FY26 Capital Expenditure GuidanceApproximately Rmb12bnRmb6bn invested in 1H26
• AI Operating AgentsMore than 10 primary agents and approximately 15,000 business application agentsManagement aims for agents to handle more than 80% of routine decisions
• AI Dispatching and SchedulingDispatch execution rate above 90% and automatic scheduling rate above 98%Network-wide route replanning time reduced from 3 days to 6.5 hours
• S.F. Holding 2026E-2028E Revenue ForecastsRmb325.982bn, Rmb349.477bn, Rmb372.956bnLowered by 2%, 2%, and 1%, respectively, from previous forecasts
• S.F. Holding 2026E-2028E Net Profit Attributable to Shareholders ForecastsRmb11.208bn, Rmb12.865bn, Rmb14.562bnLowered by 7%, 5%, and 5%, respectively, from previous forecasts
• S.F. Holding A-share and H-share Target PricesRmb39, HK$39Previously Rmb44 and HK$43, respectively
• KLN Target PriceHK$8.0Previously HK$8.3; lowered due to higher net debt in the sum-of-the-parts valuation

Impact & implications

The report believes that S.F. Holding's growth quality will increasingly depend on whether supply chain and international business can sustain rapid expansion and whether AI and cost efficiency can offset slower time-definite express growth, rising fuel costs, and macroeconomic weakness. Higher dividends and repurchases enhance shareholder returns, but declining operating cash flow and approximately Rmb12bn of capital expenditure mean that cash distributions and long-term investment must proceed in parallel. Synergies with KLN support international business, but freight rates, trade policy, and execution risks continue to constrain its rating.

Risks

• S.F. Holding's time-definite express revenue may slow further.
• Price competition in the express delivery market may persist or intensify.
• Macroeconomic weakness may constrain parcel-volume growth.
• Higher fuel prices may continue to squeeze S.F. Holding's margins, particularly in air-based time-definite delivery.
• S.F. Holding's capital expenditure and operating costs may exceed those of peers.
• Competition in new businesses and execution across multiple business lines may fall short of expectations.
• KLN faces volatility in ocean and air freight rates.
• Changes in international trade and tariff policies may affect KLN's business.
• KLN 2.0 entails execution risks.

What to watch

• Monitor whether S.F. Holding's cost-efficiency measures in 2H26 can offset higher oil prices and macroeconomic weakness.
• Monitor the penetration of time-definite express delivery in campuses, CBD service points, and B2B scenarios, as well as changes in competition in the mid-to-high-end market.
• Monitor related-party business volumes and equity-method earnings generated by the J&T cooperation in 2H26.
• Monitor whether supply chain and international business can achieve Goldman Sachs' forecast of 15% growth in 2026E.
• Monitor the implementation of the shareholder return plan to raise the payout ratio to 50% in 2027 and no less than 50% in 2028.
• Monitor progress toward AI agents handling more than 80% of routine decisions and establishing closed-loop business processes in 2027.
• Monitor changes in freight rates, Europe's low-value duty exemption policy, and the execution of KLN 2.0.