Full Truck Alliance Looks Poised for Recovery with Wrap of Data Security Review

Key Takeaways:

• Media are reporting a nearly yearlong data security review of Full Truck Alliance could be near an end, though the company said a concurrent ban on new user signups has yet to be lifted
• Company reported its total net revenue grew 53.7% in the first quarter, but predicted the figure would slow to between 39% and 46% growth in the current quarter

By Doug Young

Summer may be arriving for much of China, but for Full Truck Alliance YMM it may feel more like a long winter is close to ending. The operator of apps that match truckers with companies shipping goods around China has just reported its latest quarterly results, sparking a rally that saw its stock rise 15% in the two days since the announcement.

The results look relatively encouraging, especially when one considers that trucking in China took a big hit starting in March from the nation’s aggressive pandemic-control restrictions. But investors appeared more focused on a Wall Street Journal report saying a nearly yearlong cybersecurity review of Full Truck Alliance is about to wrap up.

That would be a major development for the company, which has been banned from signing up new users since the review was first announced last July. Full Truck Alliance was one of three companies subject to similar bans at that time, alongside two other newly U.S.-listed Chinese companies, the Uber-like DiDi Global DIDI and online recruitment site operator Kanzhun BZ.

All three companies have suffered for the last year due to the ban, since new users typically are one of a company’s most important growth engines. The Journal reported all three companies should soon be able to resume signing up new customers again following the end of the reviews. Reuters even reported that Full Truck Alliance was already signing up new users again, based on its own attempts to use the app.

Full Truck Alliance CFO Simon Cai addressed the issue on the company’s first-quarter earnings call on Wednesday, saying First Truck Alliance had not resumed signing up new customers. But the market appears to believe that such a development will come soon, which is relatively consistent with broader signals from Beijing.

China launched the three cybersecurity reviews last year amid a larger wave of regulation targeting internet companies, cracking down over a wide range of issues that included everything from national security to behaviors the government considered anti-competitive and harmful to the nation’s youth. More recently, however, government officials have sent out increasing signals that the regulatory wave will soon start to ease.

Full Truck Alliance has been just one of China’s many internet companies whose stock has posted strong recent gains on hopes of less government pressure. The stock is up 64% since May 25, and now trades close to where it started out this year. That may not sound that impressive, but it marks a relatively strong rebound from earlier in the year when many worried that U.S.-traded Chinese stocks might be forced to delist under pressure from both U.S. and Chinese stock regulators.

Following the rebound, Full Truck Alliance’s shares now trade at a price-to-sales (P/S) ratio of 6.4, ahead of the 4.6 times for more traditional logistics company ZTO ZTO and well ahead of the 1.7 ratio for intra-city delivery specialist Dada Nexus DADA. But many might argue the stock should be valued even higher, since Full Truck Alliance has far lower costs than the other logistics companies due to its position as an online network operator without the costs related to fleet ownership.

Government shift

While the end of the data security review is the most important factor for Full Truck Alliance’s recent rally, the company’s actual first-quarter results also look quite solid. Many similar companies to report their results already have shown a similar trend. All have announced relatively strong first quarters, but forecast sharp second-quarter slowdowns due to strict pandemic-control measures that many cities started rolling out in late March.

Full Truck Alliance reported its first-quarter total net revenue rose 53.7% year-on-year to 1.33 billion yuan ($199 million). The company’s biggest growth driver was its transaction commissions, which tripled to 258 million yuan and now account for nearly 20% of revenues.

The company continued to post a net loss, though the latest quarterly loss of 192 million yuan was roughly unchanged from a year earlier. Full Truck Alliance is actually profitable on an adjusted basis, which excludes certain items like the employee stock grants. On that basis its net income rose 68% during the quarter to 190 million yuan.  

Despite the Covid headwinds, the company also forecast relatively strong second-quarter year-on-year revenue growth of between 39% and 46%. While that’s a slowdown from the first-quarter growth rate, it’s far less of a slowdown than some other companies have forecast. Many are taking a major hit from a two-month complete lockdown of the city of Shanghai in the months of April and May, which saw business in China’s financial capital grind to a halt.

While trucking was affected by restrictions, Cai said China’s economic planner – the National Development and Reform Commission (NDRC) – had intervened to try and remove some of the many restrictions that various cities and provinces erected to slow the spread of the highly contagious Omicon Covid-19 variant. While some in China believe a “zero Covid” policy is paramount above all else, another group of more economically-focused officials is also stressing the importance of trying to minimize the economic damage being wreaked by control measures.

“In light of the NDRC decision to relax restrictions and facilitate the full resumption of logistics operation, we saw a gradual resumption of business operations and signs of recovery in transaction broadly in the past month,” Cai said, adding that the company believes the negative impact of recent Covid restrictions will be short-lived.

At the end of the day, the signals do look relatively good for a strong recovery for Full Truck Alliance in the second half of the year. The end of the cybersecurity review should allow its revenue growth to return to an accelerating track, while the government focus on a more balanced approach to pandemic-control and economic growth should also work to its advantage.