Recent reports indicate that J&T Express-W (01519.HK) has come under formal investigation by the State Post Bureau due to deficiencies in its production safety management. This regulatory action comes just two days after the completion of a significant mutual share subscription deal worth approximately HKD 8.3 billion with SF Holding.

Regulatory Action Follows String of Incidents

The investigation was launched on June 11th, citing multiple production safety incidents and discovered hazards at facilities operating under the J&T Express brand, trademark, and waybills this year. This move follows a series of regulatory warnings and penalties the company has faced in recent times concerning issues like packaging environmental standards and safety hazards. Industry observers suggest these problems stem from inherent weaknesses in the company's franchise model, which has struggled to maintain effective control over its rapidly expanding network.

Just prior to the investigation, J&T and SF Holding had finalized their cross-shareholding agreement. Post-transaction, J&T holds about 4.29% of SF Holding, while SF Holding holds a combined stake of roughly 10% in J&T. In response to the investigation, J&T stated it has established a dedicated task force to address safety hazards and pledged to improve unified management, close-loop rectification of key issues, and enhance frontline staff safety.

The company's history of regulatory issues is notable. Early in 2024, it was administratively interviewed over excessive heavy metals found in packaging bags. In July 2025, its Guangxi regional headquarters was among five express firms collectively interviewed by local regulators. The year 2026 saw several incidents, including a fall accident at a transfer center in February and a warehouse fire in Malaysia in May. Further penalties were issued in March and April in Henan province for failure to implement unified management and eliminate safety hazards. In early June, its provincial headquarters in Zunyi was interviewed for issues like management responsibility gaps and inadequate risk warnings, just nine days before the national investigation was announced.

Challenges in Core Chinese Market

While J&T reported profit and revenue growth for 2025, with total revenue reaching $12.16 billion (up 18.5%) and adjusted net profit at $430 million (up 112.3%), underlying challenges persist, particularly in its largest market, China. Revenue from China constituted 55.2% of the total at $6.71 billion, but this segment's growth slowed sharply to 5% in 2025 from 22.2% the previous year. Furthermore, the segment's adjusted EBITDA fell by about 15% to $363 million, pressured by declining revenue per parcel.

In the competitive Chinese express market, J&T's revenue per parcel continued to drop, falling from $0.32 in 2024 to $0.30 in 2025. This is significantly lower than its revenue per parcel in Southeast Asia ($0.59) and New Markets ($2.15). Consequently, the gross profit margin for the China business was only 6.7% in 2025, the lowest among its three major markets. Parcel volume growth in China also decelerated, from 29.1% in 2024 to 11.4% in 2025, leading to a 0.2 percentage point drop in market share to 11.1%.

This slowing trend continued into Q1 2026, with parcel volume growth in China dropping to 8.4% year-on-year from 26.5%. The number of service outlets in China has also been contracting, falling to 6,300 by the end of Q1 2026 from 6,500 at the end of 2025. Customer service reputation is another concern, with over 57,000 complaints on consumer platforms regarding issues like poor service, lost parcels, and delivery refusals.

Southeast Asian Market Also Under Pressure

The company's profit pillar, the Southeast Asian market, is also facing pressure. In 2025, revenue per parcel in this region declined from $0.71 to $0.59, and the gross profit margin fell from 19.7% to 19.1%, indicating challenges from intense market competition.