Tianshun Co., Ltd. released its 2016 annual report. In 2016, the company achieved operating income of 550 million yuan (+12.9%), gross margin fell to 13.2% (-4.0pct), net profit attributable to the parent company was 35 million yuan (+8.3%), and EPS was 0.53 yuan (according to company calculation standards). The company plans to pay a cash dividend of 1 yuan (tax included) for every 10 shares.
The rapid development of supply chain business led to an increase in revenue. Although the company's third-party logistics business declined slightly in 2016 due to the continued downturn in the local economy in Xinjiang, the company achieved a 12.9% increase in operating income due to a year-on-year increase of 356.1% in the supply chain business. At the same time, due to the relatively low gross margin of the supply chain business, the company's gross margin fell by 4.0pct to 13.2%, causing Guimu's net profit to rise only 8.3%.
Combines heavy asset models to provide integrated logistics services. Currently, the company mainly adopts a heavy asset integration model that combines logistics parks and third-party logistics, and is gradually transforming into an integrated logistics service provider based on third-party logistics. Among them, third-party logistics mainly uses outsourced transportation, with low capital investment and strong replicability, while logistics parks adopt an asset-heavy model to provide warehousing site support for the company's other businesses. The combination of important and heavy assets can guarantee the quality of service on the one hand, and also help the company expand its business on the other.
Increase the construction of logistics parks and open up markets outside the country. The company raised about 144 million yuan in public stock offering in 2016, and plans to invest 190 million yuan in the construction of the Hami Logistics Park in Tianshun, Xinjiang.
According to company information disclosure, the project is expected to be completed in 2 years. After delivery, the company will add 65,500 cubic meters of storage capacity, achieving an average annual sales revenue of 86.57 million yuan and net profit of 30.74 million yuan. More than 95% of the company's revenue in 2016 came from within the country, which is heavily constrained by the development of Xinjiang. The completion of future logistics parks will help develop markets outside the country, thereby optimizing the company's revenue structure.
Investment advice: We expect the company's 2017-2018 EPS to be 0.51 yuan and 0.60 yuan respectively, giving it an “increase in holdings - A” rating, with a target price of 58.00 yuan for six months.
Risk warning: declining demand for major transportation goods, receivable risk, etc.