Work together to achieve long-term growth. Yuantong Express (600233 CH) and Xinda International Logistics jointly held an investor briefing on strategic cooperation on May 16, 2017. On May 8, the two companies announced that Yuantong Express planned to acquire a 61.87 per cent stake in Xindar International Logistics for a total consideration of HK $1.041 billion, or HK $4.07 per share, a 5 per cent premium to the closing price on May 8. It should be pointed out that the transaction cost may be reduced if Sunda International Logistics fails to achieve the specified performance target or sales network development target in 2017-2019 (to be determined through consultation between the two companies). We believe that this transaction is a win-win strategy for both sides and will help both companies expand their businesses in both China and overseas markets. The two sides will have some resources and customer base to share. In addition, the transaction will help Yuantong Express to raise funds or mergers and acquisitions overseas in the future.

Belt and Road Initiative's trade development and cross-border e-commerce bring overseas growth opportunities. Yuantong Express proposed the deal because it saw Belt and Road Initiative's trade development and the rise of cross-border e-commerce in China and brought good opportunities for overseas business expansion.

The central government is promoting the Belt and Road Initiative strategy and the development of regional trade. Trade between China and Belt and Road Initiative countries continued to grow in 2016, accounting for 25.7 percent of China's total foreign trade value, up 0.4 percent from a year earlier, according to the Ministry of Commerce. At the same time, China's cross-border e-commerce is growing rapidly. As national income increases, Chinese consumers have stepped up their purchases of overseas goods and are no longer satisfied with buying through domestic e-commerce, but directly from online foreign retailers and suppliers. Trade exporters in the Chinese market are also actively promoting their products through overseas online channels. As a result, the trend for overseas consumers to buy Chinese products through the Internet is becoming more and more popular. According to industry experts, the value of global cross-border e-commerce transactions is expected to rise from 314.6 billion yuan in 2015 to 1 trillion yuan in 2020, with China's market share rising from 36 per cent in 2015 to 43 per cent in 2020.

Yuantong Express has a leading position in China's express market. Yuantong Express specializes in warehousing, distribution and transportation. It is the market leader in China's express delivery and express service market, with a market share of 13% in terms of express delivery volume in 2016. The company was founded in 2000, and BABA and Yunfeng Xinchuang (a fund funded by Jack Ma) currently hold a 17.5 per cent stake in Yuantong Express. The company listed on the A-share market in 2016 through backdoor clothing company Dalian Dayang Chuangshi. The purpose of the listing is to raise funds to help companies invest in logistics infrastructure and service upgrading.

At the end of 2016, Yuantong Express operated 62 self-operated hub transfer centers and had 2593 franchisees and 37713 sales terminals across the country. The company operates a fleet of five aircraft. The company has also established express delivery services in Hong Kong / Macau, Japan, South Korea, ASEAN, Central Asia, Europe and Australia.

The strategic cooperation between Yuantong and Xinda International Logistics will lead to the growth of B2C and B2B logistics business in China and overseas. Sunda International Logistics, founded in 1995, specializes in air and sea freight forwarders, and has established extensive overseas networks in Asia, Europe and North America. In 2016, the company's core freight business faced the challenge of weak demand, with revenue down 11.1% from a year earlier. Due to fierce price competition, net profit fell 90 per cent year-on-year to HK $5 million. Yuantong Express is looking for overseas growth opportunities, and the company hopes to develop Sunda International Logistics into an international business platform for overseas expansion. More importantly, because Xinda International Logistics has the ability to provide full value chain logistics services and experience in overseas logistics markets, Yuantong Express believes that it can quickly enter domestic and foreign B2B logistics markets through Xinda International Logistics. For Xianda International Logistics, by taking advantage of Yuantong Express's large customer base in the Chinese market, the company can also ensure the continued growth of core forwarders and other logistics-related businesses.

The offer price brings support to the stock price. Yuantong Express is still not the official controlling shareholder of the company, as the transaction has not yet been approved by regulators, so we do not think it is possible to judge how much boost this strategic cooperation will have on the profit prospects of Xindar International Logistics. However, we believe that there is limited room for the company's share price to fall, as once Yuantong Express takes control, it may trigger an offer obligation under Hong Kong regulations at a price of HK $4.0698 per share. As for the rising space of the company's share price, it will depend on the detailed business integration and business promotion plan of the two sides. Yuantong Express's revenue in 2016 was 16.8 billion yuan, more than six times that of Xianda International Logistics. In 2016, the net profit of Yuantong Express was 1.4 billion yuan, while that of Funda International Logistics was 5 million Hong Kong dollars. This means that as long as Yuantong Express is willing to give support, there will be huge room for the development of Sunda's international logistics business.