Investment logic
The company is the largest private integrated third party logistics provider in Xinjiang: Relying on Xinjiang's rich natural resources, the company started with third-party logistics services for bulk and bulky goods, and gradually expanded supply chain management, logistics park management, and logistics finance supervision. In 2015, the company's revenue reached 487 million yuan, of which third-party logistics revenue accounted for 92.8%.
Third-party logistics is gradually becoming mainstream, and demand is strong in the Xinjiang market: the proportion of logistics outsourcing services in China continues to rise, and the scale of third-party logistics is growing rapidly. The country's total social logistics volume increased from 38.4 trillion yuan in 2004 to 213.5 trillion yuan in 2014, with a compound annual growth rate of 18.7%. However, the proportion of domestic industrial and commercial enterprises that carry out logistics outsourcing business has increased year by year, from 42.9% in 2006 to 86.7% in 2011. In 2014, China's third-party logistics revenue accounted for 8% of total logistics costs. Compared with 10.9% in the US and 10.5% in Europe, there is still room for improvement. The economy of Xinjiang is dynamic. The GDP growth rate and fixed asset investment growth rate are both higher than the national average, and due to long transportation distances and high logistics costs, it has provided market space for the development of more specialized third party logistics enterprises.
Asset-light third-party logistics is combined with asset-heavy logistics parks to provide comprehensive services: The company's main transportation types are mineral products such as iron and coal in bulk goods, steel, cement, and wind turbines in bulky goods. The logistics revenue of the top five major customers in 2015 accounted for 72.7%. The company's third party logistics is asset-light. It makes extensive use of outsourced vehicles. Outsourced costs account for 90% of total costs, of which fuel costs account for 37.6%, and lower oil prices save costs. Logistics parks are asset-heavy and perform agglomeration functions. They are mainly divided into three categories: warehouses, leased warehouses, and supervision warehouses. The utilization rate of warehouses has reached 98%, and the gross margin is close to 60%.
Funding was raised to build the Hami Logistics Park and expand overseas markets: the company's total share capital before issuance was 56 million shares, and the total number of shares issued this time did not exceed 18.68 million shares. The issue price was 777 yuan/share, and the planned financing was about 144 million yuan. Currently, more than 90% of the company's revenue comes from Xinjiang. The company plans to invest 190 million yuan to build the Hami Logistics Park and 29 million yuan to upgrade the information system, which will help develop markets outside the country and spread its business to the whole country.
Investment advice
The economic development of Xinjiang is dynamic. The company is expanding supply chain services and expanding markets outside the country. The EPS for 2016-2018 is expected to be 0.50 yuan, 0.53 yuan, and 0.58 yuan. The latest static PE in Shenwan's logistics sector is 36 times, and the new shares have a valuation premium. The company is given 50 times the static PE, corresponding to the target price of 25 yuan.
risks
Demand for major types of transportation is sluggish, oil prices have risen sharply, accounts receivable and the risk of default by outsourcers, etc.