Higher financial expenses and lower investment returns have dragged down performance and maintained the “increase in holdings” rating
In the third quarter, the company merged with Chengtong Commerce. After the merger, revenue for the first three quarters increased 10.6% year-on-year to 274.1 billion yuan, and Guimu's net profit fell 94.0% year-on-year to 74 million yuan. The expansion of the business scale and the merger of Chengtong Trading led to an increase in revenue. The increase was in line with expectations. However, the growth rate of Guimu's net profit was lower than expected, mainly due to the increase in financial expenses due to the expansion of the scale of financing in the current period, as well as the large investment income and sharp decline in investment income in the current period due to equity swaps in the same period last year. Due to the merger of Chengtong Commerce and Trade, the 18/19/20 EPS was adjusted to 0.45/0.47/0.49 yuan (previous value 0.45/0.46/0.47 yuan) to maintain the “increase in holdings” rating.
The pilot evaluation of car-free carriers ranked in the top three, and there is plenty of room for profit improvement in the future
The company launched the China Storage Smart Transport platform in 2015 to achieve logistics distribution through car-free carriers. It has now become the largest car-free carrier platform in China. In the comprehensive monitoring and evaluation ranking of car-free carriers announced by the Ministry of Transport in October this year, China Storage Smart Transport ranked third in the country and first in Jiangsu, demonstrating the company's strength. In the first half of 2018, China Storage Smart Transport achieved a net profit of 20.6499 million yuan, contributing 8.6717 million yuan to the company's net profit. We anticipate that with the company's own resource advantages and the platform's own business advantages, with the further development of this business, there will still be a lot of room for profit improvement in the future.
The proposed repurchase of approximately 110.22 million shares will help motivate employees and boost market confidence
On October 10, the company issued a share repurchase plan. It plans to repurchase about 110.22 million shares at no more than 9 yuan/share, accounting for 0.5%-1% of the total share capital. The estimated amount required is about 1-2 billion yuan. All of the repurchased shares will be used in the equity incentive plan. If equity incentives are not implemented and the shares are cancelled, the total share capital becomes 2,178 million shares. The repurchase plan is yet to be reviewed and approved by the Extraordinary General Meeting of Shareholders on October 31. We believe that this repurchase responds positively to the revision of the “Company Law”, helps enhance market confidence in the company, protects shareholders' interests, increases employee motivation, and is expected to improve the company's future performance.
The high base of commodity prices in the second half of '17 may have led to a slowdown in revenue growth in the commodity distribution business in '18
The company's commodity distribution business mainly targets commodities such as steel, coal, and iron ore. It is easily affected by macroeconomic and commodity price fluctuations, and its gross margin is low. It remained between 1.5%-1.8% from '16 to the first half of '18. In the first half of 2018, due to macroeconomic influence, the company's commodity distribution business revenue fell 8.6% year-on-year. Due to the rapid rise in commodity prices in the second half of '17, the high base led to a decline in commodity price growth in the second half of '18. Coupled with uncertain macroeconomic trends, the company's commodity flow business revenue increased significantly in 2018.
Car-free carriers, buybacks boost confidence and maintain “increase holdings” ratings
China Storage Smart Transport, a subsidiary of the company, is currently a leading car-free carrier, and is expected to become a new growth pole for the company's performance in the future. At the same time, the company plans to buy back shares, which is expected to boost market confidence. Based on updated data from the Third Quarterly Report and Chengtong Trading's historical revenue situation, we raised the net profit forecast for 18/19/20 to 992/10.39/1,069 million yuan. The corresponding EPS was 0.45/0.47/0.49 yuan (previous value 0.45/0.46/0.47 yuan). Referring to the A-share listing, the company's average PE valuation in 2018 was 13.5x, the company was given an 18-year PE valuation of 13.0x-14.0x, and the company's 18-year target price was lowered to 5.85-6.30 yuan (previous value of 10.0-11.0 yuan) to maintain the “increase in holdings” rating.
Risk warning: falling commodity prices have led to a reduction in revenue scale, compression of profit margins, and an increase in the risk of bad debts; vicious competition has broken out in the car-free carrier industry; development of repurchase matters falls short of expectations
