A leader in supply chain integration services, whose value is undervalued. It covers products with a “buy” rating for the first time. Zhongda is a leader in supply chain integration services in China. Since 2011, it has been continuously shortlisted in the Fortune 500. The company relies on business scale, capital strength, bulk industrial chain resources, and refined operation capabilities to establish strong competitive barriers. The future is expected to benefit from increased penetration rate of bulk supply chain services and increased industry concentration, and the company's emerging business is expected to become a new performance growth point. Due to the company's diversified business, the market gave a lower valuation. We expect the company's EPS for 19/20/21 to be 0.57/0.64/0.74 yuan. We expect a compound growth rate of more than 15% in 19-21, corresponding to the spot stock price of 8.2/7.2/6.3X PE. The company's PB valuation is in the bottom area in the past 5 years. It was covered for the first time. It was given a “buy” rating, and the target price range was 5.48-6.03 yuan.
Company Overview: Leading domestic supply chain integration service
Formerly known as Zhejiang Material Administration and Zhejiang Bussan Group, Bussan Zhongda Group Co., Ltd. was listed as a whole through major asset restructuring in 2015. Since 2015, according to the “integrated two wings” (integrated supply chain services, financial services, high-end industry) development strategy, the company has integrated the industrial chain with supply chain thinking to build a unique ecosystem of products and industries. In 15-18, the company's revenue grew 18.07%, Guimu's net profit grew 20.06%. 2019Q1-Q3, the company's revenue increased 18.52% year on year, and Guimu's net profit increased 29.93% year on year. By the end of 2019, the company had become one of the largest supply chain service integrators in China.
Bulk Supply Chain: Expanding Market Share to Realize Profits
Comparative research from overseas shows that the intensity of energy resource consumption shows an “inverted U” pattern. We acknowledge that demand for major commodities in China is close to or even at the top, but even if we look at the steady state on the right, there is still plenty of room for improvement in the penetration rate of leading companies. Although interest spreads for traders narrowed after prices became transparent; however, through the transformation from “trade spreads” to “value sharing,” the operating risks of supply chain enterprises were drastically reduced. We think the company's immediate valuation has largely reflected pessimistic expectations.
Emerging Businesses: Diversified Business Complex
The company is seeking breakthroughs in emerging businesses and vigorously developing the automotive supply chain, finance and high-end industries. With the increase in car ownership and the aging structure of vehicles, the automotive aftermarket space is broad; the company is based on low-profit vehicle sales business to accelerate the expansion of the high-profit aftermarket, and profitability continues to improve. As a state-owned enterprise in China's economically developed province, Zhejiang Province is a state-owned enterprise. The company has a high credit rating and low financing costs lay the foundation for financial business exploration. Business areas include futures, financial leasing, asset management, etc.
The company's high-end industrial sector has formed a business pattern with core competitiveness, such as cogeneration, water and environmental protection, pharmaceuticals, healthcare, wire and cable, and stainless steel.
Investment rating: industry leader, giving a “buy” rating
The company is a leader in the domestic bulk supply chain industry, and the scale effect continues to be realized. We forecast that the EPS for 19/20/21 will be 0.57/0.64/0.74 yuan. Comparable large supply chain enterprises agree that the median PB (20E) value is 0.84X, and the company's 20-year BPS is 6.16 yuan. Considering the company's remarkable comprehensive competitive advantage and is expected to continue to increase market share in the future, PB (20E) of 0.89-0.98X was given, corresponding to the target price range of 5.48-6.03 yuan, covering the “buy” rating for the first time.
Risk warning: large commodity prices have dropped dramatically, supply chain business operation risks.