Main points of investment:

Cut into cross-border e-commerce, promote the realization of traffic, the valuation center is expected to improve. Bohai Ferry announced on the evening of August 6, 2020 that the company signed a "Strategic Cooperation Agreement" with the Management Committee of Yantai Comprehensive Free Trade Zone. The two sides are committed to building a cross-border distribution center and distribution center for cross-border goods from Japan and South Korea, and a landmark platform for cross-border e-commerce for goods from Japan and South Korea. As the main business is relatively stable, the Bohai Sea ferry was more classified as the target of high dividend and stable income in the past. We believe that after the company cuts into the cross-border e-commerce field, the market will realize the underground offline passenger traffic, and the potential space for the cross-border e-commerce business online is not expected enough. We believe that the profit contributed by the offline cross-border e-commerce business is expected to exceed that of the main transportation industry in the medium term after the landing of the e-commerce business.

Offline business traffic is realized. With the advantages of its own ferry passenger flow and Yantai tourism flow, carry out bonded display + cross-border e-commerce products off-line pick-up business. It is estimated that the number of passengers in Yantai will reach 90 million in 2023 (4.7% higher than that of 86 million in 2019). According to the 4% conversion rate, the passenger unit price is 500 yuan (much lower than Sanya's 18% conversion rate, 6000 yuan per unit price). It is predicted that sales of about 1.8 billion yuan will be generated in 2023. According to the careful calculation of the net profit margin of 15% RMB20%, the increment of offline net profit in 2023 is about 2.7-360 million yuan, and the market value of 1-fold PEG is about 114-15.3 billion yuan in 2021. In the later period, the online model has a lot of room for growth by direct mail on the bid day, or stationed in the e-commerce platform.

Online business to bid on Shanghai direct mail, online penetration space is huge. According to the company announcement, the vast majority of cross-border e-commerce goods in Yantai Comprehensive Free Trade Zone adopt a comprehensive tax system (duty-free, import value-added tax and consumption tax, temporarily levied at 70% of the legal tax payable) for 9.1% of the commodity price, with outstanding price advantages. and consumers can buy with ID card registration of personal information. For goods purchased centrally abroad and directly supplied by manufacturers, consumers can enjoy a lower purchase price than in overseas duty-free shops because of the higher level of dealers. The company's online direct mail business or similar daily Shanghai direct mail model, affected by the COVID-19 epidemic in 2020, is exempt from adjusting its business strategy, the daily Shanghai direct mail model is effective, consumer habits have been initially cultivated, and the company's online business unit price has an advantage. there is a lot of potential penetration.

The double main business has made efforts, and the valuation system has risen. Driven by the new profit growth of cross-border e-commerce, the company has double space for accelerated performance growth and revaluation. By using the classification and summation valuation method, the company's passenger ro-ro ship business remains unchanged, and the homing net profit is expected to stabilize above 500 million after 2021. The profit increases steadily with the traffic flow around the Bohai Sea, and is expected to maintain a growth rate of 8%, 10 times 2021 PE, corresponding to a market capitalization of 5 billion. Cross-border e-commerce business will not consider online conversion for the time being. The offline flow will bring the company a net profit increment of 2.7-360 million in 2023, and this part of the business will be given 1 times PEG, corresponding to a market capitalization of 2021 yuan, and the total reasonable market capitalization of the company 2021 will be about 164-20.3 billion yuan. This report mainly measures the medium-term space, as the specific landing situation of the company's cross-border e-commerce still needs to be tracked continuously, the short-term profit forecast remains unchanged for the time being. The company's passenger ro-ro ship business is expected to make a net profit of 265 million, 503 million, 545 million in 2020-2022. Considering the company's cross-border e-commerce business, the medium-term space is opened, and the rating is upgraded from "overweight" to "buy".

Risk hint: cross-border e-commerce business is not as good as expected. With the economic recession, the traffic flow in Bohai Bay is growing negatively. The tunnel technology is higher than expected, and the smoke tunnel can be reopened to overcome the difficulties of safety, ventilation, financing and low return.