High international freight rates have declined, but the professional logistics boom has picked up, and profit margins have risen due to business structure optimization
Sinotrans announced its 2022 results: 1) Operating revenue fell 12.5% year on year to 108.8 billion yuan; 2) Guimu's net profit increased 9.6% year on year to 4.07 billion yuan. Revenue declined but net profit increased mainly because the company optimized its business structure and increased the proportion of businesses with higher profit margins; 3) Investment revenue from the joint venture company Sinotrans DHL invested 1.87 billion yuan, down 6.0% from the previous year. The company announced a year-end dividend of 0.1 yuan/share, with a dividend rate of 35.8% for the whole year. Looking ahead to 2023, although the company's freight forwarding business was negatively affected by the decline in high international freight rates, the company's professional logistics business benefited from post-pandemic recovery and the recovery in logistics demand for overseas “Belt and Road” projects. Overall, we raised our 2023/2024 net profit forecast by 6%/15% to 3.66 billion/4.12 billion yuan, adding 4.50 billion yuan to the 2025 net profit forecast. Based on 5.9x/11.2x 2023E PE, the target price was raised by 17%/19% to HK$3.4/$5.6 (the company's three-year historical average plus 1 standard deviation. The valuation premium was mainly due to the optimization of the company's business structure and the increase in profit margin levels) to maintain “buying”.
External demand was weak, and international freight forwarding business profits declined year over year
In 2022, the company's international shipping agency/air freight channel business volume fell 5.5%/2.9% year on year; operating profit fell 2.0%/36.9% year on year to 700 million/4.3 billion yuan. Among them, the sharp decline in air freight channel profits was mainly due to the fact that air freight costs were relatively fixed, while revenue was affected by spot freight rates. Weakened cross-border e-commerce demand in 2022 was compounded by the resumption of passenger flights and a recovery in capacity supply, leading to a decline in the high level of spot freight rates and a setback in profit margins.
Looking ahead to 2023, due to macro-uncertainty overseas, we expect international shipping and air freight rates to remain under pressure in the short term.
Strengthening deep cooperation with major customers and integrated supply chain services, professional logistics business rebounded significantly
In 2022, the company's professional logistics business revenue increased 14.5% year on year to 28.13 billion yuan; operating profit was 930 million yuan, up 10.1% year on year. Among them, contract logistics/project logistics/chemical logistics operating profit was 730 million/99 million/94 million yuan, an increase of 13.8%/45.6%/14.6% over the previous year. The main reason for the positive performance of the professional logistics business is that the company strengthened in-depth cooperation with major customers in the automotive, medical, FMCG, electronics and other industries based on its own global logistics network layout, provided integrated supply chain logistics management services, and achieved an effective breakthrough in business scale.
The short-term freight forwarding business is under pressure, but the professional logistics business is booming, and the company's international shipping and air freight forwarding/professional logistics/railway and shipping agents accounted for 22%/17%/11% of the company's profit in 2022 (Sinotrans DHL's investment income accounted for 36% of the company's profit). Looking ahead to 2023, although the company's freight forwarding business is affected by a decline in international freight rates, the company's professional logistics business is expected to benefit from post-epidemic recovery, a recovery in logistics demand for overseas engineering projects, and an upward trend in industry sentiment; the company's railway and shipping agency and warehousing business is expected to maintain steady development.
Risk warning: 1) global economic growth is lower than expected; 2) business volume growth is lower than expected; 3) policy risk.