Key points of investment

Incident: Xiamen Guomao released its 2022 annual report: the company achieved operating income of 521,918 billion yuan in 2022, an increase of 12.30% over the previous year; Guimu's net profit was 3,589 billion yuan, an increase of 4.41% over the previous year, and the basic EPS in 2022 was 1.40 yuan/share (after deducting interest on perpetual bonds). In 2022, the company plans to distribute a cash dividend of 6.5 yuan for every 10 shares, with a dividend ratio of 39.86%, corresponding to the closing price of 8.96 yuan on April 20, 2023, with a dividend rate of 7.25%.

Comment:

Revenue from the supply chain management business increased steadily, and improved quality and efficiency brought about an increase in overall gross margin: in 2022, the supply chain management business achieved revenue of 505.773 billion yuan, an increase of 10.82% over the previous year, accounting for 96.91% of the company's total revenue; the total import and export volume reached 17.481 billion US dollars; and the scale of trade along the “Belt and Road” exceeded 90 billion yuan, an increase of more than 17% over the previous year. The company achieved remarkable results in improving quality and efficiency. The gross profit of the supply chain management business combined with futures hedging profit and loss in 2022 was 7.758 billion yuan, an increase of 33.23% over the previous year; the comprehensive gross margin was 1.49%, an increase of 0.24 percentage points over the previous year.

The company's operating volume increased significantly in 2022, expanding emerging businesses such as new energy and consumer goods: among the main categories, the volume of metals and metal minerals, energy chemicals, agriculture, forestry, animal husbandry and fishing goods was +18.90%/+3.70%/+39.80%, respectively, and revenue -5.75%/+40.08%/+47.15% compared to the same period last year. The year-on-year decline in metal and metal mineral revenue may be affected by the decline in iron ore prices in 2022. The company's advantageous products continued to grow steadily, while actively developing new varieties. Specifically, in 2022, iron ore trading volume exceeded 80 million tons, an increase of more than 20% over the previous year; the steel business volume exceeded 30 million tons, an increase of more than 8% over the previous year; and the grain and grain business volume exceeded 12 million tons, an increase of more than 50% over the previous year. The operating volume of copper ore, oil, feed and other categories has increased by more than 100%, and emerging categories such as coal coke, silicon manganese, scrap steel, and LPG have begun to take shape.

The number of integrated projects has increased to help the company extend the industrial chain and improve profit margins: the company continues to promote the replication, optimization and upgrading of integrated supply chain projects, helps industrial customers reduce costs and increase efficiency, share profits with industrial customers, and aggregate vertical and multi-dimensional resources for more than 80,000 partners upstream and downstream of the industrial chain. In 2022, the company added 16 new supply chain integration projects, and the ongoing supply chain integration projects achieved operating revenue of 49.958 billion yuan, an increase of more than 70% over the previous year; accounting for 9.88% of the revenue of the supply chain sector, accounting for an increase of 3.55 pcts over the previous year.

Integrated comprehensive financial services are developed collaboratively, deepening the integration of industry and finance: the company has subsidiaries such as futures, financial leasing, commercial factoring, etc., and shares in financial institutions such as securities, trusts, banks, etc., to dig deeper into the needs of industrial customers and strengthen the collaborative development of financial service business with supply chain management and health technology business. In 2022, the financial services business achieved revenue of 4.693 billion yuan, an increase of 6.61% over the previous year, accounting for 0.90% of the company's total revenue.

The company proposed to transfer 51% of its shares in Guomao Futures and 25% of Qirun Capital's shares to Guomao Holdings, the controlling shareholder, in December 2022, after consideration by the board of directors. Currently, the Securities Regulatory Commission has yet to approve the change of shareholders of China Trade Futures. The company may divest the financial sector in the future and focus on the main supply chain business.

Divestment of the real estate business will focus on the main supply chain business in the future: the company gradually withdrew from the real estate market. Pre-sale payments in 2022 fell sharply compared to the same period last year, leading to a 95.53% year-on-year decline in net cash flow from operating activities. Due to the long construction cycle of real estate projects, differences in the development cycle of each project led to fluctuations in revenue and profit levels from year to year. In 2022, the company's real estate sector achieved operating income of 11.452 billion yuan, an increase of 190.13% over the previous year, contributing approximately 1,075 million yuan to the mother's net profit. At this point, the company's stock of real estate projects has been carried over. It is expected that the real estate business will no longer be involved in the future, and the focus will continue to be on the supply chain business.

Driven by a digital engine, deepening the construction of application platforms: Digitalization has become an important part of the company's supply chain's integrated service capabilities. The company focuses on the digital transformation target blueprint of “3 moats, 2 new curves, and 3 major supporting forces” to promote the construction of digital projects such as digital risk control platforms, digital business platforms for supply chain finance, logistics business centers, and integrated bulk trade systems. In 2022, the company's self-developed digital products obtained 21 software copyrights. “Guomao Cloud Chain” covered nearly 4,000 customers, accumulated nearly 50,000 orders, and a transaction amount of over 20 billion yuan. The subsidiary Xiamen Qirun Zero Carbon Digital Technology Co., Ltd. focuses on developing an overall “carbon neutrality” plan, focusing on the four major scenarios of factories, warehouses, buildings and transportation. While serving the company's own business, it actively exports “carbon neutrality” solutions, empowering upstream and downstream enterprises, and has carried out business in many of the company's supply chain integrated factory projects.

The dividend rate increased to 39.86%, with positive returns to shareholders: In 2022, the company plans to distribute a cash dividend of 6.50 yuan (tax included) for every 10 shares. The cash dividend ratio is 39.86%, up 8.82 pcts from 31.04% in 2021.

Investment strategy: Currently, the concentration of the domestic supply chain service industry is low, industry resources are continuously concentrated on leading companies, and the scale effect will continue to be realized in the future; the bulk supply chain space is vast, and the company's business scale is expected to maintain a relatively rapid growth rate. The company announced its gradual withdrawal from the real estate industry in 2021, concentrated resources on supply chain management business, and continued to expand its business upstream and downstream of the industrial chain through “integration” and joint venture models. While expanding domestic business, it also anchored overseas markets and actively laid out international markets; the company vigorously promoted digital transformation, and technology enabled business upgrading. Furthermore, the company's equity incentive system is sound, and performance evaluation indicators are high, effectively helping the company achieve its performance indicators.

In summary, we slightly raised our profit forecast. It is estimated that Xiamen International Trade will achieve net profit of 3.106 billion yuan, 3.608 billion yuan, and 4,092 billion yuan in 2023-2025. EPS is 1.41 yuan, 1.64 yuan, and 1.86 yuan respectively; corresponding to the closing price on April 20, PE is 6.3X, 5.5X, 4.8X, and there is room for improvement compared to companies; after adjusting perpetual debt, PB is 0.8X, 0.8X, 0.7X. Currently, there is room for valuation restructuring. Maintain an “increase in holdings” rating.

Risk warning: commodity prices fluctuate sharply, asset impairment exceeds expectations; macroeconomic development is stalling, supply chain business development is falling short of expectations; moral risk brings crisis events