Incident: Xiamen Guomao released its 2023 interim report: In the first half of 2023, the company achieved operating income of 271,890 billion yuan, an increase of 2.17%; net profit of 1,578 billion yuan, a year-on-year decrease of 12.03%, after deducting one-time asset disposal income, a year-on-year decline of 24.41%; the basic EPS for the first half of 2023 was 0.61 yuan/share (after deducting the impact of interest on perpetual bonds).

In a single quarter, in 2023Q2, the company achieved operating income of 148.327 billion yuan, a year-on-year decrease of 5.20%; net profit of Gimu was 839 million yuan, a year-on-year decrease of 23.03%, after deducting one-time asset disposal income, a year-on-year decline of 43.5%.

Comment:

The scale of supply chain management business and overall gross margin increased steadily: In the first half of 2023, the company's supply chain management business achieved revenue of 269.63 billion yuan, an increase of 2.93% over the previous year. Faced with adverse factors such as weakening market demand and falling prices of some commodities, the scale of the company's supply chain business grew steadily. In addition, the company is actively expanding overseas business. In the first half of 2023, it completed a total import and export volume of 9.05 billion US dollars, an increase of 6.98% over the previous year; the scale of trade along the “Belt and Road” was nearly 50 billion yuan, an increase of more than 30% over the previous year. The overall gross margin of the supply chain management business combined with futures hedging profit and loss was 1.50%, +0.39 pcts over the previous year. The effect of improving quality and efficiency was remarkable.

The company's operating volume increased significantly, and new varieties were continuously developed: in the main categories in the first half of 2023, the volume of metals and metal minerals, energy chemicals, agriculture, forestry, animal husbandry and fishing was +3.25%/+16.83%/-0.72%, respectively, and revenue was +3.25%/+16.83%/-0.72%. Specifically, the company's advantageous products grew steadily. Among them, iron ore sales volume exceeded 40 million tons, an increase of more than 20% over the previous year; steel sales volume exceeded 20 million tons, an increase of more than 30% over the previous year. At the same time, the company is actively developing new products. In terms of oil products, through 300,000-ton tankers deployed in the Strait of Malacca, there was a sharp increase of 150% over the previous year; in terms of cotton, the company increased cooperation with leading polyester companies and high-quality cotton cotton yarn manufacturers, and the operating volume increased by more than 100% year on year; in terms of emerging categories, the company also continued to develop products such as graphene and wood chips.

Continuing to promote integrated projects: In terms of horizontal layout, during the reporting period, the company set up an Indonesian platform company to expand businesses such as cotton, cotton yarn, and polyester staple fiber; established a joint venture to establish Guomao Baohua Shipping Co., Ltd. to lay out the operation and chartering of bulk cargo ships from Asia to West Africa; develop new regional business and cooperate with foreign steel mill terminals such as Malaysia Donggang Group. In terms of vertical layout, the company has acquired a series of local upstream and downstream industrial companies to promote waste gravel mining and scrap recycling and processing services; set up joint ventures to enhance domestic trade and shipping business capabilities; and signed new long-term overseas coal import agreements to enhance energy stability and fairness. The subsidiary Guomao Shipping successfully took over a 23,000-ton newly built oil tanker and was involved in the management of the oil tanker for the first time.

Digital transformation is improving quality and efficiency, and application scenarios continue to deepen: various directions of digital platforms were rapidly implemented during the reporting period and became new growth points. Among them, the integrated business collaboration platform “Guomao Cloud Chain” has accumulated more than 40,000 orders and a transaction amount of over 16 billion yuan. The supply chain finance project has helped about 540 corporate clients obtain a total of 2.8 billion yuan in bank financial credit lines. The logistics business center has completed the launch of the warehousing system for 11 warehouses, which can effectively reduce operating costs. Projects such as “Guomao Cloud Chain · Pulp & Paper E-Station” have won many awards in China and have been unanimously recognized by the industry.

Divesting financial services and continuing to focus on the supply chain: The company has divested all of its real estate business in 2022, and has successively divested financial assets since December 2022, including transferring 51% of its shares in Guomao Futures and 25% of Qirun Capital's shares to the controlling shareholder Guomao Holdings, and selling its shares in financial business subsidiaries such as Golden Strait Guarantee to Guomao Capital. These two asset disposals brought the company about 222 million yuan in revenue in the first half of 2023. The company will focus on the main supply chain business in the future.

The increase will not exceed 3.7 billion yuan to help supply chain business development: An announcement was issued on May 17, 2023. It is proposed to issue no more than 400 million A-shares to unspecified targets, no more than 3.7 billion yuan in capital to be raised, and issued without a discount, and covered by the balance of the lead underwriter. Of this increase, 960 million yuan is intended to be used to supplement working capital, and the rest is to be used for projects such as ship purchases, zero carbon transformation, and scrap utilization. There is a risk of diluting EPS in the short term. In the long run, it will help the company continue to expand its supply chain business and increase profit margins.

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 broad, and the company's business scale is expected to maintain a relatively rapid growth rate. The company divested all of its real estate business in 2022, began gradually divesting financial businesses at the end of 2022, concentrating resources on supply chain management business, and continuing to expand its business upstream and downstream of the industrial chain through “integration” and joint venture models; while expanding domestic business, it also anchors overseas markets and actively lays out international markets; the company vigorously promotes digital transformation and empowers business upgrading. Furthermore, the company's equity incentive system is sound, and the performance assessment indicators are high, which effectively helps the company achieve its performance indicators.

We have adjusted our profit forecast. We expect Xiamen International Trade to achieve net profit of 2,626 billion yuan, 2,649 billion yuan, and 2,895 billion yuan in 2023-2025. Considering the impact of the increase, EPS is 1.00 yuan, 1.01 yuan, and 1.10 yuan respectively; corresponding to the closing price on August 24, 2023, PE is 7.5X, 7.4X, and 6.8X; after adjusting the perpetual debt, PB is 0.6X, 0.6X, 0.5X. Currently, there is room for valuation restructuring after the collapse. Assuming that the dividend rate remains at 40%, corresponding to the closing price on August 24, 2023, the dividend rates from 2023 to 2025 are 5.34%, 5.39%, and 5.87%. Higher dividends are defensive. Maintain the “increase in holdings” rating.

Risk warning: commodity prices fluctuated sharply, asset impairment exceeded expectations; macroeconomic development stalled, supply chain business development fell short of expectations; moral risk brought about crisis events.