Description of the event

Xiamen Guomao released its 2023 mid-year report: 2023H1. The company achieved operating income of 271.89 billion yuan, an increase of 2.2% over the previous year; realized net profit of 1.58 billion yuan, a year-on-year decrease of 12.0%. At 2023Q2, the company achieved operating income of 148.33 billion yuan, down 5.2% year on year; realized net profit of 84 million yuan, down 23.2% year on year.

Incident comments

Supply chain management is growing steadily, and finance-like and real estate businesses have shrunk. In 2023H1, the company's supply chain management/real estate operation/financial services business revenue was 2696.3/0.7/2.19 billion yuan, respectively, +2.93%/-95.5%/-12.7% over the previous year. Despite the pressure on commodity demand in the first half of the year, the company actively expanded its business. The volume of metals and metal minerals/energy chemicals/agriculture, forestry, animal husbandry and fishery operations changed +3.3%/+16.8%/-0.7%, respectively, year-on-year, and its market share increased steadily. The company focused on the main supply chain business and transferred finance-like business to Guomao Capital; at the same time, it gradually withdrew from the real estate business. The real estate settlement project was only part of the original final transaction of Xiamen International Trade University, and no new real estate projects were added.

Hedging hedges against falling prices, and the exit of multiple businesses affects gross profit. In 2023H1, the company's gross profit for supply chain management (combined with futures and current) /real estate operation/financial services was 40.4/0.4/80 billion yuan respectively, a year-on-year decline of 80/1.9/240 million yuan, respectively. Commodity prices declined in the first half of the year, and the company used hedging to hedge against price fluctuations. The current gross margin during the 1H23 supply chain management period was 1.5%, down 0.35 pct from the previous year. The current combined gross margin fluctuation was less than the fluctuation in commodity prices. The company has taken the initiative to divest real estate and financial businesses, and its profit contribution has declined.

Q2 Prices fluctuated downward, and risk management and control highlighted business resilience. 2023Q2, commodity prices fluctuated. The Nanhua Metals/Energy/Agricultural Products Index fell 2.6%/14.3%/12.5% year on year, and 5.7%/8.5%/4.8% year on month, respectively. The company strictly controls risks and makes reasonable use of financial derivatives to hedge against price fluctuations. 2023Q2, the company's period expense ratio fell 0.24pct to 0.42% year-on-year, mainly due to optimization of sales expenses and increased interest income. In the end, the company's Q2 net profit fell 23.2% year on year. Considering the decline in real estate and financial services profits in Q2 this year, the main business performance was resilient.

Internationalization is advancing at an accelerated pace, opening up the “Belt and Road” map. 2023H1. The company's trade scale along the “Belt and Road” is nearly 50 billion yuan, an increase of more than 30% over the previous year. The internationalization process of the company's supply chain is progressing rapidly: 1) Establishing a platform company in Indonesia, Vietnam, etc.; 2) Establishing a joint venture to establish a shipping company to lay out the operation and chartering of bulk carriers from Asia to West Africa; 3) Develop new regional business and cooperate with foreign steel mill terminals such as Malaysia Donggang Group Co., Ltd. and Great Wall Steel Indonesia Co., Ltd.

Risk management and control are excellent, and stabilization of demand can be expected. Commodity prices fluctuated and declined in the first half of the year. The company used futures contracts to hedge against price risks. Profits were relatively resilient, demonstrating the company's outstanding risk control capabilities. Looking ahead to the second half of the year, commodity demand is expected to gradually stabilize, and the profitability of supply chain management will steadily rise. The company focuses on the main supply chain business and will continue to expand with capital, network, and risk control advantages. It is expected that its share will gradually increase and accelerate the international layout. Net profit for 2023-2025 is expected to be 31.0/35.2/4.09 billion yuan respectively, and the corresponding PE is 5.3/4.7/4.0 times, respectively, maintaining the “buy” rating.

Risk warning

1. Commodity prices fluctuate greatly;

2. Bad debt losses increase risk;

3. Risk of exchange rate fluctuations.