Company highlights
(1) Happy Cabin Logistics is a Chinese integrated cross-border shipping logistics service provider established in 2004. Its services have covered the main aspects of the cross-border logistics process, including package collection, warehousing and sorting, customs clearance, cross-border shipping, warehousing transfer and final delivery. The company has two main business lines: cross-border shipping services and ship leasing.
(2) China's cross-border logistics service market is fragmented, giving enterprises huge room for growth. Based on 2022 revenue, the top 15 service providers collectively held only 12.2% market share. The company ranked 15th, with a market share of 0.2%.
(3) The company has a global logistics network. The service network covers the United States, Canada, Mexico, Honduras, Germany, the Netherlands, Belgium, Australia, Vietnam, Japan, Indonesia and other countries.
Industry prospects
According to the Frost & Sullivan Report, global import and export trade continues to expand. The import and export values of major economies continued to grow. Among them, the compound annual growth rates of China, the United States, Germany, and Japan in 2018-2022 were 7.9%, 5.6%, 9.5%, and 6.3%, respectively. The predicted growth rates for 2022-2027 reached 5.8%, 4.7%, 7.2%, and 5.4%. The COVID-19 outbreak has changed customers' shopping habits from traditional offline shopping to online channels and platforms. As restrictions due to the COVID-19 pandemic are gradually lifted, global cross-border transportation capacity is being unleashed.
Company operation
The company's revenue continued to grow at a high rate in 2020-2022, from 780 million yuan (RMB, same below) in 2020 to 4.61 billion yuan in 2022. Among them, revenue from cross-border logistics services increased from $740 million to $4.39 billion, of which revenue from self-operated shipping services increased from zero to $2.60 billion (gross margin increased from zero to 14.1%), and revenue from third-party shipping services increased from $740 million to $1.79 billion (gross margin fell from 6.9% to 2.5%). The company's gross margin increased from 8.2% to 11.8%. Shareholders' net profit increased from $25.52 million to $380 million. Shareholders' net profit margin increased from 3.3% to 8.3% during the period. However, performance changed in the first four months of this year due to a sharp drop in market freight rates. The company's revenue from January to April 2023 plummeted 77.4% year on year to 450 million yuan. Among them, revenue from cross-border logistics services plummeted 82.5% to 340 million yuan.
Shareholders' net profit fell 62.8% to $83.1 million during the period. The company expects a sharp decline in revenue, gross profit and net profit for the whole year. As of April 30, 2023, the company held $148 million in cash and cash equivalents, compared to $559 million in the same period last year.
By the end of April 2023, the company had purchased four used container ships, and also purchased and delivered a 13,800 ton used ship in August 2023. Additionally, two first-hand oversized container ships have been ordered and are expected to be delivered in 2025.
Valuation level
We selected six Hong Kong stock logistics companies for benchmarking, including Zhongtong Express (2057 HK), JD Logistics (2618 HK), Kerry Logistics (636 HK), Eneng Logistics (9956 HK), Yinghui Logistics (1442 HK), and Jiahong Logistics (2130 HK).
In terms of valuation, the company's price-earnings ratio in 2022 was 3.1-3.8 times, lower than 8.2-3 8.0 times that of peers, but the company expects profit to drop sharply in 2023, and the historical price-earnings ratio does not effectively reflect the company's valuation. The company's net market margin in 2022 was 1.3-1.7 times, similar to the valuation of large peers.
A track record of price stability
The price stabilizer this time is Agricultural Bank International. Since the beginning of 2022, it has participated in sponsoring a total of 4 projects, including 2 projects as a price stabilizer. On the first day, its performance increased by 1 and 1 fell.
Market Atmosphere
Since the beginning of this year, the Hong Kong IPO market has been repeated. A total of 40 IPOs have been listed, with a first-day breakout rate of 42.5%, with an average first-day decline of 19.2%. However, companies that have been listed since June of this year have not broken out on the first day of their IPO, with an average increase of 6.4% on the first day. However, the company did not bring in cornerstone investors or influence confidence in the IPO market.
Subscription recommendations
The company already anticipates a sharp decline in revenue, gross profit and net profit in 2023, mainly due to a sharp drop in market freight rates since the second half of 2022, causing the company to suspend the provision of self-operated cross-border logistics services. According to the Frost & Sullivan report, the global and Chinese cross-border logistics services market is expected to grow steadily over the next few years, but will not return to the huge scale of 2021-2022. The company's 2024 results are yet to be seen. In terms of valuation, the company's historical net market ratio is similar to that of large peers. Although the IPO performance was good on the first day of recent months, the company did not bring in cornerstone investors, and there is a certain risk of bankruptcy. Therefore, based on the above, it was given 63 points, and the rating was “neutral.”
Risk warning
(1) Industry cycle risk, (2) economic slowdown risk, (3) policy change risk