3Q export demand was under pressure, dragging down the performance of freight forwarding business; professional logistics business volume increased month-on-month, and Sinotrans released the first three quarter results: 1) Revenue was 72.77 billion yuan, down 9.9% year on year; 2) Net profit was 3.16 billion yuan, down 11.5% year on year. Among them, revenue for the third quarter was 24.94 billion yuan, down 2.3%/2.1% yoy; net profit was 990 million yuan, down 18.5%/18.1% yoy. Since this year, global macroeconomic uncertainty has been highlighted. Overseas demand is weak, and high export freight rates have declined, dragging down the company's international freight forwarding profit performance. In terms of professional logistics, we benefited from the return to normalization of production activities after the epidemic, and business volume steadily rebounded month-on-month. We maintain our 2023/2024/2025 net profit forecast of 3.93 billion/4.12 billion/4.5 billion yuan; based on 5.9x/10.9x 2023E PE, we maintain a target price of HK$3.5/5.9 (the company's three-year historical average plus 1 standard deviation; the valuation premium is mainly due to the optimization of the company's business structure and the increase in profit margin level) and maintain “buying”.
The air and shipping agency business volume increased year-on-year in the first three quarters. In terms of agency business, 9M23's shipping agency business volume was 965 TEUs, an increase of 0.9% year on year, mainly because the company extended the service chain, strengthened strategic cooperation with shipping companies, and achieved stable business volume in a sluggish market; completed 496,000 tons of air freight agency business (excluding cross-border e-commerce logistics), an increase of 8.5% over the previous year, mainly because the company adjusted its business strategy in a timely manner, built a “new carrier” model to actively control more capacity, improve service quality, and maintain strategic customer stickiness。 Among them, 3Q23's completed shipping/air freight agency business volume increased 11.0%/20.4% year-on-year respectively, but fell 10.6%/11.8% month-on-month, mainly due to weak export demand.
Cross-border e-commerce logistics business volume is growing, and professional logistics performance is improving
In terms of e-commerce business, 9M23 completed 250 million cross-border e-commerce logistics business, an increase of 12.6% year on year. Among them, 3Q23's cross-border e-commerce logistics business volume increased by 44.2%/66.1% year over year.
The company's cross-border logistics business achieved rapid month-on-month growth, mainly due to the rapid increase in the volume of cross-border products launched by the company in emerging markets such as the Middle East and Latin America. In terms of professional logistics, the 3Q23 company's contract logistics/project logistics/chemical logistics/cold chain logistics business volume showed a year-on-year performance of +26.6%/+43.2%/+0.6%/+5.5%, with a month-on-month performance of +10.0%/+0.2%/+17.7%/+35.2%.
The company's professional logistics business is developing well. Segmented businesses all achieved month-on-month growth in the third quarter, effectively resisting the downward pressure on the company's performance under pressure from the freight forwarding business boom.
International freight rates are falling, and the freight forwarding business is under pressure in the short term, but medium- to long-term profitability is expected to increase profit margins. In terms of profit margins, the company's gross margine/net profit margin for the first three quarters was 6.0%/4.3%, down 0.3/0.1 pct year on year. Among them, the company's gross margin/net profit margin was 5.7%/4.0% in the third quarter, down 0.9/0.8 pct year on year. The decline in profit margins is mainly due to the decline in international freight rates from a high level compared to the same period last year. In the medium to long term, we are optimistic that the company will optimize its business structure, adjust its capacity layout, and focus on strategic customer service. Profitability is expected to improve.
Risk warning: global economic growth falls short of expectations; business volume growth falls short of expectations; policy risk.