3Q23 performance is in line with our expectations
The company announced 3Q23 results: quarterly revenue of 24.9 billion yuan, -1%, -2%; gross profit of 1.42 billion yuan, -14%, -2%; net profit of 1 billion yuan, -18%, month-on-month; net profit of 1 billion yuan, -18% yoy. The performance is in line with our expectations. The margin of profit is steady, and the decline in net profit is mainly due to the higher exchange rate base brought about by exchange rate fluctuations in 3Q22 and 2Q23 (we estimate the impact is about 2-3 billion yuan).
The freight forwarding business volume outperformed the industry, and professional logistics continued to be deeply cultivated. 3Q23 shipping agents were 3.39 million TEUs, +17% /-6% yoy; air freight agents were 220,000 tons, +31% /-10% yoy, of which 52,000 tons of cross-border e-commerce air transport, +79% /-6% yoy, contributed significant increases; ship/rail/warehouse agent traffic volume remained flat year-on-year/+40%/+7% respectively. Comparing industry traffic, 3Q23 customs regulated export freight volume +10% /2% month-on-month. The company's business volume outperformed the industry, showing its leading share and capacity advantages. In terms of professional logistics, the company grasped structural opportunities in emerging industries such as new energy and healthcare, and gradually formed a strategic customer system. The total cargo volume for the third quarter was 163,000 tons, +25% /10% month-on-month.
Development trends
Sinotrans DHL's earnings increased month-on-month; subsidies continued to increase, and profits continued to be stable. Return on investment:
3Q23 had investment income of 650 million yuan, of which 590 million yuan was invested in joint ventures (mainly contributed by Sinotrans DHL), -5% yoy /+7% month-on-month. Investment income bucked the trend and outperformed the industry, demonstrating DHL's service quality and management advantages. Cross-border B2C business also contributed significant growth. Other revenue: 3Q23, other revenue was 650 million yuan, +92% y/y +14%, mainly because the company received subsidies related to the development of some regional routes and free trade zones.
Cross-border air and sea freight rates have entered the bottom range, focusing on marginal improvements in air freight volume and prices during the peak season in the fourth quarter. The downward trend in freight rates slowed significantly in the third quarter. The TAC Shanghai Export Air Freight Price Index was -47% /-6% yoy, and the FBX Baltic Sea Freight Index -75% y/y /3% month-on-month. The fourth quarter entered the peak air freight shipping season. Since October, TAC Shanghai's export freight rates have increased by +20% month-on-month, and leading e-commerce platforms such as Shein and Temu have contributed significantly to overseas travel. The company has a solid air transport channel capacity advantage. 1H23 operates 8 charter routes with a controllable capacity of 106,000 tons, focusing on the marginal improvement of the company's profit during the peak season.
Profit forecasting and valuation
In view of the company's steady profit and marginal improvement in traffic volume, we raised 2023/2024 net profit by 3%/4% to 3.88 billion yuan/4.36 billion yuan. The current A-share price corresponds to a price-earnings ratio of 8.9 times /7.9 times in 2023/2024. The current H-share price corresponds to a price-earnings ratio of 4.7 times /4.1 times in 2023/2024. Considering that the freight forwarding industry as a whole is still affected by fluctuations in the trade cycle, A shares maintained an outperforming industry rating and a target price of 6.20 yuan, corresponding to 11.6 times /10.4 times the 2023/2024 price-earnings ratio, which is 30.8% higher than the current stock price. H shares continued to outperform industry ratings and the target price of HK$4.06, corresponding to 6.8 times /5.9 times the 2023/2024 price-earnings ratio, with room for growth of 44.5% compared to the current stock price.
risks
Exports fell short of expectations, overseas network construction progress fell short of expectations, and international trade disputes.