As the world's leading integrated logistics company and Asia's number one shipping and air freight forwarder, the company is expected to fully enjoy the dividends of Chinese brands going overseas and the demand for improved quality and efficiency in the domestic supply chain.
The lineage of central enterprises, the world's leading integrated logistics service provider
The company is a unified operating platform and unified brand for the logistics business of the China Merchants Group of large central enterprises. It completed both “A+H” listings in 2019. The company has formed a global integrated logistics service system based on international freight forwarding and professional logistics. According to the ranking of the top 25 global freight forwarders in 2023 published by A&A, the company ranked fifth in the world and first in Asia.
The size of the cross-border logistics market is growing steadily, and the share of leading companies is increasing, and international freight forwarders mainly solve cross-border logistics needs for B-side customers. Frost & Sullivan expects China's cross-border logistics market to reach US$171.4 billion by 2027, with a compound growth rate of 5.6% in 2023-2027.
We estimate that in 2018-2022, the market share of the top 10 freight forwarders for cross-border shipping and air freight volume increased from 10.1% and 26.8% to 11.3% and 36.4% respectively, and the share of leading cross-border logistics companies is increasing.
The freight forwarding business has differentiated advantages. Contract logistics establishes specialized barriers, and the company's freight forwarding business creates a comprehensive integrated logistics service system covering the world by sea, land, and air. In the shipping freight forwarding business, when shipping prices are expected to return to normal, the company's unit profit is higher than 56% in '19; in the air freight forwarding business, the company created a “new air carrier” model. In 2018-2022, the company's air transport channel business volume increased from 530,000 tons to 781,000 tons, with a compound annual growth rate of 10%; the market share increased 11.8% from 8.8% to 3pcts. Railway agents grew against the market, and 2023H1 business volume and external revenue were +15% and 30% year-on-year respectively.
The contract logistics business uses specialized capabilities to build barriers to competition. In 2018-2022, the compound annual profit growth rate of contract logistics units was 10%. In 2023H1, contract logistics business volume, external revenue, and segment profit all increased positively year over year.
Profit Forecasts, Valuations, and Ratings
We expect the company's operating income in 2023-2025 to be: 994.3, 1102.2, 1207.5 billion yuan, year-on-year -8.6%, +10.9%, +9.6%, 3-year CAGR of 3.5%; net profit of 39.15, 41.83, and 4.209 billion yuan, respectively, -3.76%, +6.85%, +0.61%, and 3-year CAGR of 1.14%; EPS is 0.54, 0.57, and 0.58 yuan/share, respectively. Comparable companies' average PE in 2024 was 11.1 times. Given the company's leading position in cross-border logistics and third-party logistics, we gave the company 10 times PE in 2024, with a target price of 5.7 yuan, coverage for the first time, and a “buy” rating.
Risk warning: global economic recovery falls short of expectations, cross-border e-commerce growth falls short of expectations, competition in the international freight forwarding industry worsens, company global network expansion and overseas business risks