Key points of investment
Starting with the freight forwarding business and building China's leading integrated logistics service provider, Sinotrans is a unified operating platform for logistics business under China Merchants Group. Professional logistics is the company's core business, agency and related business are the cornerstone business, e-commerce business is emerging business, and the three major businesses develop collaboratively to provide customers with professional logistics solutions and integrated supply chain logistics services. The three major businesses accounted for 25%, 64% and 11% of revenue in 2022, respectively.
The company's profit margin is relatively stable. Sinotrans DHL contributed the main investment income from 2019 to 2022, and the company's gross margin and net profit margin fluctuated between 5% and 3.5%, respectively. By business, the gross margin of the professional logistics business was relatively high, and the gross margin of the professional logistics business reached 8.5% in 2022. In 2022, the company's net investment income was about 2.6 billion yuan, of which Sinotrans DHL's net profit accounted for about 72% of the net investment income, which is an important source of profit for the company.
Agencies and related businesses are the cornerstone of each business. Brand overseas and industry integration bring development opportunities. The company is the world's leading freight forwarder. Shipping agents rank second in the world, air freight agents rank eighth in the world, and shipping and air freight agents rank first in China. After years of accumulation, the Group has a service system covering China and covering the world. The growth momentum of the freight forwarding industry comes from: 1) the acceleration of brands going overseas to increase the status of local freight forwarders in China and enhances the profitability of local freight forwarders; 2) industry mergers and acquisitions drive an increase in the concentration of leaders. In 2021, the global freight forwarder CR4 was only 17%. As the overall growth rate of the industry slowed, leading enterprises accelerated integration and increased market share through mergers and acquisitions of high-quality assets. With its own brand advantages and the group's resource advantages, the company is expected to gradually extend the service chain and raise the overall gross margin level.
Professional logistics business is the core business. Since 2023, contract logistics business has ushered in rapid growth, focusing on key target industries, and is transforming to value chain integration, providing customers with customized integrated logistics solutions covering the entire value chain, including contract logistics, project logistics, chemical logistics, cold chain logistics and other professional logistics services. In 2022, Sinotrans, Kerry Logistics, and DHL's professional logistics business margin is 3.4, 3.5 and 7.0 pct higher than that of freight forwarding business, respectively. As professional logistics business volume increases, it is expected to drive the company as a whole Increased gross margin. Among them, in the first three quarters of 2023, the company's contract logistics business volume reached 34.45 million tons, an increase of 17% over the previous year, and contract logistics achieved rapid growth.
The emerging e-commerce business is developing rapidly and is expected to become a new growth pole
Chinese enterprises have fully benefited from the process of online consumption. The domestic cross-border e-commerce industry has developed rapidly, and the number of domestic cross-border e-commerce related enterprise registrations reached a new high in 2021. In the first three quarters of 2023, the company's cross-border e-commerce logistics and cross-border e-commerce platform freight volume increased by 12.6% and 86.4% respectively. In the medium to long term, as the cross-border e-commerce penetration rate increases, the company's cross-border e-commerce business is expected to become a new growth pole.
Sea freight air freight rates have returned to normalization, and incentives have shown confidence in the long-term development of the company's shipping agency business according to real-time market freight rates. Fluctuations in freight rates have less impact on single shipping box profits; the air transport channel uses a “new carrier” model to lock in some fixed capacity. Fluctuations in freight rates have a certain impact on single-kilogram profits. In 2023, with the resumption of capacity supply, shipping and air freight prices will gradually fall back to the normalized range, and revenue and profit are expected to gradually stabilize.
In November 2021, the company announced the stock options incentive plan (first phase). According to the conditions for the entry into force of the incentive plan, the compound growth rate of net profit for the first batch was not less than 11% for the financial year before the effective period, and the net profit returned to the parent in 2023 was about 3.8 billion yuan. Incentive programs help motivate employees and benefit the long-term sustainable development of the company. The company has maintained a relatively stable dividend policy since its listing. In the first half of 2023, the company plans to pay an interim dividend of RMB 0.145 per share in cash (tax included), with a dividend payment rate of 48%.
Profit forecasting and valuation
Sinotrans has developed strong professional logistics solution capabilities and a strong industry position and a good brand image under more than 70 years of deep cultivation in the field of international freight forwarding and integrated logistics. It is estimated that the company's 2023-2025 revenue will be 960, 1041 and 112 billion yuan, respectively, year-on-year -11.8%, +8.5% and +7.6%; net profit is 38.26, 42.05 and 4.78 billion yuan, respectively, -6.0%, +9.9% and +4.1%, compared to 2023-2025 EPS was 0.52, 0.58, and 0.60 yuan/share, and the corresponding PE was 9.5, 8.6, and 8.3 times, respectively. It covered for the first time and gave it an “increase in holdings” rating.
Risk warning
Global trade growth falls short of expectations; risk of fluctuations in sea freight and air freight prices, etc.