Key points of investment

Xiamen Xiangyu is a leading integrated service provider for the domestic bulk supply chain. The company's main business is commodity supply chain services, helping enterprises complete procurement, warehousing, finance and sales in one stop. The main categories cover metal minerals, energy and chemicals, agricultural products, etc. The company's downstream mainly cooperates deeply with manufacturing customers that continue to operate. 2023H1, the number and service volume of the company's manufacturing enterprises account for more than 50% and 60% respectively, and mainly obtains profits by providing supply chain services+financial benefits. The profit stability is better than traditional bulk traders.

The company has shown strong continuous growth, high ROE, and stable profitability in the past.

From 2015 to 2022, the company's revenue grew from 599 billion yuan to 538.1 billion yuan, and net profit to mother grew from 290 million yuan to 2.64 billion yuan, showing strong continuous growth. Thanks to the company's high operating efficiency and high turnover rate, the company's ROE remained at 9.1% to 15.4% from 2020 to 2022.

In 2023, performance was under short-term pressure due to downstream demand factors, and the future will pick up with macro data from the manufacturing industry. Focus on opportunities for large-scale supply chain operations to resume layout: Constrained by downstream manufacturing demand pressure, 2023Q1-3's performance is under pressure in the short term, and revenue/net profit to mother is -6%/-46% YoY. The downstream of the bulk supply chain is the manufacturing industry, and industry sentiment is affected by the overall prosperity of the manufacturing industry. In 2022, the cumulative year-on-year growth rate of the total profit of industrial enterprises above the 2023Q1-3 scale in China was negative. In the past 10 years, there were 2 negative annual increases, and they all recovered the following year. If the manufacturing industry gradually recovers and industrial product prices pick up, the profits of large supply chain companies are expected to recover.

The market share of leading enterprises in the industry continues to rise, and the general trend of industrial informatization development: According to statistics from the Xiamen Xiangyu Annual Report, in 2022, the turnover of China's commodity supply chain reached 55 trillion yuan, and the scale of the industry has basically maintained steady growth over the years. In recent years, the concentration of the bulk supply chain industry has increased significantly, and leading companies have continued to grow. From 2016 to 2022, China's CR4 market share rapidly increased from 1.21% to about 4.18%. However, compared to the revenue scale of international giants of 1 to 3 trillion yuan or more, China's CR4 revenue volume is 500 to 100 billion yuan, and there is still room for growth several times. In the future, as industrial efficiency improvements and digital transformation advance, China's industry concentration is expected to continue to increase.

Profit forecast and investment rating: Xiamen Xiangyu is a leading domestic commodity supply chain enterprise, leading the industry in employee incentives, logistics networks, etc., and its market share has continued to increase in recent years. The company's profit is affected by insufficient demand for downstream commodities. We maintain the company's profit forecast for 2023-25 as net profit of 16.0/ 26.3/30.4 billion yuan, -40%/+65%/16% year-on-year, corresponding to a closing price of 9/6/5 times PE on December 28. Considering that the company's price-earnings ratio is in a historically low position, we maintain a “buy” rating.

Risk warning: commodity price fluctuations, poor downstream demand, new categories and models falling short of expectations, fixed growth falling short of expectations, etc.