Sinotrans is deeply involved in international logistics and integrated logistics, and has strong end-to-end integrated logistics solutions. As the complexity of the global supply chain increases, it is expected to fully benefit in the future. The first coverage gave it a “Highly Recommended” rating.
The three business segments develop collaboratively to create a world-class integrated logistics service provider. The predecessor of Sinotrans was Sinotrans Group Corporation founded in 1950. It was reorganized as Sinotrans Co., Ltd. in 2002 and listed on the Hong Kong Stock Exchange in 2003. China Sinotrans Group merged with Changhang Group in 2009, merged into China Merchants Group in 2015, and listed on the Shanghai Stock Exchange in 2019. Sinotrans is the largest domestic freight forwarding company, ranking second and eighth among the top 50 global shipping and air freight forwarding companies respectively. The main business of Sinotrans is freight forwarding, professional logistics, and e-commerce; at the same time, Sinotrans DHL contributes a large return on investment. It basically accounts for more than 70% of the return on investment. As of the first three quarters of 2023, the three major sectors accounted for 59.3%, 30.9%, and 9.9% of revenue, respectively.
Shipping and air freight rates have declined, and overall profit margins have been rising steadily; we are deeply involved in professional logistics and have accumulated rich industry experience. As global freight demand declined and capacity supply continued to increase, shipping and air freight rates declined due to supply and demand, and continued to operate normally. The company optimized the profit margin structure of the shipping business to achieve a recovery in the profit margin of the shipping agency business; the air transport channel adopted a “new type of carrier” model to increase business volume by controlling controlled capacity and continuously expand the route layout. The gross margin of the freight forwarding business is expected to stabilize at more than 5%; the revenue of the shipping and air transport business is expected to rebound at a bottom in 24-25, while the railway forwarding business continues to rise sharply in volume and price. In the field of professional logistics, the company has accumulated rich industry experience in contract logistics, project logistics, chemical logistics, cold chain logistics, etc., and the gross margin is currently stable at over 8.5%.
Cross-border e-commerce business has broad prospects, and the Yunyitong platform has achieved rapid growth in business volume. With the increase in the penetration rate of overseas online shopping, the continuous development of cross-border logistics, and the huge potential for development in emerging markets, China's cross-border e-commerce industry is showing a good development trend. Along with comprehensive digital transformation, the company's logistics e-commerce platform (Yunyitong) business volume grew rapidly in 2023 (business volume increased by more than 80% in the first three quarters), meeting the digital transformation needs of major customers, and there is broad room for future growth.
Investment advice: The importance of end-to-end integrated full-value chain logistics solutions is becoming increasingly prominent. Looking ahead to 24-25, the company's gross margin of freight forwarding and professional logistics will remain steady, while the e-commerce business will develop rapidly. Sinotrans DHL's investment income is also expected to grow steadily over 24-25 years. The net profit for 23-25 is estimated to be 40/41.05/4.318 billion yuan; the corresponding profit PE for 24 is 9.2x. Compared with comparable companies' PE valuations, it is still in a low position, and for the first time, coverage gave it a “Highly Recommended” rating.
Risk warning: macroeconomic decline, air and sea freight rate fluctuations, global trade growth falling short of expectations, cross-border e-commerce business falling short of expectations.