Investment logic

The freight forwarding business is the traditional main business, and the dividend ratio is leading in the industry. The company's main business includes three parts: freight forwarding, professional logistics, and e-commerce. The freight forwarding business accounts for about 60% of revenue and gross margin.

Sinotrans DHL contributed the main return on investment, with 1H2023 accounting for 21% of operating profit.

The company's A share dividend ratio is 4.1%, and the Hong Kong stock dividend ratio is 7.5%. The Hong Kong stock dividend ratio ranks first in the cross-border logistics industry. With 2023Q1-Q3, the company achieved operating income of 72.8 billion yuan, a year-on-year decrease of 10%; net profit to mother was 3.2 billion yuan, a year-on-year decrease of 12%.

Benefiting from domestic companies going overseas, the freight forwarding business is expected to achieve a sharp increase in volume profit. In terms of business volume, the market share of leading freight forwarders has increased, and the process of domestic manufacturing companies going overseas has accelerated, which can bring a large amount of freight demand to the company. In terms of single box profit, benefiting from the company's continuous expansion of business chain links, extension of service chains, and domestic independent brands going overseas, the company's direct customer ratio has increased, driving up single box profits. The revenue growth rate of the freight forwarding business in 2023-2025 is expected to be -14%, 7%, and 7%, respectively, with gross margins of 8.7%, 8.8%, and 8.9%, respectively.

Contract logistics is deeply involved in segmented fields, extending the service chain and increasing the price per ton. Contract logistics is the main source of profit for professional logistics. In terms of business volume, the company is strengthening customer development. We believe that the boom in automobile manufacturing and electronic technology can support the growth of goods volume in 2024. In terms of single-ton revenue, companies and customers usually cooperate for a long time. The company can increase single-ton revenue by providing additional services to customers and participating in more links. Furthermore, the Belt and Road Initiative is expected to promote the development of project logistics, and the expansion of the hazardous chemicals market is a source of incremental performance for chemical logistics. Professional logistics revenue is expected to grow at 6%, 13%, and 13% respectively in 2023-2025.

The cross-border e-commerce business is growing rapidly, and Sinotrans DHL is expected to benefit. Sinotrans DHL is a joint venture between the company and DHL. It mainly deals in the international time-sensitive parts business. ToB's cross-border e-commerce platform business is an important growth engine. In 2024, Temu's GMV target is more than double the GMV forecast for 2023; TikTok Shop's GMV target is 150% higher than the 2023 target, and the size of the cross-border e-commerce import and export logistics market is expected to increase 21% year-on-year. The rise of cross-border e-commerce platforms can support the growth of Sinotrans DHL's business volume, and the company's cross-border e-commerce logistics business is also expected to benefit. The company's investment income growth rate is expected to be -16%, 7%, and 7% respectively in 2023-2025, and the e-commerce business revenue growth rate is -26%, 11%, and 11%, respectively.

Profit forecasts, valuations, and ratings

The company's net profit for 2023-2025 is estimated to be 3.90 billion yuan, 4.21 billion yuan, and 4.44 billion yuan, respectively, and the corresponding PE is 10.9x, 10.1x, and 9.6x, respectively. Referring to a comparable company's average PE ratio of 10.5x in 2024, the company's dividend ratio is industry-leading, and the freight forwarding network is spread all over the world. It is expected to benefit from the performance growth brought about by domestic companies going overseas. The company was valued 12 times in 2024. The target price was 6.93 yuan, which covered the “buy” rating for the first time.

Risk warning

There is a risk that air and sea freight rates will fluctuate greatly, domestic companies' overseas travel progress falls short of expectations, there is a risk that competition in the international freight forwarding industry will worsen further, and the global economic boom falls short of expectations.