At the beginning of 2018, SITC International Holdings (01308) was already restless. On the one hand, Haifeng shipowner, a wholly owned subsidiary of the company, had to exercise an exercise option at a contract price of US $50 million (HK $390 million) to build two container ships to continue to expand the fleet. On the one hand, the company is still showing off its results. The company has previously said that it has seen a 40% year-on-year increase in annual results in 2017, benefiting from increased business volume and improved operational efficiency. however, after "taking a closer look at the financial data", the company issued an updated announcement saying that full-year growth in 2017 would rise to 50 per cent.

It is such a fancy show company that has been steadily rising all the way since 2011, one year after it was listed on the market, and in 2017, under the double efficiency of shipping and import and export trade recovery, it has stepped out of the trend of accelerated rise.

Unique business model to create the trend of Haifeng long cattle

If you look at SITC International Holdings's financial data in early 2017, why can a company with a higher proportion of land logistics business than sea business become a popular shipping target? Zhitong Financial APP first recommended Haifeng in June 2017. at that time, looking at the company's data, we can see that the company's land logistics business contributed nearly $80 million in operating profit in 2016, far higher than the sea logistics, which had only $53 million, and the gross profit margin of sea logistics was only 8.2%, far lower than the 17% gross profit margin of land logistics.

But this is the characteristic of Haifeng's unique business model, which is the combination of land business and sea business to form a complete service chain from terminal to terminal.

When most of the same industry enterprises can only provide terminal-to-terminal cargo transport services, SITC International Holdings has already been able to achieve one-stop service of goods from the factory to the end consumers. and the company focuses on serving accurate target customers-- the trade market in Asia.

After the company has determined the subdivision of customer groups and unique business model, its container route and land logistics network map will take the route of high frequency, short distance and full process, which constitutes SITC International Holdings's unique extended service value chain.

It is this characteristic that makes SITC International Holdings, as the largest private shipping stock, always attracted the attention of major banks and investors. The company's share price has risen steadily since it bottomed out at the end of 2011, falling only during the 2015 stock market crash. SITC International Holdings can still have stable business demand in 2016, when demand is very low and overcapacity leads to huge losses for most enterprises in the shipping industry. This business model allows the company's fleet not to rely entirely on the hub port, thus reducing the cost of transshipment / regional services.

Against this backdrop, the company achieved a net profit of nearly $123 million in 2016, down only 14% from 2015, which is absolutely eye-catching in the industry comparison. As a result, SITC International Holdings became the only exception in the industry, and the company's share price immediately resumed its upward trend in early 2016 after the stock market crash was over.

Under the double efficiency of shipping and import and export trade, Haifeng starts the acceleration mode.

At that time, the shipping price index and import and export trade data showed that the industry was entering a warming trend. On the one hand, with the increased demand for replenishment in Europe and the United States and the recovery of China's imports and exports, the demand for collection and transportation is gradually growing; on the other hand, the overall capacity growth rate of the industry is running at a very low level, and the supply and demand pattern can support the collection and transportation industry to continue to pick up.

And the increase in both import and export growth is directly good for the company's market trade business in Asia. Superimposed with the first quarter data released by SITC International Holdings at that time, the company's total freight volume increased by about 15.7% compared with the same period last year, further verifying the industry's recovery logic. although the average freight fell by 5.3%, revenue in the first quarter increased by 4% to $303 million compared with the same period last year, and the import and export price index continued to rise. It also boosts investor confidence.

Moreover, in addition to the stable oil prices at that time, the company also had multiple positive factors, such as the acquisition of vessels with lower charter rates than the market, as well as low capital expenditure without newly delivered vessels, based on which, Zhitong Financial APP said in June that the profit growth in 2017 would be very substantial, worthy of investors' attention. And since then, the company's share price has officially started to speed up.

Source: Futu Securities

The logic was continuously verified by the data, SITC International Holdings finished perfectly in 2017.

The first is the grand appearance of the company's half-year results in August. At that time, Zhitong Financial APP learned that the profit contribution of the company's maritime logistics business has increased significantly, which has opened a certain gap with the profit contribution of land logistics.

The main reason is that the company's shipping volume rose 15 per cent to 1.257 million TEUs in the first half of 2017 compared with the same period last year, maintaining the same growth rate as in the first quarter, while the average rate of 2.8 per cent year-on-year to 388.1 TEUs was significantly lower than the 5.3 per cent decline in the first quarter.

From the cost side of the offshore business, except for the increase in fuel costs caused by the increase in oil prices, the other costs of the company's offshore business have all declined, resulting in an increase in the overall gross profit margin, coupled with a substantial reduction in administrative expenses and other expenses. as a result, the profit contribution of the business has been greatly increased.

While the previous logic has been verified, fuel cost has become a more obvious risk point for performance, but generally speaking, it is within a controllable range. At that time, the oil price had rebounded a lot, which led to a large increase in the fuel cost of Haifeng. At that time, crude oil inventories were still declining in a large area, which still had a certain impetus to the oil price in the short term, but in fact, combined with the decline in global production restrictions, the possibility of a rapid rise in oil prices was not too great. Judging from the superposition of the company's fuel reserves, the fuel cost in the second half of the year was not much worse than that in the first half of the year. Therefore, Haifeng this risk point is still within a controllable range.

Based on the stock price at the time, the company's 2017 price-to-earnings ratio valuation could fall to about 14 times, which is still in a reasonable range, coupled with the optimism of the industry, Zhitong Financial APP believes that there is still an opportunity.

Since then, industry data continued to be optimistic, Haifeng still rose. First, the operating data for the third quarter revealed that Haifeng's business volume and freight rates showed a double growth trend. The company's sea freight volume increased by 13.7% year-on-year to 1.907 million TEUs, and freight forwarder volume increased by 9.4% to 1.36 million TEUs. The average freight rate in the first three quarters rose 0.3% year-on-year to 392.5 TEUs, the first positive growth since 2015, and the final revenue rose 12.1% to 994 million TEUs.

At the same time, the overall import and export data for 2017 maintained a strong growth. For example, in terms of RMB, the import and export volume in 2017 increased by 14.2% compared with the same period last year, ending two years of negative growth and achieving double-digit restorative growth. China's import and export volume has maintained a cumulative year-on-year growth rate of more than double digits, the trade growth rate has remained relatively high, and the recovery of trade is still clear.

At the same time, I would like to remind you that the import and export data for the whole of 2017 maintained double-digit growth, but imports fell a bit more than expected at the end of the year. In the medium to long term, major developed economies will continue to recover in 2018, the recovery will be transmitted to emerging economies, and external demand will remain stable, but due to the high base in 2017 and the gradual tightening of monetary policy in major economies, export growth is likely to slow this year.

So far, during the period of accelerating growth in the second half of 2017, SITC International Holdings ended perfectly by stepping on the 20-day moving average and rising by nearly 40%. The momentum of the company continues unabated.

(Wen / Jiang Songhua / tr. by Phil Newell)