Economic recovery, commodity prices rebounded

Since 2024, the CRB Composite Spot Index, which reflects commodity prices, has rebounded moderately, rising 6% in January-May; with a year-on-year increase of -8% at the beginning of the year, it rebounded to around 0% in May. Behind the rise in commodity prices is economic recovery. Since the second half of 2023, the manufacturing PMI indices of China, the US, and the European Union have all rebounded, and the export growth rate of China, South Korea, and Vietnam has also clearly rebounded. If the inventory cycle between China and the US recovers in 2024, commodity prices are expected to continue to rise, which may lead to an improvement in the business performance of the bulk supply chain sector.

The increase in commodity prices may drive profits upward

Commodity supply chain companies often include the value of the products they operate as operating income, and gross margins are relatively stable under the service fee model, so the profit growth rate follows commodity price fluctuations. The net profit growth rate of leading companies in the bulk supply chain since 2016 is clearly correlated with the rise and fall of the CRB Composite Index. In 2023, the CRB Composite Spot Index fell 8% year on year, Xiamen Guomao supply chain business revenue fell 8%, and gross profit fell 6%. Commodity prices will rise in 2024, and Xiamen Guomao's revenue and profit growth rate is expected to pick up accordingly.

Stable product sales and increased market share

In 2023, the total revenue from the core categories of metals and metal minerals, energy and chemicals, agriculture, forestry, animal husbandry and fishery in the Xiamen Guomao supply chain business fell 8%, but the volume of business fell by only 2%. Among them, steel sales volume exceeded 35 million tons, up more than 20% year on year; coal sales volume exceeded 45 million tons, up more than 30% year on year; sales volume in oil, cotton, cotton yarn and other categories increased by about 50%. We estimate that in 2023, the market share of the Xiamen Guomao commodity supply chain business will rise slightly to 1.2%, ranking third among A-share listed companies.

Lower profit forecast and maintain rating

Considering the impact of falling commodity prices on performance in 2023, the 2024-25 net profit forecast was lowered to 2.30 billion yuan and 2.83 billion yuan (the original forecast was 41.6 billion yuan and 5.42 billion yuan), and the 2026 net profit forecast of 3.21 billion yuan was introduced. If the dividend is 50% in 2024, then the dividend rate is expected to reach 6.4%, maintaining the “buy” rating.

Risk warning: Consumer demand for commodities reduces risk, risk of falling commodity prices, increased risk of bad accounts receivable, risk of exchange rate and interest rate fluctuations.