Optimize the business structure and increase investment in supply chain management and the health technology sector. Xiamen International Trade Group Co., Ltd. (hereinafter referred to as the “Company” or “Xiamen Guomao”) was founded in 1980 and listed on the Shanghai Stock Exchange in October 1996. It is one of the leaders in the domestic bulk supply chain industry. The company is a local state-owned enterprise. The controlling shareholder is Fortune 500 Xiamen International Trade Holding Group Co., Ltd., and the actual controller is the Xiamen Municipal State-owned Assets Administration Commission.

In 2021, the company officially divested the real estate business; between 2022 and 2023, the company transferred control of some financial services business-related subsidiaries to related parties Guomao Capital. Through the optimization of the business structure, the company will further increase investment in supply chain management and the health technology sector to promote the implementation of strategic development plans.

The company's gross margin continued to improve, and the cash dividend ratio increased significantly in '23. Due to the decline in supply chain management business revenue, the company's net profit to mother was temporarily under pressure in 2023. After entering 2024, although macroeconomic demand was still weak, and the company's supply chain management business volume and revenue declined, the profitability of the company's supply chain management business was significantly restored through optimization of the business structure. 2024H1, the company's gross margin increased 0.67 pct to 1.81% year on year. Since its listing, the company has always paid attention to shareholder returns. In 2023, the company bucked the trend and greatly increased its cash dividends. The cash dividend ratio increased 17.7 pcts to 57.6% year on year, ranking first among listed companies in the same industry. During the period 2019-2023, the company accumulated cash dividends of 4.97 billion yuan.

The bulk supply chain management market space is broad, and the company is broadening its business layout in both directions. From 2016 to 2022, China's bulk supply chain market grew from 43 trillion yuan to 55 trillion yuan, corresponding to a CAGR of 4.2%; the total market share of the top four enterprises in the industry (C&D Co., Ltd., Xiamen Xiangyu, Bussan Zhongda, and Xiamen Guomao) increased from 1.21% to 4.18%. In terms of supply chain management, the company continues to improve the upstream and downstream channel networks of the industrial chain vertically and develop new industrial chain management services such as new energy sources horizontally.

Based on medical device distribution services, we will vigorously promote the layout of the health technology field. In the medical device field, the company uses medical device distribution and service as its business foundation, and actively lays out R&D and production business for key medical device segments through investment, mergers and acquisitions, etc. In 2023, the company acquired Beijing Pelte Medical Technology Co., Ltd., a leading provider of overall solutions for minimally invasive surgery in China. In addition, the company is also expanding the layout of major health-related industries such as old-age services, healthcare big data, and health services.

Profit forecasting, valuation and rating: The company is one of the leading enterprises in the domestic supply chain management industry. Through business restructuring, the company further focuses on supply chain management services and vigorously develops health technology business. We expect the company's net profit to be 2.039, 2.438, and 2.908 billion yuan respectively in 2024-2026. We gave the company a target price of 9.59 yuan, corresponding to about 10.2 times PE and 0.62 times PB in 2024, covering the first time, and giving the company a “buy” rating.

Risk warning: commodity price fluctuations, macroeconomic downside risks, accounts receivable risk, terminal demand falling short of expectations, exchange rate fluctuations, risk of geopolitical conflict, and progress in new business development falling short of expectations.