How to understand investment opportunities in the domestic trade logistics industry: pattern advantage+demand potential. 1) Business model: Revenue comes from freight volume* freight rates. Among them, traffic volume is highly correlated with domestic domestic demand, and freight rates are determined by industry supply and demand.

On the demand side, the average growth rate of domestic trade container traffic from 2014 to 2023 was 6.4%, slightly higher than the average GDP growth rate of 6.0%. 2) The advantage of the pattern is the foundation for domestic trade consolidation investment. The three-legged pattern of the domestic trade consolidation industry has been formed, and CR3 is close to 80%. 3) Demand potential brings flexibility to domestic trade consolidation investment. a) Driver 1: “Decentralization” drives the continuous increase in the containerization rate. Water transportation has the advantages of cost reduction and carbon reduction, and drives the transformation of the transportation structure. b) Driver 2: Multimodal transport broadens container transport application scenarios.

Nakatani Logistics: A leading domestic trade logistics company with outstanding management capabilities. 1) Company Overview: Nakatani Logistics was founded in 2003, and the company was successfully listed on the Shanghai Stock Exchange in 2020; the founder, Lu Zongjun, has extensive shipping experience and holds 40% of the company's shares. As of June 30, 2024, the total capacity of the company was 3.68 million dwt, ranking among the top three domestic container logistics companies; the shipping network covers 25 major coastal ports and more than 50 inland waterway ports across the country. The route network covers a wide range of coastal ports, stable schedules, and a rich variety of supplies. 2) Excellent operating capacity: a) Along with the increase in domestic trade container transportation demand and the expansion of the fleet size, the company's revenue and profit continued to grow in 2017-2022. The net profit CAGR to mother was 48.7%, and the ROE remained above 15%.

b) During the period of pressure on the industry, the company's performance also remained relatively resilient. The decline in the company's revenue in the first three quarters of 2023 and 2024 was lower than the decline in industry freight rates, and gross margin remained at 13% to 14%. c) With the rich experience of management, the company purchased ship assets at low prices and built a cost moat.

Focus on the procyclical elasticity of the company's domestic demand: 1) Industry logic: Foreign trade freight rates remain high, and the domestic trade logistics supply and demand relationship is improving at an accelerated pace. While the situation in the Red Sea continues, the foreign trade shipping market is booming. On the one hand, the company actively allocates transportation capacity to participate in the foreign trade market. In the first half of 2024, foreign trade rent revenue was 0.575 billion yuan, an increase of 5.9% over the previous year; in the short term, the revenue contribution of foreign trade consolidation business is expected to remain at a high level. On the other hand, some domestic and foreign trade vessels were gradually transferred to the foreign trade market to ease the pressure on the supply side of the domestic trade market; the short term was peak season. As of November 15, PDCI closed at 1,441 points, +9.2% week over week, with a cumulative increase of 57% over September 20. Considering that the future supply growth rate will slow significantly, and demand will gradually improve as the economy recovers, the domestic trade shipping market may continue to improve. 2) The company is a pro-cyclical target of domestic trade. Domestic trade logistics mainly serves the transportation of domestic bulk goods and finished products. It is highly correlated with the domestic macroeconomy. With the continuous improvement of the economy/domestic demand, the domestic trade industry will gain upward elasticity. Judging from the experience of 2008-10, strong fiscal policies can stimulate manufacturing, infrastructure, real estate, and consumer demand, thereby driving transportation demand in the domestic trade logistics industry. Based on data for the first half of 2024, it is estimated that the PDCI freight rate index increased by 10%, corresponding to an increase in the company's operating income of about 0.4 billion yuan, and the corresponding increase in net profit of about 0.3 billion yuan.

Investment advice: The pattern of the domestic trade industry is clear, and the relationship between supply and demand is expected to improve at an accelerated pace with economic recovery; as an industry leader, Nakaya Logistics has excellent operating capacity and performance flexibility can be expected. 1) Profit forecast: We expect the company's net profit to be 1.64, 1.77, and 1.92 billion yuan respectively from 2024 to 2026, corresponding EPS of 0.78, 0.84, and 0.91 yuan, respectively, and the corresponding PE is 11, 11, and 10 times, respectively. 2) The company attaches importance to shareholder returns. In '23, the cash dividend ratio exceeded 88%, corresponding to a dividend rate of 8%. 3) Target price: Referring to the company's average PB value of 2.3 in the past three years, we gave the company 2.2 times PB in 2025, corresponding to a market value of 24.6 billion yuan. We expected 30% of the space compared to the current price. The target price for a one-year period was 11.71 yuan. For the first time, coverage was given a “recommended” rating.

Risk warning: Macroeconomic growth falls short of expectations, oil prices have risen sharply, multimodal transport has fallen short of expectations, etc.