Introduction to this report:
Service fees are a percentage of the value of goods rather than the volume of goods, so rising commodity prices drive accelerated revenue and profit growth.
Key points of investment:
Profit growth exceeded expectations. First coverage, target price was 5.94 yuan, giving it an “increase in holdings” rating.
The global economy is expected to recover in 2021, and commodity prices will rise. The service fee for the major supply chain business in Bussan is a certain percentage of the value of the goods, that is, profit margins are stable, and rising commodity prices are expected to drive revenue and profit growth that exceeds expectations. EPS for 2020-22 is predicted to be 0.59, 0.69, 0.75 yuan.
According to the DDM valuation method and the average PE of comparable companies, a target price of 5.94 yuan was given.
Higher commodity prices are driving faster profit growth. The market sees a model where bulk supply chain businesses charge service fees, and profits grow with business volume. As a result, stock prices did not rise in line with commodity prices. We believe that part of the profit of the supply chain business comes from transactions and advance services. Service fees are a certain proportion of the value of goods, so rising commodity prices will drive profit growth. Commodity prices rose sharply in 2017, the gross margin of the major supply chain business of commercial products was stable, and gross profit growth accelerated markedly.
Key assumptions: In 2021, commodity prices remained at the level of the first quarter, rising sharply from the previous year; the supply chain business of C&T maintained a service fee model, and profit margins remained stable; the concentration of the supply chain industry continued to increase, and the market share of commodities continued to increase.
Catalysts: Commodity prices continue to rise, and earnings reports reflect high earnings growth.
Risk warning. Commodity prices have fallen sharply, commodity and futures positions have appeared, commodity demand has declined sharply, and accounts receivable have experienced large credit losses.