20160329-大和证券-中国外运-00598.HK-Turning_more_positive_15页_1mb

Sinotrans Summary

Core Content

Sinotrans is a leading China-based shipping logistics company that provides integrated logistics services, including sea, air, rail, and road freight forwarding, express services, and shipping agency. The company also offers storage and terminal services. The report discusses the company's performance, valuation, and future outlook for its stock.

Main Points

1. Rating Upgrade

• Sinotrans' stock rating has been upgraded from Underperform (4) to Outperform (2).
• The upgrade is based on the company's 2015 results aligning with expectations and the current valuation reflecting most macroeconomic negatives.
• Potential catalysts for a stock rerating include a pick-up in logistics revenue and asset injections.

2. Valuation Analysis

• The stock is currently trading at a 2016E PER of 10x.
• This represents a 42% discount to its closest domestic peer, Kerry Logistics (KLN), and a 46% discount to other global 3PL peers.
• It is also 12% below its 3-year average of 11x.
• Despite the discount, the company's stock is not expected to derate further to the 6x level seen in 2011-13, as the 3PL segment is growing and has higher margins than freight forwarding.

3. Earnings Growth Expectations

• Sinotrans' earnings are forecasted to grow at a moderate rate of 9-10% YoY for 2016-2018.
• The logistics segment is expected to show a 10% YoY increase in segment profit for 2016, up from 8% in 2015.
• The SinoAir-DHL JV is expected to see a 10% YoY increase in net profit for 2016, due to the ongoing low jet-fuel prices and robust demand for express services. However, the CNY depreciation is expected to offset some of the benefits.

4. Earnings Revisions

• The Bloomberg consensus has revised down Sinotrans' 2016 earnings due to the weak operating environment for the sea-freight business.
• Daiwa's 2016-17E EPS is 15-16% below the consensus, due to weaker-than-expected 2015 results.
• The report indicates that further downward revisions are expected, but these are not anticipated to significantly impact trading sentiment.

5. Financial Summary

• Revenue for 2016E is expected to be CNY45,764 million, with a 3.0% YoY growth.
• Net profit is forecasted to be CNY1,335 million, with a 9.5% YoY growth.
• Core EPS (fully-diluted) is expected to be 0.290 CNY for 2016E and is projected to grow by 9.5% in 2016, 8.8% in 2017, and 8.9% in 2018.
• The company's operating profit is expected to increase slightly, with 2016E at CNY1,263 million.

6. Segmental Performance

• The logistics segment outperformed in 2015, with a 11% YoY revenue growth and an 8% YoY profit increase.
• Freight forwarding and storage/terminal segments showed flat or declining performance in 2015, with freight forwarding at a 2.1% margin and storage/terminal at 18.3% margin.
• The SinoAir-DHL JV's net profit growth slowed in 2015, with a 19% YoY increase in 2015, but only 7% in 2015's second half.

7. Key Risks

• The main risks to the upgrade include a slower-than-expected recovery in logistics revenue and delays in asset injections.
• The CNY depreciation is expected to negatively impact the SinoAir-DHL JV's net profit in 2016, despite low jet-fuel prices.

Key Information

8. Share Price Performance

• Sinotrans' share price has declined 48% since its 12-month peak of HKD6.45 in April 2015.
• It has underperformed the market by 13% since the start of 2016.
• The current market cap is USD1.99 billion, with an average 3-month daily turnover of USD5.59 million.

9. Balance Sheet Highlights

• Cash and short-term investments are expected to be CNY6,445 million for 2016E.
• Total assets are projected to increase to CNY36,609 million in 2016E.
• Shareholders' equity is expected to reach CNY16,135 million for 2016E.

10. Key Ratios

• The 2016E PER is 10x, which is below the 3-year average of 11x.
• The company's net profit margin is expected to rise to 2.9% in 2016E.
• Free cash flow yield is projected to be 2.3% in 2016E.

Conclusion

The report concludes that the current valuation of Sinotrans reflects most macroeconomic negatives, and the logistics business is poised for growth. Asset injections and a pick-up in logistics revenue are potential catalysts for a stock rerating. While the company's earnings growth is expected to remain moderate, the 3PL segment is seen as a key driver of future performance. The report also highlights that the company is not expected to derate further to the 2011-13 levels, and that the stock is currently undervalued compared to its peers.