20160216-高盛-Sinoair_up_to_Buy_on_DHL_JV___e-commerce_growth__Buy_Sinotrans_34页_1mb

China: Transportation: Logistics Summary

Core Content

This report provides an equity research analysis on Sinoair and Sinotrans Ltd., two major players in China's logistics and transportation sector. It highlights the investment potential of both companies, particularly in the context of DHL-Sinotrans joint venture (JV) and the growth of cross-border e-commerce.

Main Points

1. Sinoair: Buy Recommendation

• Current Price: Rmb 18.84
• 12-Month Target Price: Rmb 27.00
• Upside Potential: 43% from current price
• Dividend Yield: Expected to rise from 3.1% to 5.4% by 2017E
• Dividend Payout: Expected to increase from 40%/59% in 2013/2014 to 70% by 2017E
• P/E Ratio: 14X for 2016E, below A-share and global logistics peers (38X/17X)
• Market Cap: Rmb 17,059.3 million / US$ 2,596.7 million
• Valuation: Attractive due to undervaluation compared to global peers

2. Key Growth Drivers for Sinoair

• DHL-Sinotrans JV:
  • Sinoair owns 50% of the JV.
  • The JV is responsible for DHL's international parcel operations in China.
  • 2015E: Net profit growth of 28% driven by cross-border business, lower fuel costs, and a weaker euro.
  • 2016E-2018E: Expected growth of 17%-25% in cross-border express parcel volumes.
  • Normalized growth expected at 10% in 2016E and 17% in 2017E.
• Cross-Border E-commerce:
  • Rising cross-border parcels via free trade zones and bonded warehouses.
  • Sinoair's strengths in air freight forwarding and supply chain management.
  • Partnerships with NetEase, DHgate, and Suning.
  • Strategic JV with Japan's SENKO and RUNTEC enhances cold chain capabilities.

3. Sinotrans Ltd.: Buy Recommendation

• Valuation: Attractive compared to global peers.
• 12-Month Target Price: HK$ 5.40 (down 14% from previous estimate)
• Upside Potential: 89%
• Key Factors:
  • Reforms and potential asset injection.
  • Margin improvements.
  • Competitive positioning and reform pace.

Addressing Investor Concerns

Sinoair

• Currency Risk: Euro and oil price fluctuations.
• Import Tariffs: Impact on operations.
• Growth: Concerns over slowing China's economy.
• Competition: Market dynamics and pricing pressures.

Sinotrans Ltd.

• China Trade Data: Weakness in trade volumes.
• Margins: Pressure from cost and pricing.
• Competition: Market competition and operational efficiency.
• Reform Pace: Speed of reforms affecting performance.

Valuation Summary

• Sinoair and Sinotrans Ltd. are considered undervalued compared to global logistics peers.
• P/E Ratio: Expected to decrease from 18.9X in 2015E to 13.1X in 2017E.
• P/B Ratio: 1.8X in 2015E to 2.2X in 2017E.
• EV/EBITDA: Expected to fall from 143.4X in 2015E to 97.5X in 2017E.
• ROE: Projected to rise from 10.2% in 2015E to 17.4% in 2017E.

Key Risks

• Market Conditions: Slowing China economy.
• Regulatory Changes: Impact on tariffs and operations.
• Currency Volatility: Euro and oil price fluctuations.
• Competition: Intensified in logistics and e-commerce sectors.

Key Assumptions

• Sinoair:
  • Continued growth in cross-border express volumes.
  • Stable fuel costs and favorable currency conditions.
  • Successful expansion of cold chain capabilities.
• Sinotrans Ltd.:
  • Effective implementation of reforms.
  • Positive impact of asset injection.
  • Sustained margin improvements.

Conclusion

• Sinoair is upgraded to Buy due to its attractive valuation and growth potential from the DHL-Sinotrans JV and cross-border e-commerce expansion.
• Sinotrans Ltd. is reiterated as Buy based on its attractive valuation and potential for improvement through reforms and asset injection.
• Both companies are well-positioned to benefit from the growing cross-border logistics market in China.