20151125-高盛-Sinotrans_Ltd__DHL_JV_growth,_marginuplift___reforms__initiate_at_Buy_27页_887kb

Summary of China: Transportation: Logistics Research

Core Content

This report provides an equity research analysis on Sinotrans Ltd. (0598.HK) and its subsidiary Sinoair (600270.SS), focusing on their logistics operations, joint ventures, and potential for value appreciation. The report highlights three key drivers for Sinotrans: DHL JV growth, margin uplift in logistics, and ongoing SOE reforms. It also evaluates Sinoair's valuation and potential for growth.

Main Points

Sinotrans Ltd. (0598.HK)

• Initiate at Buy with a 12-month target price of HK$6.30, implying 34% upside potential.
• Currently trades at 12X 2016E P/E, which is below the global logistics peers' average of 19X.
• Underlying EPS growth is 20% faster than the industry average (2016-17E).
• DHL-Sinotrans JV (a joint venture with DHL) accounts for 41% of Sinotrans' 2015E net profit and is expected to drive 21% income growth (2015-16E avg.) due to rising cross-border e-commerce activity.
• Potential for margin uplift from increased import volumes in freight forwarding and growth in integrated logistics over 2016E-18E.
• SOE reforms and possible parent company restructuring could lead to asset injections and broader restructurings, potentially boosting shareholder value.
• 60.95% stake in Sinoair accounts for 84% of Sinotrans' market cap, suggesting the market is undervaluing the core logistics businesses.
• The 12-month target price implies a 16X 2016E P/E, indicating a narrower NAV discount compared to historical levels.

Sinoair (600270.SS)

• Initiate at Neutral with a 12-month target price of Rmb27.90, implying 3% upside potential.
• Sinoair is a full-service logistics company and owns 50% of DHL-Sinotrans, which accounts for 96% of Sinoair's 2015E net profit.
• DHL-Sinotrans is valued at 14X 2016E EV/EBITDA, which implies 20X 2016E P/E, slightly above global US/Europe logistics peers.
• Valuation is considered fair, as the growth of the DHL-Sinotrans JV is already reflected in Sinoair's share price.
• Dividend yield is expected to rise due to increasing net cash position and higher dividend payout from the JV (estimated at 90% in 2015E-17E).
• ROE and CROCI are projected to improve, reflecting stronger financial performance.

Key Information

• DHL-Sinotrans JV is a joint venture responsible for DHL Express' international parcel operations in China.
• Sinotrans is the largest third-party logistics provider in China, offering sea and air freight forwarding, integrated logistics, warehousing, and last-mile delivery.
• The NAV discount for Sinotrans is currently 10%, down from a historical average of 24%, driven by rising dividends and parent company reforms.
• Sinotrans' market cap is HK$21,604.4 million, while Sinoair's market cap is US$3.8 billion.
• The DHL-Sinotrans JV has a high dividend payout ratio (around 90% from 2015E-17E), indicating strong cash flow generation.
• Cross-border e-commerce is a major driver of profit growth for the JV, with B2B and B2C segments both showing growth potential.

Valuation

• Sinotrans is valued at 16X 2016E P/E in the SOTP model.
• Sinoair is considered fairly valued at 21X 2016E P/E, slightly above global logistics peers.
• NAV discount is expected to narrow, leading to a re-rating of Sinotrans.

Risks and Opportunities

Risks

• Corporate governance issues.
• Slower global trade growth.
• Intense competition in the logistics sector.

Opportunities

• Cross-border e-commerce growth.
• Margin uplift from higher import volumes.
• SOE reforms and potential asset injections.

Summary Table

Conclusion

The report concludes that Sinotrans Ltd. is undervalued and presents a Buy recommendation, driven by DHL JV growth, margin improvement, and SOE reforms. Sinoair is considered fairly valued with a Neutral rating, as its DHL JV performance is already priced in. Both companies are expected to benefit from increased cross-border e-commerce activity and improved operational efficiency.