20180706-中国银河国际证券-海丰国际-01308.HK-A_defensive_play_in_a_volatile_market_12页_803kb

SITC International Holdings Co., Limited Summary

Core Content

SITC International Holdings Co., Limited (1308.HK) is positioned as a defensive play in a volatile market due to its focus on the intra-Asia trade logistics sector, which is less exposed to the potential impacts of a US trade war. The company provides integrated sea freight and land-based logistics services, differentiating it from traditional shipping companies. It is a key beneficiary of rising intra-Asia trade volume, driven by the relocation of Chinese industries to ASEAN countries and the Belt and Road Initiative (BRI).

Main Points

• Business Model: SITC operates as a logistics company rather than a shipping company, offering integrated sea freight and land-based logistics services.
• Market Position: The company is concentrated in the intra-Asia trade market, which is expected to grow steadily due to regional economic integration and direct investment.
• Industry Trends: China's trade with other Asian countries has grown at a CAGR of 12.8% from 2000 to 2017, and the trend is expected to continue with the relocation of industries to ASEAN and BRI.
• Company Performance: SITC reported strong revenue and net profit growth in 2017, with a 10.9% YoY revenue increase and 53.6% YoY net profit growth.
• Fleet and Services: As of the end of 2017, SITC operated 77 vessels and 63 trade lanes, with a high-frequency service network that supports its logistics operations.
• Cost Management: With tight industry supply, SITC can pass on cost increases, such as fuel price hikes, to its customers, ensuring stable profit margins.
• Dividend Yield: The company offers a high dividend yield of 5–6%, which supports its share price in a volatile environment.
• Valuation: The stock currently trades at 13.0x and 11.3x 2018E and 2019E PER, respectively, which is one standard deviation above its historical average, suggesting potential undervaluation.
• Outlook: The company is expected to benefit from continued intra-Asia trade growth and the ongoing relocation of Chinese companies to ASEAN.

Key Information

• Share Price Performance: SITC's share price rose 7.6% CYTD, outperforming the HSI Index which declined by 7.6% during the same period.
• Earnings Growth: Consensus earnings growth is expected at around 14.6% p.a. for 2018–2019E.
• Profit Margins: Gross profit margin (GPM) has been improving, reaching 18.7% in 2017, with operating profit margin (OPM) at 13.5% and net margin at 14.0%.
• ROE: Return on equity (ROE) has shown a steady increase, reaching 19.7% in 2017 and projected to rise to 22.7% in 2019E.
• Dividend Policy: SITC maintains a dividend payout ratio of 60–70% in 2018–2019E.
• Fleet Composition: SITC has a fleet of 48 self-owned and 29 chartered container vessels, totaling 105,234 TEU.
• Competitive Edge: Its integrated logistics services and high-frequency intra-Asia routes give it a competitive advantage in securing long-term contracts with Fortune 500 companies.

Financial Highlights

Strategic Factors

• Intra-Asia Trade Growth: Expected to continue due to free trade agreements, regional integration, and direct investment in ASEAN.
• Industry Relocation: Chinese companies are relocating to ASEAN due to lower labor costs and better market access.
• BRI Impact: The Belt and Road Initiative is expected to boost infrastructure and local industry investment, driving trade volume growth.
• Global Emission Limits: Expected to increase vessel scrapping, tightening supply and supporting freight rates.

Competitive Position

• Peer Comparison: SITC outperforms many peers in terms of earnings growth, profit margins, and ROE, especially compared to H-share and A-share logistics companies.
• Unique Services: Its integrated logistics model and focus on the intra-Asia market provide a competitive edge and stable business relationships with major clients.

Conclusion

SITC International Holdings is well-positioned to benefit from the growth of intra-Asia trade and the relocation of Chinese companies to ASEAN. Its unique business model, strong financial performance, and strategic positioning make it a defensive investment option in a volatile market. The company's ability to pass on cost increases and its high dividend yield further support its investment appeal.