HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> posted another set of strong result in 3Q21 with recurring earnings grew by 34.2% YoY. The slow growth of 5.8% in reported earnings is distorted by an Rmb143m provision in litigation loss, and investors should not let this non-recurring figure mask the interpretation of good result. We saw healthy double-digit volume growth for logistics and e-commerce businesses in the quarter, and international express JV DHL-Sinotrans continued to stage a solid growth in profit contribution.We believe Sinotrans is deeply undervalued at 0.47x 12-month forward P/B given an 11.7% ROE and a 41% earnings growth for FY21F. The 21% pullback in share price along with the container shipping sector in a month's time looks unjustified, in our view. Sinotrans has a solid financial position with 3Q21 gearing of just 6.6%, and assume a stable dividend payout, it is sitting on an attractive dividend yield of 7.4% for this year.

Sinotrans (598 HK) posted another set of strong result in 3Q21 with recurring earnings grew by 34.2% YoY. The slow growth of 5.8% in reported earnings is distorted by an Rmb143m provision in litigation loss, and investors should not let this non-recurring figure mask the interpretation of good result. We saw healthy double-digit volume growth for logistics and e-commerce businesses in the quarter, and international express JV DHL-Sinotrans continued to stage a solid growth in profit contribution.We believe Sinotrans is deeply undervalued at 0.47x 12-month forward P/B given an 11.7% ROE and a 41% earnings growth for FY21F. The 21% pullback in share price along with the container shipping sector in a month's time looks unjustified, in our view. Sinotrans has a solid financial position with 3Q21 gearing of just 6.6%, and assume a stable dividend payout, it is sitting on an attractive dividend yield of 7.4% for this year.  

Sinotrans (598 HK): From Strength to Strength

<a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> delivered another set of good result with the report of a 77.9% YoY increase in net profit for 1H21, which is at the higher end of the indicated range in its positive profit alert. For 2Q21 only, recurring profit also grew a healthy 17.4% YoY and 36.5% QoQ, with the international express JV DHL-Sinotrans witnessing the best momentum. Meanwhile, financial position remained solid with a light gearing of just 10.5%.We expect a slower 2H21, partly due to a higher base in last year. However, we still see FY21 earnings to surge 45% YoY, thanks to China's sustained trade growth, new customer gains, network expansion, continued product enhancement and e-commerce market growth. Our projected ROE of 12.2% for FY21 well suggested that its 0.51x P/B inexpensive. This argument is further supported by a PER of 4.5x only and an attractive dividend yield of 7.0%.

Sinotrans (598 HK) delivered another set of good result with the report of a 77.9% YoY increase in net profit for 1H21, which is at the higher end of the indicated range in its positive profit alert. For 2Q21 only, recurring profit also grew a healthy 17.4% YoY and 36.5% QoQ, with the international express JV DHL-Sinotrans witnessing the best momentum. Meanwhile, financial position remained solid with a light gearing of just 10.5%.We expect a slower 2H21, partly due to a higher base in last year. However, we still see FY21 earnings to surge 45% YoY, thanks to China's sustained trade growth, new customer gains, network expansion, continued product enhancement and e-commerce market growth. Our projected ROE of 12.2% for FY21 well suggested that its 0.51x P/B inexpensive. This argument is further supported by a PER of 4.5x only and an attractive dividend yield of 7.0%. 

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Cross Asset Strategy

<ul>
<li>Hong Kong market showed defensiveness during early August selloff and the overall breadth of the market continues to improve.</li>
<li>
<a href="https://www.smartkarma.com/entities/j-t-global-express-ltd" target="_blank" data-smartkarma-citation="entities:36819:1" rel="noopener">J&amp;T Global Express (1519 HK)</a> received upgrades after reporting strong 2Q24 results.  Its SEA and China business showed growth in revenue and profitability.</li>
<li>
<a href="https://www.smartkarma.com/entities/galaxy-entertainment-group-limited" target="_blank" data-smartkarma-citation="entities:806:1" rel="noopener">Galaxy Entertainment Group (27 HK)</a> received an upgrade after revenue and EBITDA approached pre-COVID levels.  <a href="https://www.smartkarma.com/entities/fit-hon-teng-ltd" target="_blank" data-smartkarma-citation="entities:22868:1" rel="noopener">FIT Hon Teng (6088 HK)</a> is seeing improvement in AI server, AirPod, and EV segments.</li>
</ul>


Hong Kong market showed defensiveness during early August selloff and the overall breadth of the market continues to improve.

J&amp;T Global Express (1519 HK) received upgrades after reporting strong 2Q24 results.  Its SEA and China business showed growth in revenue and profitability.

Galaxy Entertainment Group (27 HK) received an upgrade after revenue and EBITDA approached pre-COVID levels.  FIT Hon Teng (6088 HK) is seeing improvement in AI server, AirPod, and EV segments.


BUY/SELL/HOLD: Hong Kong Stock Updates (August 21)

<ul>
<li>The 1H23 result of <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> is unexciting as recurring profit contracted 9.8%. The decline has also accelerated to 13.5% in 2Q23, from just 4.6% in 1Q23. </li>
<li>Weak export (-14.5% YoY in Jul) and poor airfreight price (-45% YoY in Jul) did not bode well for profitability. The flattening of DHL-Sinotrans' contribution also limits earnings upside.</li>
<li>Valuations are inexpensive at 5.3x PER and 9% yield for FY23, but growth outlook is not encouraging. We think it is a good time to take money off the table.</li>
</ul>


The 1H23 result of Sinotrans (598 HK) is unexciting as recurring profit contracted 9.8%. The decline has also accelerated to 13.5% in 2Q23, from just 4.6% in 1Q23. 
Weak export (-14.5% YoY in Jul) and poor airfreight price (-45% YoY in Jul) did not bode well for profitability. The flattening of DHL-Sinotrans' contribution also limits earnings upside.
Valuations are inexpensive at 5.3x PER and 9% yield for FY23, but growth outlook is not encouraging. We think it is a good time to take money off the table.


Sinotrans (598 HK): Challenges Have Not Abated Yet

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Thematic (Sector/Industry)

<ul>
<li>Continued tailwinds for oil tanker stocks with tight markets keeping rates high</li>
<li>The copper supply and demand story is becoming more widely known and speculative interest is rising</li>
<li>Oil corrects  as the geopolitical premium subsides,but the longer-term story remains intact</li>
</ul>


Continued tailwinds for oil tanker stocks with tight markets keeping rates high
The copper supply and demand story is becoming more widely known and speculative interest is rising
Oil corrects  as the geopolitical premium subsides,but the longer-term story remains intact


Update on Some of the HK Commodity Stocks We Follow

China

Sinotrans Limited provides integrated logistics services with core service of sea, air, rail and road freight forwarding, express services and shipping agency services.  The Company also provides support services of storage and terminal services, trucking and marine transportation services.

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Sinotrans (598 HK)

Sinotrans (598 HK): From Strength to Strength

Sinotrans' slower 3Q21 profit growth is due to non-recurring item; and excluding this, its growth was an impressive 34.2%. The 0.47x P/B has deeply...

Osbert Tang, CFA

Sinotrans (598 HK): A Rock Solid 1H21

1H21 is a solid result, and despite a slower 2H21 on hgher base, the full-year growth of Sinotrans will still be very decent. We think that all...

Osbert Tang, CFA

BUY/SELL/HOLD: Hong Kong Stock Updates (August 21)

The Hong Kong market breadth continues to improve as the market has shown defensive qualities during recent selloff. J&T Global, Galaxy and FIT...

David Mudd

Sinotrans (598 HK): Challenges Have Not Abated Yet

Weak export and poor airfreight price did not bode well for profitability. The flattening of DHL-Sinotrans' contribution limits earnings upside. It...

Osbert Tang, CFA

Update on Some of the HK Commodity Stocks We Follow

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. Tanker rates remain high, copper demand grows amid speculation,...

Rikki Malik

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Sinotrans (598 HK): From Strength to Strength

Sinotrans' slower 3Q21 profit growth is due to non-recurring item; and excluding this, its growth was an impressive 34.2%. The 0.47x P/B has deeply...

Osbert Tang, CFA

Sinotrans (598 HK): A Rock Solid 1H21

1H21 is a solid result, and despite a slower 2H21 on hgher base, the full-year growth of Sinotrans will still be very decent. We think that all...

Osbert Tang, CFA

BUY/SELL/HOLD: Hong Kong Stock Updates (August 21)

The Hong Kong market breadth continues to improve as the market has shown defensive qualities during recent selloff. J&T Global, Galaxy and FIT...

David Mudd

Sinotrans (598 HK): Challenges Have Not Abated Yet

Weak export and poor airfreight price did not bode well for profitability. The flattening of DHL-Sinotrans' contribution limits earnings upside. It...

Osbert Tang, CFA

Update on Some of the HK Commodity Stocks We Follow

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. ​Tanker rates remain high, copper demand grows amid speculation,...

Rikki Malik

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. Tanker rates remain high, copper demand grows amid speculation,...