Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<p>After getting hit by Covid-19 in February and early March, Chinese express company <a href="https://www.smartkarma.com/entities/yto-express" target="_blank" data-smartkarma-citation="entities:20319:1" rel="noopener">YTO Express (600233 CH)</a> has roared back to life, hitting a two-year high of 15.96 CNY on Friday, June 12. </p><p>YTO's apparent recovery from the depths of the pandemic (April parcel volume up 41% YoY) masks a ferocious price war in China's express market. A newly-aggressive <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a> and a shift to low-priced shipments tied to discount eCommerce platform <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> have combined to put strong downward pressure on pricing. We see no near-term recovery for YTO.</p><p>YTO's +51% move since March 22 puts the shares on approximately 33x 2020 diluted EPS and over three times book value. We see little room for strong growth in 2021 due to ongoing margin compression. Weaker than expected Q220 results (out in August) will dent shares over the next six months and recommend investors Short YTO against an equivalent Long position in SF Holding. </p>

After getting hit by Covid-19 in February and early March, Chinese express company YTO Express (600233 CH) has roared back to life, hitting a two-year high of 15.96 CNY on Friday, June 12. YTO's apparent recovery from the depths of the pandemic (April parcel volume up 41% YoY) masks a ferocious price war in China's express market. A newly-aggressive S.F. Holding (002352 CH) and a shift to low-priced shipments tied to discount eCommerce platform Pinduoduo (PDD US) have combined to put strong downward pressure on pricing. We see no near-term recovery for YTO.YTO's +51% move since March 22 puts the shares on approximately 33x 2020 diluted EPS and over three times book value. We see little room for strong growth in 2021 due to ongoing margin compression. Weaker than expected Q220 results (out in August) will dent shares over the next six months and recommend investors Short YTO against an equivalent Long position in SF Holding. 

Short YTO Express: Sharp Recovery in Volume Masks Effects of Intensifying Price War

Senior Investment Analyst, Black Crane Investment Mgmt Ltd

Perry Tan, CFA, CAIA, FRM

Senior Investment Analyst

Black Crane Investment Mgmt Ltd

Event-Driven

YTO Express (International) Holdings / Event-Driven

<div>Takeout at $4.0698, ~11% spread</div><div>Comment in On Time's business:</div><ul>
<li>Thin margin business, 3% EBITDA margins on almost no net margin, never loss making</li>
<li>Problem is subscale, maybe that is why they want to sell</li>
<li>Cash rich, no debt; receivables and payables are a drag on invested capital</li>
<li>Cash flow from ops matches capex, so will need debt for growth capex (which they have not done); also, maintenance capex to sustain business will be problematic'</li>
</ul><div>
<a href="https://www.chinamoneynetwork.com/2017/05/09/yto-express-to-buy-62-of-hong-kongs-on-time-logistics-for-134m" target="_blank">https://www.chinamoneynetwork.com/2017/05/09/yto-express-to-buy-6</a>…</div>

Takeout at $4.0698, ~11% spreadComment in On Time's business:
Thin margin business, 3% EBITDA margins on almost no net margin, never loss making
Problem is subscale, maybe that is why they want to sell
Cash rich, no debt; receivables and payables are a drag on invested capital
Cash flow from ops matches capex, so will need debt for growth capex (which they have not done); also, maintenance capex to sustain business will be problematic'

https://www.chinamoneynetwork.com/2017/05/09/yto-express-to-buy-6…

Hong Kong

YTO Express Holdings Limited provides freight and logistics services. The Company offers air freight, marine transportation, information technology capabilities, warehousing, order assembly, and other related services.  YTO Express Holdings provides services worldwide.

YTO Express (International) Holdings (6123 HK)

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YTO Express (International) Holdings (6123 HK)

Short YTO Express: Sharp Recovery in Volume Masks Effects of Intensifying Price War

After getting hit by Covid-19 in February and early March, Chinese express company YTO Express (600233 CH) has roared back to life, hitting a...

Tracking Traffic

On Time Logistics

Takeout at $4.0698, ~11% spreadComment in On Time's business: Thin margin business, 3% EBITDA margins on almost no net margin, never loss...

Perry Tan, CFA, CAIA, FRM

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52-week Range

Market Cap (USDm)

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