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>In this new monthly research product we introduce three Long / Short pair trade ideas in Chinese travel, Chinese express and logistics, and global container shipping. </p>
<p>These pair trade ideas are based mainly on expected fundamental change in each segment over the next 6-12 months. We'll focus on Asia, but occasionally we may place non-Asian names on either side of our pair ideas. Besides examining key secular and cyclical trends in each segment, we will consider relative valuations, and we'll strive to identify key catalysts and risks for each stock. </p>
<p>Broadly, the idea behind this new product is to identify and <em>own</em> companies we expect to profitably gain share or to reap outsized benefits from important secular and cyclical trends, then <em>short</em> names in the same segment that stand to lose the most to the 'winners' we select. </p>
<p>We'll be back in about a month with our first updates on these three proposed pairs!</p>

In this new monthly research product we introduce three Long / Short pair trade ideas in Chinese travel, Chinese express and logistics, and global container shipping. 
These pair trade ideas are based mainly on expected fundamental change in each segment over the next 6-12 months. We'll focus on Asia, but occasionally we may place non-Asian names on either side of our pair ideas. Besides examining key secular and cyclical trends in each segment, we will consider relative valuations, and we'll strive to identify key catalysts and risks for each stock. 
Broadly, the idea behind this new product is to identify and own companies we expect to profitably gain share or to reap outsized benefits from important secular and cyclical trends, then short names in the same segment that stand to lose the most to the 'winners' we select. 
We'll be back in about a month with our first updates on these three proposed pairs!

TRACKING TRAFFIC/Three Suggested Pair Trades in Travel, Express & Shipping

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Kerry Express Thailand / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> is the leading express delivery company in Thailand. It is backed by <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a> (63.0% shareholder) and <a href="https://www.smartkarma.com/entities/vgi-pcl" target="_blank" data-smartkarma-citation="entities:12409:1" rel="noopener">VGI PCL (VGI TB)</a> (23.0% shareholder).</p></div><div><p>Kerry Express has launched its IPO at a price range of THB25.00-28.00 per share to raise as much as THB8.4 billion ($278 million). Subscription will take place between 8-9 and 14 December for retail investors, and 16-18 December for institutional investors. The final price is expected to be announced on 15 December. </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/kerry-express-ipo-initiation-a-recovery-play" target="_blank" data-smartkarma-citation="insights:45446" rel="noopener">Kerry Express IPO Initiation: A Recovery Play?</a>, we stated that while the 3Q20 results are not ideal, we think that revenue decline is a short-term market-specific issue, and Kerry Express remains well-placed to ride an eventual recovery in Thai consumer confidence. Overall, we think that a reasonable P/E valuation, a market-leading business and solid cornerstone support makes Kerry Express tempting at the proposed pricing range. </p></div></div></div>

Kerry Express Thailand (KEX TB) is the leading express delivery company in Thailand. It is backed by Kerry Logistics Network (636 HK) (63.0% shareholder) and VGI PCL (VGI TB) (23.0% shareholder).Kerry Express has launched its IPO at a price range of THB25.00-28.00 per share to raise as much as THB8.4 billion ($278 million). Subscription will take place between 8-9 and 14 December for retail investors, and 16-18 December for institutional investors. The final price is expected to be announced on 15 December. In Kerry Express IPO Initiation: A Recovery Play?, we stated that while the 3Q20 results are not ideal, we think that revenue decline is a short-term market-specific issue, and Kerry Express remains well-placed to ride an eventual recovery in Thai consumer confidence. Overall, we think that a reasonable P/E valuation, a market-leading business and solid cornerstone support makes Kerry Express tempting at the proposed pricing range. 

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/980/original/BANNER-LOGISTICS.png?1605971640" class="editor-image img-responsive" data-smartkarma-image-id="172980"></figure></section><p>In October, Chinese express parcel volume growth remained strong. However, pricing was weak, and we see no signs of price improvement in the near-term. Margins remain under pressure. </p><p>A slew of Q3 earnings results show some companies losing money, with margins at almost all of the companies under intense pressure. <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a>'s recent decision to exit non-core businesses supports our thesis that pressure to consolidate is increasing. </p><p>We retain our view that SF Holding is the sector's leading company, but in the medium-term, we believe Best is an attractive way to play expected sector M&amp;A in 2021. </p>

In October, Chinese express parcel volume growth remained strong. However, pricing was weak, and we see no signs of price improvement in the near-term. Margins remain under pressure. A slew of Q3 earnings results show some companies losing money, with margins at almost all of the companies under intense pressure. BEST Inc (BEST US)'s recent decision to exit non-core businesses supports our thesis that pressure to consolidate is increasing. We retain our view that SF Holding is the sector's leading company, but in the medium-term, we believe Best is an attractive way to play expected sector M&amp;A in 2021. 

TRACKING TRAFFIC/Chinese Express: Weak Q3 Results from ZTO & Best | Consolidation Pressures Gaining

<p>After the US market close on Thursday, <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US)</a> reported a weak set of Q3 results, as expected. But the company also announced a bold new strategic initiative that should result in a leaner, more focused company.  </p><p>In addition to winding down its <em>Store+</em> business (disclosed earlier, please see <a href="https://www.smartkarma.com/insights/best-inc-is-closing-its-money-losing-store-business-a-small-but-positive-step-forward" target="_blank" data-smartkarma-citation="insights:45395" rel="noopener">Best Inc. Is Closing Its Money-Losing 'Store+' Business, a Small but Positive Step Forward</a>), Best announced it was considering "strategic options" for its Global, UCargo, and Capital divisions. Going forward, the company will focus on Express, Freight, and Supply Chain Management. </p><p>We do <em>not</em> believe this strategic decision will lead to a quick turnaround in profitability, but we <em>do</em> believe it makes Best more attractive to an acquirer. Best's decision to exit non-core businesses shows financial pressures are intensifying in China's express sector. This tells us the forces behind consolidation are quickly gaining momentum. We retain our BUY rating on Best, a potential acquisition target. </p>

After the US market close on Thursday, BEST Inc (BEST US) reported a weak set of Q3 results, as expected. But the company also announced a bold new strategic initiative that should result in a leaner, more focused company.  In addition to winding down its Store+ business (disclosed earlier, please see Best Inc. Is Closing Its Money-Losing 'Store+' Business, a Small but Positive Step Forward), Best announced it was considering "strategic options" for its Global, UCargo, and Capital divisions. Going forward, the company will focus on Express, Freight, and Supply Chain Management. We do not believe this strategic decision will lead to a quick turnaround in profitability, but we do believe it makes Best more attractive to an acquirer. Best's decision to exit non-core businesses shows financial pressures are intensifying in China's express sector. This tells us the forces behind consolidation are quickly gaining momentum. We retain our BUY rating on Best, a potential acquisition target. 

Best Inc's Weak Q3 Results Spur 'Strategic Refocusing Plan', Retain BUY

<p><a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> reported Q3 earnings results after the US close on Wednesday. While parcel volume and revenue both showed strong growth -- up 51% and 26% YoY, respectively -- core margins imploded and diluted net earnings per share fell about 10% versus Q3 2019. The collapse of ZTO's core express margins shows ZTO has fallen back to the pack it used to lead convincingly.</p><p>We also note sharp YoY increases in gross profit from non-express activities, 'other operating income', and tax breaks, all of which flattered the company's weak bottom line. Without these, we estimate net profit would have fallen by around a third in Q3. ZTO's growing reliance on 'other' items indicates worsening earnings quality, in our view. </p><p>Despite these, ZTO continues to enjoy rich valuation multiples, which we believe is undeserved, given our expectation of continued margin pressure in 2021. We retain our SELL rating on ZTO. </p>

ZTO Express (ZTO US) reported Q3 earnings results after the US close on Wednesday. While parcel volume and revenue both showed strong growth -- up 51% and 26% YoY, respectively -- core margins imploded and diluted net earnings per share fell about 10% versus Q3 2019. The collapse of ZTO's core express margins shows ZTO has fallen back to the pack it used to lead convincingly.We also note sharp YoY increases in gross profit from non-express activities, 'other operating income', and tax breaks, all of which flattered the company's weak bottom line. Without these, we estimate net profit would have fallen by around a third in Q3. ZTO's growing reliance on 'other' items indicates worsening earnings quality, in our view. Despite these, ZTO continues to enjoy rich valuation multiples, which we believe is undeserved, given our expectation of continued margin pressure in 2021. We retain our SELL rating on ZTO. 

ZTO Q3 Results: As Margins Implode, It's Coming 'Back To the Pack', Retain SELL

China

ZTO Express (Cayman) Inc. operates as an express delivery company. The Company provides express delivery service through their nationwide network, as well as other value-added logistics services. ZTO Express serves customers globally.

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ZTO Express Cayman (ZTO US)

TRACKING TRAFFIC/Three Suggested Pair Trades in Travel, Express & Shipping

We're introducing a monthly pair trade idea product to go along with our monthly products covering Chinese travel and tourism, Chinese express, and...

Tracking Traffic

Kerry Express IPO: Valuation Insights

Kerry Express has launched its IPO at a price range of THB25.00-28.00 per share to raise as much as THB8.4 billion ($278 million). Overall, we...

Arun George

TRACKING TRAFFIC/Chinese Express: Weak Q3 Results from ZTO & Best | Consolidation Pressures Gaining

October express data show -- once again -- strong parcel volume growth but very weak pricing. Margin pressure seen in Q3 results is adding to...

Tracking Traffic

Best Inc's Weak Q3 Results Spur 'Strategic Refocusing Plan', Retain BUY

Best Inc posted weak Q3 results, but the bigger story is a new strategic initiative that should make the company more attractive to a potential...

Tracking Traffic

ZTO Q3 Results: As Margins Implode, It's Coming 'Back To the Pack', Retain SELL

ZTO reported weak results again in Q3, as a steep decline in margins was partially offset by increased contributions from 'other'. We expect...

Tracking Traffic

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