中国物流业：运费预期

1、By: David Wu (S1700518110001)Equity Research ReportTransportation & LogisticsJanuary 2020 HYPERLINK / China LogisticsInitiate coverage: Freight expectationsThe worlds largest freight market is changing rapidly it is entering a new era of cost reduction and efficiency gainsWe focus on three segments

2、small loads delivered by truck, freight forwarding, and railway container transportInitiate coverage on three leading companies China Railway Tielong (Buy), CTS Logistics (Hold) and Deppon Logistics (Hold)Disclosures & Disclaimer: This report must be read with the disclosures and the analyst certifi

3、cations in the Disclosure appendix, and with the Disclaimer, which forms part of it.Why read this report?Find out whats changing in the worlds largest freight industryTrack the emergence of leaders in three different parts of the market small loads moved by road transportation, railway containers, a

4、nd freight forwardingWe initiate coverage of CRT (Buy), CTS Logistics (Hold) and Deppon Logistics (Hold).Good times for freight linesChinas freight market is bigger than those in the US, India, Russia and the EU combinedCosts are falling and the industry is consolidating as competition increasesWe i

5、nitiate coverage of CRT (Buy), CTS Logistics (Hold) and Deppon Logistics (Hold)Delivering the goodsGiven the scale of manufacturing, heavy industry, e-commerce, and traditional bricks-and- mortar retail, its no surprise that demand for logistics keeps rising. In February 2019, we dug deep into the e

6、xpress delivery market, where an average of 1,500 express parcels are delivered every second around the country (see Delivering the goods how e-commerce is creating industry giant, 12 February 2019). This report switches the focus to three other parts of the Chinas giant freight market, which is big

7、ger than those in the US, India, Russia and the EU combined:The thriving business of shipping relatively small loads, known in the industry as less-than- loadtruck (LTL); it is a RMB1.5 trillion market.Freight forwarding operators that act as intermediaries between shippers and transportation compan

8、ies.State-run rail freight services which focus on bulk dry goods. They are receiving a considerable amount of policy support from the government.Exhibit 1. China is by far the worlds largest freight market (bn ton kilometer, 2017)1600014000120001000080006000400020000ChinaIndiaAmericaRussiaEU(28 cou

9、ntries)Japan HighwayRailwayCoastal shippingSource: OECD, HSBC Qianhai SecuritiesThe leading companies have market shares of no more than 2%The same growth pathWe find a lot of similarities between the express delivery market and LTL and freight forwarding. For example, domestic logistics services ar

10、e also very competitive and highly fragmented. To succeed, the market leaders will have to follow the same growth path build a logistics network to increase freight volumes, create economies of scale to bring down costs, secure more market share and then widen their network coverage.Theres a long wa

11、y to go. For instance, the leading companies in the LTL market have market shares of no more than 2%. Against this backdrop, a number of Chinese logistics companies have gone public in the last two years, both in China and the US, to raise capital to expand.Costs to fall as consolidation and efficie

12、ncy increaseGiven the giant scale of manufacturing and e-commerce in China, it is no surprise that demand for logistics keeps rising. The supply chain stretches from raw material suppliers, manufacturers, wholesalers, retailers and finally to consumers. This requires a wide range of logistics servic

13、es, including express delivery, less-than-truckload (LTL), railway container transport, air freight, container shipping, and freight forwarding.The domestic logistics market is dominated by road transportation. In 2017, road freight contributed 71% of inland freight volumes. This is changing as the

14、government wants more freight to be carried by railway to reduce pollution and costs. At the same time, the fragmented and competitive nature of market means that industry consolidation is inevitable. This should create economies of scale and help reduce costs further.Exhibit 2. Chinas logistics ind

15、ustry covers many different areasSuppliersManufacturersWholesalersRetailersCargo FlowConsumerspment, etcn, Lalamove, etcbal Logistic Properties, CMST Develo hing platform: Huochebang, Yunmanma xpress cabinet: Hive Box, Sposter, etcStorage: GloVehicle-cargo matcEStorage and othersex, DHL, Emirates, e

16、tcd express delivery: SF, EMS, UPS, FedFreight transportation anAir freightSCO Shipping Holdings, etc Logistics, Sinotrans, etcFreight transportation: COFreight forwarding: CTSShippingCRT, Daqin Railway, etcFreight transportation:RailwayExpress delivery:Deppon, SF, ZTO, etcLTL: Deppon, SF Freight,AN

17、E, Dekun, etcFTL: Tuopuwang, ZhihongLogistics, etcHighwayOptional logistics servicesSource: HSBC Qianhai SecuritiesIndustry outlookSluggish demand for commodities was a key reason why combined road and rail freight volumes rose only 4.7% in China over 2013-18, well below the GDP growth rate. As the

18、economic downtrend has moderated and e-commerce has boomed, growth in freight volumes rebounded to 5.9% in 9M19 and we expect this to level off at 6% over the next three years, largely in line with expected GDP growth. We see opportunities emerging in three areas:LTL logistics companies offer econom

19、ies of scale that help to reduce freight costsLess-than-loadtruck (LTL) road transportThis service is for relatively small loads to accommodate the needs of huge numbers businesses that need to move smaller batches of goods frequently. LTL logistics companies offer economies of scale that helps to r

20、educe freight costs. The industry grew at a 9% CAGR in freight volume over 2013-18. We estimate this will rise to c14% CAGR over 2019-21e.This should be driven by the rise in online sales as well as offline purchases of items such as home appliances and household products which need to be delivered.

21、 Industry leaders have achieved rapid growth by focusing on the high-value small article logistics market or by building alliances to cover the low-value bulky item market. They have built cost and network advantages based on expanding their market share and profit margins.Railway container transpor

22、tThe industrys container transportation volume increased at a 25% CAGR over 2013-18, driven by policy initiatives to promote a shift from highway transportation to railways. Based on our estimates, the segments freight volume will grow more than 30% annually over the next 3-5 years.Freight forwardin

23、gThe freight forwarding industry recorded a 3.5% revenue CAGR over 2013-18. This relatively slow pace of growth is due to the fact that more than 80% of the segments freight volume comes from overseas shipping. Given the world economic downturn and the Sino-US trade tensions, we expect the industrys

24、 growth to stay low at c3% over 2019-21e. However, leading freight forwarders can further expand their market share and profit margins by capitalizing on their cost and IT advantages and through M&A as the industry consolidates.Exhibit 3. We estimate a c14% CAGR for the LTL market over the next thre

25、e yearsExhibit 4. We estimate more than 30% CAGR for the railway container transport market over the next three years2.521.510.502012 2013 2014 2015 2016 2017 20182021E25%20%15%10%5%0%-5%-10%350003000025000200001500010000500002012 2013 2014 2015 2016 2017 20182021E50%40%30%20%10%0%-10%LTL market sca

26、le (RMBtn)yoyRailway container transport volume (thousand TEU)yoySource: TUC Media, HSBC Qianhai Securities estimatesSource: CCIA, HSBC Qianhai Securities estimatesInitiate coverageWe initiate coverage of three companies in very different parts of the logistics industry. China Railway Tielong (CRT)

27、is a leading player in railway container freight, a business which is benefitting from policy support as the government wants more goods to be moved by rail rather than road. CTS Logistics is a freight forwarding company that is growing rapidly and increasing its market share and profitability throu

28、gh cost reduction and M&A. Deppon Logistics is a leader in the road transport industry.We use different methodologies to value the three companiesWe use different methodologies to value the three companies. They operate in parts of the logistics supply chain that have differences in business mix, op

29、erating models and growth paths. We use DCF to value CRT, given its diversified businesses and strong cash flow. We use PE to value CTS Logistics as it is currently at the growth stage and is expected to maintain rapid earnings growth. We use EV/EBITDA to value Deppon Logistics, in view of its aggre

30、ssive expansion into the bulky item express delivery business, and its LTL freight business has a similar operating model to express delivery. Our order of stock preference is CRT, CTS Logistics, and then Deppon Logistics.CRT (600125 CH, Buy, TP RMB7.37)State-owned CRT is one of the three listed com

31、panies in the railway transport industry. The company is the special container transportation arm of China State Railway Group, with a focus on containers. It has also developed a number of related businesses, including railway freight (non-container), port logistics, commodity trading, real estate

32、and cold chain logistics.Earnings performance has been volatile since 2014 (see Exhibit 49). In 2017, the share price rose 35% thanks to the earnings recovery driven by the governments “highway to railway” transition policy and the anticipated acceleration in railway asset securitisation. In 2018, c

33、hanges in the railway freight payment and the rapid growth of the railway special container business accelerated revenue growth.However, the share price retreated 14% in 2019. In our view, this was due to the short-term decline in property earnings and the increasing operating expenses which weakene

34、d earnings. Based on our estimates, special container transport volumes will grow more than 30% annually in the next 3-5 years, and the increased usage rate of special containers should help push up the profit margin in the long term. In 2019, the companys new cold chain logistics base in Dalian sta

35、rted operations, which is expected to be a new source of growth.We forecast a 13.6% CAGR in revenue and a 13% CAGR in attributable net profit over 2019- 21e. We are 1%, 11% and 11% above consensus in terms of net profit. Based on a three-stage DCF model, we arrive at our target valuation of RMB9.6bn

36、 or a target price of RMB7.37. Our target price implies 22% upside. We initiate coverage with a Buy rating. Share price catalysts: accelerating railway reform and asset securitisation.Exhibit 5. CRT: 5-year share price performance550050004500400035003000250020001500The “road to rail” policy led to a

37、 rebound in profits; the market also anticipated a rise in railwayThe reform of the freight payment system and theProfits from real25growth of special railrose, creating a drag containers boosted profitson earningsasset securitizationestate fell andoperating expenses20151050Oct-14 Feb-15 Jun-15Oct-1

38、5 Feb-16 Jun-16Oct-16 Feb-17 Jun-17Oct-17 Feb-18 Jun-18Oct-18 Feb-19 Jun-19Oct-19 Shanghai composite indexCRT (RMB, right axis)Source: Wind, HSBC Qianhai SecuritiesCTS Logistics (603128 CH, Hold, TP RMB7.63)State-owned CTS Logistics is the eighth largest freight forwarder in China. Since 2014, the c

39、ompany has achieved rapid earnings growth by reducing its supply chain trading business,Since 2016, earnings of the import warehousing and distribution business have risen at a CAGR of 45%which generates high revenue low margins. Instead it has focused on freight forwarding, acquiring Dexiang Group

40、to expand into warehousing and distribution, and China Special Article Logistics (CSALC) to move into special article logistics. Over 2013-18, the company recorded 2.1% revenue CAGR and 31.8% CAGR in attributable net profit.The share price rose 58% in 2015 largely due to the stronger-than-expected p

41、rofitability of the freight forwarding business. Over 2012-16, the company reduced its costs by centralising the procurement of transport capacity. As a result, its freight forwarding market share doubled to 2%, the gross margin rose from 7.3% to 10.8%, and net profit from the freight forwarding bus

42、iness increased 95%.Since 2016, earnings of the import warehousing and distribution business have risen at a CAGR of 45%. This has benefited from the rapid growth in cross-border e-commerce and the governments free trade zone (FTZ) policies. Notably, special article logistics contributed 33% of the

43、companys net profit, and “new logistics” has become a new earnings driver. In 2019, the share price rose 21%. Looking ahead, the company should continue to improve freight forwarding economies of scale after the acquisition of two freight forwarders.Including the recent acquisitions of the freight f

44、orwarding businesses of Daan International and Xuncheng International, we forecast a 15% revenue CAGR and 28% CAGR for the attributable net profit over 2019-21e. We are -12%, +8% and +8% different from consensus in terms of net profit during this period. Based on a sum-of-the-parts valuation, we der

45、ive a target price of RMB7.63, which implies 16% upside. As we believe the company will be negatively affected by sluggish global economic growth and Sino-US trade tensions in the short term, we initiate coverage with a Hold rating.Exhibit 6. CTS Logistics: 5-year share price performanceThe share pr

46、ice fellsharply after profit growthChengtong GroupThe sluggish globalThe market respondedto the policy to open up more free tradethe equity incentiveschemeon the stock pricethe market anticipatedincreased synergieszones and the launchof the second phase ofbecame the newmacro economy andcontrolling s

47、hareholder;trade tensions weigheddisappointed550020500018450016400014350012300010250082000615004Oct-14 Feb-15 Jun-15Oct-15 Feb-16 Jun-16Oct-16 Feb-17 Jun-17Oct-17 Feb-18 Jun-18Oct-18 Feb-19 Jun-19Oct-19 Shanghai composite indexCTS Logistics (RMB, right axis)Source: Wind, HSBC Qianhai SecuritiesDeppo

48、n has started to struggleDeppon Logistics (603056 CH, Hold, TP RMB9.91)Deppon Logistics has been the market leader in Chinas less-than-loadtruck (LTL) transport industry for years. Deppon targets the high-end market and has the highest revenue and earnings in the industry. The company has the widest

49、 logistics network coverage in the LTL market. In 2013, the company expanded into the express delivery services industry by launching the bulky item express delivery services. Over 2014-18, it generated revenue and net profit CAGRs of 21.7% and 20.8%, respectively, driven by the freight business (LT

50、L+FTL full truck-load) and express delivery services.But Deppon has started to struggle. The share price has been in decline since March 2019 and in 9M19, net profit fell 75.7% y-o-y. LTL growth has stalled due to tougher competition and itsbulky item express delivery services also recorded slower g

51、rowth after being completely separated from the light small-ticket LTL business. We think Deppon has failed to adopt an effective competitive strategy, which led to a loss of market share.After Deppon was listed in January 2018, Mr. Cui Weixing, its actual controller, gradually removed himself from

52、the day-to-day operations. However, given the challenges the company has been facing, he returned in August 2019. We believe the company will slow the pace of expansion in the short term and focus on training and retaining talent. We also expect the company to increase its earnings by expanding the

53、share of its own transportation capacity and separating the LTL transportation and express delivery networks to reduce transport costs.Longer term, we believe the company needs to adjust its competitive strategy and reposition its products in order to resume growth.Over 2019-21e, we forecast revenue

54、 and net profit CAGRs of 13.3% and -5.5%, respectively, with EBITDA growth of -59%/79%/20%. We are far below consensus in terms of net profit during this period (-43%, -27% and -36%). Applying a 7x target EV/EBITDA, we derive a target price of RMB9.91, which implies 13% downside from the current lev

55、el. As we think the company is likely to improve operations and control costs in the near term, we initiate coverage with a Hold rating.Exhibit 7. Deppons share price movement since listinglow and liquidity poorThe company went public in January 2018 the valuation wasdeterioratedmargins improved4000

56、In 2H18 growth in the heavy cargoexpress business accelerated andIn 1Q19 growth in the heavy cargo35express business disappointed andcosts rose. Market expectations30350025300020250015102000515000Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-19Jul-19Sep-19Shanghai composite indexDeppon (RMB, r

57、ight axis)Source: Wind, HSBC Qianhai SecuritiesWhere our views are different from consensusCRT: We believe it is unwise to underestimate the power of policy support in China. In this industry, we point to the governments stronger-than-expected emphasis on environmental protection and its determinati

58、on to reduce logistics costs. In turn, this has led to the introduction of policies to promote the shift from highway transportation to railways. To us, this makes companies in the railway container transport business clear winners. As the special container railway transport arm of China State Railw

59、ay Group, CRT stands to profit from the rapid growth in the industry. In our view, the companys growth potential may exceed market expectations.CTS Logistics: While the strong profitability of the freight forwarding business looks sustainable in the long run, we think volume growth may be limited in

60、 the short term, given the global economic downturn and Sino-US trade tensions.Deppon Logistics: We believe the company is facing one of the greatest challenges since its founding. It has been losing market share and is at a disadvantage in terms of branding and fundingstrength compared to its bigge