Preannouncement: 3Q22 earnings up 84-99% YoY
　　SF Holding preannounced its results, estimating that in 3Q22, attributable net profit was Rmb1.91-2.06bn (up 28-38% QoQ or 84-99% YoY) and recurring attributable net profit was Rmb1.65-1.80bn (up 33-46% QoQ vs. Rmb1.24bn in 2Q22; up 104-122% YoY vs. Rmb810mn in 3Q21). The results are in line with our expectations. According to the firm’s announcement, its business volume increased 8.2% in July and 9.2% in August. The September data has not yet been released, but we think the business volume growth continued to pick up. With the strategic focus on ｓｅｌｅｃｔ businesses and on its healthy growth, the firm optimized its business structure by lowering the proportion of low-GM products and improving earnings from new businesses, and strengthened cost control. Meanwhile, the consolidation of Kerry Logistics into its financial statements also contributed incremental earnings. We estimate that in 3Q22, SF Holding’s recurring attributable net profit grew 70-85% YoY to Rmb1.4-1.5bn after excluding impacts of consolidation of Kerry Logistics.
　　Trends to watch
　　Optimized product structure and cost control buttressed earnings. The firm has been improving its investment since 2021, and the cost control efforts proved effective in 1H22. Since July, the firm’s prices were edging up and the parcel volume reported faster growth. Specifically, its time-definite parcels maintained relatively fast growth thanks partly to increasing sales return, indicating an optimized product structure. Considering operating leverage, we expect stronger earnings resilience in the future as the consumption needs and delivery demand gradually recover, which remains to be seen. We suggest paying attention to when revenue growth accelerates.
　　We see long-term investment opportunities in SF Holding. In the long run, we suggest paying attention to three aspects.
　　1) Product stratification and customer grouping: As is stated in our report, Analyzing the express delivery industry from the perspectives of market, platform, and regulatory perspectives (published April 14, 2022), we believe leading players will likely explore new growth drivers through product stratification, customer grouping, and new businesses. As SF started its business transformation earlier than its peers, we think that it will likely enjoy a first-mover advantage and, thus, is more likely to succeed.
　　2) Ezhou Huahu Airport (commenced operations on July 17, 2022): We expect the hub-and-spoke model for transfer and collection and the shift from small aircraft to larger ones to help reduce SF Holding’s transportation costs per bill. In addition, we think the firm will likely enjoy stronger advantages as the Ezhou Huahu Airport should help the firm expand the coverage of its time-definite delivery services, grow its supply chain business, and boost the growth of its global business.
　　3) International business: SF Holding has mature air transport and operational capabilities. We expect its air cargo transportation capability to improve further as the newly built Ezhou Huahu Airport ramps up. Furthermore, SF Holding acquired Kerry Logistics, which specializes in cargo agencies and deals with a wide variety of goods. It serves a large number of multinational enterprises and has expanded its express delivery business in Southeast Asia. We believe the two parties can effectively create synergies.
　　We expect equity incentive scheme to help the firm attract new employees and retain talent, and to provide guidance for long-term earnings growth. According to revenue and GM targets specified in the firm’s equity incentive scheme released in April, SF Holding’s annual net profit over 2022-2025 should reach Rmb5.7bn (up 33% YoY), Rmb8.2bn (+44% YoY), Rmb10.7bn (+31% YoY) and Rmb14.4bn[1] (+34% YoY).
　　Financials and valuation
　　We leave our 2022 and 2023 earnings forecasts unchanged. Our recurring attributable net profit forecasts are Rmb6.1bn for 2022 and Rmb8.0bn for 2023. The stock is trading at 32x 2022e and 26x 2023e P/E (37x 2022e and 28x 2023e recurring P/E). We maintain our target price of Rmb62.10, implying 35x 2023e P/E (38x 2023e recurring P/E), with 36% upside.
　　Risks
　　Disappointing growth in business volume due to COVID-19 or weak demand; sharp rise in costs.
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【免责声明】本文仅代表第三方观点，不代表本站立场。投资者据此操作，风险请自担。