In today’s briefing:
- CIMC Enric (3899 HK): Demonstrating Sustained Resilience
- Sinotrans (598 HK): Challenges Have Not Abated Yet
- The Keihin Co (TYO 9312) – A Consistently Profitable and Growing Small Cap Logistics Company
- Alight at the End of the Tunnel
- Meilan Airport (357 HK): Not Out of the Woods Yet
CIMC Enric (3899 HK): Demonstrating Sustained Resilience
- We like the 17.7% core earnings growth for CIMC Enric Holdings (3899 HK) as this has demonstrated its operating strengths under a challenging environment in 1H23.
- With orders on hand of Rmb20.6bn (+18.8% YoY), we see forward earnings well-covered. Also, management has turned even more positive on earnings and margin outlook in 2H23.
- The hydrogen energy business maintains solid momentum with order backlog surging 116.9%. The spin-off of CIMC Safeway Technologies on the ChiNext Board is a near-term catalyst.
Sinotrans (598 HK): Challenges Have Not Abated Yet
- 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.
The Keihin Co (TYO 9312) – A Consistently Profitable and Growing Small Cap Logistics Company
The Keihin Co is a ¥10.94B ($74.7m) market cap logistics company in Japan that owns and operates warehouses and distribution facilities mostly in and around Tokyo.
They’ve been profitable for 19 of the last 20 years and have compounded tangible book value at 6.5% over the last decade while growing profits.
Stock has gone nowhere over the last decade despite compounding tangible book value and net income at a respectable clip.
Alight at the End of the Tunnel
- Two years ago, when SPACs were the talk of the town, Alight, a firm specializing in cloud-based HR and benefits services, took the plunge.
- With a $7.3 billion merger supported by Bill Foley, they went public right in the midst of the SPAC craze.
- Fast forward to today, the business climate is quite different.
Meilan Airport (357 HK): Not Out of the Woods Yet
- 1H23 results missed our expectation because stronger-than-expected revenue was outweighed by surge in operating costs as company took from its parent the overall operation of Phase I and II.
- We expect slow recovery in duty-free sales and elevated cost base will continue pressuring its bottom line in 2H23 and see possibility to return to profitability by 1H24.
- While recent share price correction has priced in the weak outlook somehow, we can’t rule out further volatility post results. We are now neutral on the stock.
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