Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

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Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Event-Driven

<a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and <a href="https://www.smartkarma.com/entities/yto-express" target="_blank" data-smartkarma-citation="entities:20319:1" rel="noopener">YTO Express (600233 CH)</a> announced the former will increase its stake in the latter, from around 10.5% to 22.5%. BABA will purchase shares from YTO's co-founders, who will retain a controlling stake in the express company.
Although YTO's Q2 earnings results were slightly better than we expected, core margins remain depressed, and we do not believe the company's current level of profitability can sustain its medium-term investment plans. 
YTO has performed well over the past week or so on surprisingly firm Q2 results and it rose another 10% on the latest news regarding investment from BABA. However, given ongoing pressure on profitability, and the performance of rival <a href="https://www.smartkarma.com/entities/zhejiang-idc-fluid-control-co-ltd" target="_blank" data-smartkarma-citation="entities:18695:1" rel="noopener">Sto Express (002468 CH)</a> after it announced increased investment by BABA in early 2019, we would take advantage of recent strength to SHORT YTO. Within China's express segment, we continue to favor the fundamentals of <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>; a LONG SF Holding / SHORT YTO pair makes sense to us here.

Alibaba Group (BABA US) and YTO Express (600233 CH) announced the former will increase its stake in the latter, from around 10.5% to 22.5%. BABA will purchase shares from YTO's co-founders, who will retain a controlling stake in the express company.
Although YTO's Q2 earnings results were slightly better than we expected, core margins remain depressed, and we do not believe the company's current level of profitability can sustain its medium-term investment plans. 
YTO has performed well over the past week or so on surprisingly firm Q2 results and it rose another 10% on the latest news regarding investment from BABA. However, given ongoing pressure on profitability, and the performance of rival Sto Express (002468 CH) after it announced increased investment by BABA in early 2019, we would take advantage of recent strength to SHORT YTO. Within China's express segment, we continue to favor the fundamentals of S.F. Holding (002352 CH); a LONG SF Holding / SHORT YTO pair makes sense to us here.

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