Investment positives

We resume coverage of Xiamen Xiangyu Corporation with an OUTPERFORM rating and a target price of Rmb8.58, implying 13.0x 2025e P/E.

Why an OUTPERFORM rating?

Earnings to turn around. By business segment:

The agricultural products segment is poised to turn profitable. Its losses narrowed to Rmb242mn in 2024, with ongoing improvements in exposure control, cost reduction, and efficiency enhancement. This, in our view, positions this segment to deliver positive earnings in 2025.

The ferrous metals segment is experiencing stabilization and recovery. Demand and supply for steel products have improved in 2025 driven by the recovery in manufacturing demand and infrastructure project execution. The company has also optimized its organizational structure. We expect this segment’s profit margin to rise in 2025.

Aluminum maintains strong momentum. Benefiting from growth in domestic demand and constrained supply, the aluminum market exhibits stronger rebound potential. The company's fully integrated supply chain capabilities position it to maintain high growth in 2025 in a strong market.

Shipbuilding segment entered profit realization phase, delivering net profits of Rmb694mn (2023) and Rmb544mn (2024), with order books filled through 2029.

As a market leader, the firm is poised to grow stronger as it follows industry trends of transformation into service providers, supply chain integration, and global expansion. The firm is undergoing three critical shifts alongside other companies in the industry. 1) Transition into service provider: Growth in the firm’s roster of manufacturing clients is enhancing stability in demand. 2) End-to-end supply chain integration:

Improved control of the value chain both upstream and downstream boosts profitability and resilience amidst cyclical fluctuations.

3) Global expansion with manufacturing partners: The firm’s overseas revenue CAGR of 39% (2019-2024) demonstrates rapid growth in its overseas business and significant growth potential. As the industry leader in China's Rmb50trn bulk commodity supply chain market (CR5 is as low as 5.3%), the company's advantages in scale, turnover, and risk management support stronger profitability (high GM and ROE in 2024). We expect the firm to continue to gain market share.

Market-oriented operation with share buybacks and equity incentives; attaching importance to shareholder returns. The company announced a 100-150mn share buyback for equity incentives. Its performance targets are 15%, 30%, and 50% net profit growth above the 2024 baseline for 2025, 2026, and 2027. We believe this shows management’s confidence in the firm’s operations. The company also attaches importance to shareholder returns. Its 2024 dividend payout ratio was 49.5%, and we expect its dividend yields to be 4.1% in 2025 and 5.3% in 2026.

How do we differ from the market? While the market emphasizes the firm’s vulnerability to fluctuations in commodity prices, we believe the company's transformation into a service provider with full-chain coverage, enhanced risk control, and active global expansion could mitigate the impact of price fluctuations on earnings. Therefore, its earnings could see an upturn, unleashing significant growth potential.

Potential catalysts: Faster-than-expected overseas expansion and stronger-than-expected policy stimulus.

Financials and valuation

We forecast the firm’s 2025 and 2026 EPS at Rmb0.66 and Rmb0.80, implying a CAGR of 26.0%. The stock is trading at 10.4x 2025e and 8.6x 2026e P/E. We resume coverage with an OUTPERFORM rating and a target price of Rmb8.58 based on valuations of international comparable companies, implying 13.0x 2025e and 10.7x 2026e P/E and offering 25% upside.

Risks

Volatile commodity prices; disappointing growth of manufacturing sector; impairment of accounts receivable and inventory.