What's new

Sinotrans announced that it has signed a Share Purchase Agreement with the buyer, MIC Industrial Investments 4 RSC LTD, for the sale of a 25% equity stake in Loscam International Holdings Limited at a consideration of US$470mn (approximately Rmb3.38bn). Following the transaction, Sinotrans will retain a 20% stake in Loscam International. Loscam International primarily operates in the pallet leasing business and is one of the leading companies in this sector. In 2024, Loscam contributed approximately Rmb210mn in investment income to Sinotrans.

Comments

The transaction is conducive to optimizing Sinotrans' asset structure. The transaction implies a P/E ratio of 28.4x (based on Loscam's 2024 earnings), significantly higher than the valuations of Sinotrans' A-shares and H-shares. The company expects the transaction to generate an investment gain of approximately Rmb1.79bn (excluding tax impacts) and cash inflows of around Rmb4.44bn (including additional dividends of approximately Rmb1.06bn from Loscam). We think this transaction will not only optimize Sinotrans' asset structure but also allow the company to reinvest the proceeds into its core business, driving its transformation and upgrading as a focused logistics leader. This aligns with the long-term interests of the company and its shareholders.

We estimate the transaction could boost 2025 profits by 38%. After accounting for the expected investment gains, deducting the reduced earnings from the divested Loscam stake, and adjusting for tax impacts, we estimate the transaction could increase Sinotrans' net profit by Rmb1.35bn, representing a 38% uplift to 2025 earnings.

Business resilience and attractive dividend yield. Despite uncertainties in global trade policies this year, Sinotrans has demonstrated strong business resilience (e.g., 1Q15 sea freight forwarding volume rose by 9% YoY), though DHL-Sinotrans faces some cost pressures. This transaction may alleviate market concerns over 2025 earnings, assuming a 50% dividend payout ratio (it was 49.8% and 53.5% for 2023 and 2024) based on the boosted earnings after divestment; we estimate the current A-share and H-share prices imply 2025E dividend yields of 6.8% and 9.2%, respectively.

Financials and valuation

Considering the divestment is in progress, we maintain our 2025 and 2026 earnings forecast unchanged, we estimate 2025 and 2026 earnings are Rmb3.56bn and Rmb3.70bn, implying a growth rate of -9.2% and 4.0%. At present, Sinotrans' A-shares and H-shares are trading at 10.2x and 7.5x 2025 P/E.

We maintain our OUTPERFORM rating on the A-shares with an unchanged target price of Rmb5.80, implying 11.9x 2025 P/E and 17% upside. For the H-shares, we maintain an OUTPERFORM rating, considering improved market sentiment and a narrower A-H premium, and raise our target price by 10.5% to HK$4.75, implying 9.0x 2025 P/E and 19.9% upside.

Risks

Air freight rates decline, uncertainties on global trade policies, divestment slower than expectation.