Preannounces 1H23 net profit fell 20.4-38.5% YoY

Yongtaiyun Chemical Logistics (Yongtaiyun) preannounced 1H23 results, estimating that net profit fell 20.4-38.5% YoY in 1H23, to Rmb85-110mn, and recurring net profit fell 27.8-43.5% YoY to Rmb72-92mn. In 2Q23, net profit rose 23.4-89.1% QoQ (down 18.0-46.5% YoY) to Rmb47mn, in line with our expectations.

We attribute the YoY decline in the firm's 1H23 earnings to: 1) a sharp YoY decline in ocean freight rates in 1H23 weighing on the firm’s per-container profitability - the China Container Freight Index [CCFI] fell 69.3% YoY in 1H23; and 2) a high base in the same period last year, as the firm acquired a large number of new clients in 2Q22.

Trends to watch

Export value of chemical products declined in 2023; main Yongtaiyun chemical-product exports performed well. Due to weak overseas demand, China's overall chemical exports have declined in 2023, with their value (in US dollar terms) down 18.0% YoY over January-May. We believe that exports of downstream fine chemicals such as the fluorine chemicals that the firm focuses on performed well. Data from sci99.com shows that the export volume of major refrigerants in the fluorine chemical segment rose 453% YoY over January-May.

Yongtaiyun is also seeking export opportunities in the new energy sector. The company announced that it plans to acquire an 8.8% stake in Ningbo Jiangchen Automation Equipment Co., Ltd. to develop business resources further in the fields of intelligent manufacturing and new energy. We believe that the firm’s business volume will increase thanks to China's growing exports of new energy products.

Continues acquiring high-quality assets to boost growth potential. The chemical logistics industry is fragmented, and firms in the industry mainly achieve rapid growth by acquiring high-quality logistics resources. Since its inception, Yongtaiyun has acquired high-quality assets pertaining to chemical industrial bases and coastal ports. Since its IPO, the firm has acquired a 100% stake in Tianjin Handelsveem International Logistics, a 100% equity stake in Ningbo Yongshun'an Supply Chain Management, and a 51% equity stake in Jiaxing Supply Chain Management to expand its business categories and geographical coverage.

In June 2023, Yongtaiyun acquired a 100% stake in Shaoxing Changrun Chemical Industry Co., Ltd., obtaining 26,700sqm of land resources while increasing its capital by Rmb50mn which it plans to use to build an 8,000t/yr chemical compounding, packaging and supporting storage project. We believe that the acquisition and the project will boost business growth and the IRR of the firm's supply chain services. Yongtaiyun believes that the after-tax IRR of the 8,000t/yr chemical compounding, packaging and supporting storage project will be 19.5%.

Financials and valuation

We maintain our earnings forecasts. The stock is trading at 13.1x 2023e and 10.0x 2024e P/E. We maintain OUTPERFORM and our TP of Rmb52.8/sh, implying 18.2x 2023e and 13.9x 2024e P/E, offering 38.7% upside.

Risks

Export growth of hazardous chemicals continues to slow; progress of new projects disappoints.