SF HOLDING(002352)：2022 RESULTS IN LINE;FOCUS ON SUSTAINABLE AND HEALTHY DEVELOPMENT

　　2022 results in line with our expectations
　　SF Holding announced its 2022 results: Revenue rose 29% YoY to Rmb267.5bn; net profit attributable to shareholders grew 45% YoY to Rmb6.2bn; recurring net profit attributable to shareholders rose 191% YoY to Rmb5.3bn. In 4Q22, revenue fell 4% YoY to Rmb68.3bn; net profit attributable to shareholders slid 31% YoY to Rmb1.7bn; recurring net profit attributable to shareholders fell 2% YoY to Rmb1.5bn, in line with our expectations.
　　2022 net profit breakdown by business line （including minority interest）： The firm’s net profit from its express logistics business grew 42% YoY to around Rmb5.46bn, thanks to product mix optimization; large-parcel business swung to a profit of Rmb28mn （up 105% YoY）； net losses from intra-city delivery business fell further by 68% YoY to Rmb287mn; net profit from supply chain and international business rose 216% YoY to Rmb1.9bn, mainly due to consolidation of Kerry Logistics.
　　Trends to watch
　　SF Holding’s express delivery business volume has recovered notably YTD driven by consumption recovery and its efforts to expand into the new segment of reverse logistics. We suggest watching sustainability of its revenue growth. Growth of the firm's express delivery business came under pressure in 2022 due to macroeconomic headwinds. However, its express logistics business has grown markedly YTD thanks to demand recovery since end-2022 and the firm's expanding share in the goods return market on e-commerce platforms. From December 2022 to February 2023, the firm's express logistics business volume rose 17% YoY, 13.4ppt higher than industry average growth. We expect the express delivery industry to grow at double digits in 2023. We believe this will drive a recovery in the volume and revenue growth of the firm's time-definite delivery service. We expect the firm’s earnings to improve given its continued expense control and operating leverage.
　　Looking to 2023, we are upbeat on the firm's long-term value given its sustainable and healthy development strategy. SF said it would stick to a business strategy of healthy development in 2023. We expect the firm to further improve business quality and efficiency thanks to the integration of multiple networks, thus boosting earnings of each business line. We suggest paying attention to three aspects:
　　1） Product stratification and customer grouping: We believe express delivery firms could focus on new value growth drivers when competing with each other. SF Holding started its business transformation earlier than its peers. As such, we think it is more likely to succeed when it comes to multi-tiered management of brand customers and seizing demand opportunities from emerging market segments （e.g., manufacturing upgrades）。
　　2） Ezhou Huahu Airport （commencing operation in 2H22）： We expect the hub-and-spoke model for transfer and collection at the Ezhou Huahu Airport to help reduce SF Holding’s per-parcel cost, enhance its delivery efficiency of time-sensitive delivery products, and expand the coverage of its time-definite delivery services. In addition, we think this model could also help the firm expand its supply chain and global businesses.
　　3） Global business: We expect SF Holding’s air cargo transportation capability to improve further as the newly built Ezhou Huahu Airport ramps up. Furthermore, Kerry Logistics, in which SF Holding holds a controlling stake, specializes in freight forwarding and controls cargo sources. It serves many multinationals and offers express delivery service in Southeast Asia. We expect effective synergies between the two parties.
　　SF Holding’s operating cash flow surged 113% YoY in 2022, and its asset-related expenses as a percentage of revenue shrank 3.7ppt. We believe these could further increase its solid earnings visibility.
　　Financials and valuation
　　We leave our 2022 and 2023 earnings forecasts unchanged. The stock is trading at 30x 2023e and 24x 2024e P/E （or 32x and 25x based on recurring net profit）。 We maintain OUTPERFORM rating and our target price of Rmb65.83, implying 36x 2023e and 29x 2024e P/E （or 38x and 30x based on recurring net profit） with 20.7% upside.
　　Risks
　　Disappointing growth in business volume due to COVID-19 or weak demand; sharp rise in costs.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。