SF HOLDING(002352)：1Q23 RESULTS SLIGHTLY BEAT OUR EXPECTATIONS;COST CONTROL EFFECTIVE

　　1Q23 results slightly beat our expectations
　　SF Holding announced its 1Q23 results: Revenue dropped 3% YoY to Rmb61.05bn, net profit attributable to shareholders increased 68% YoY to Rmb1.72bn, and recurring net profit attributable to shareholders grew 66% YoY to Rmb1.52bn. Its 1Q23 slightly beat our expectations due to effective cost control.
　　Recurring net profit margin reached 2.5% in 1Q23 （up 1.0ppt YoY from 1.4% in 1Q22） as the company focused on its core logistics strategy and attached importance to sustainable, healthy development in the long term.
　　We calculate revenue of each business segment in 1Q23 based on the firm's monthly operating data. In 1Q23, revenue of the express logistics business increased 15% YoY thanks to recovery in consumer demand. Revenue of the supply chain and international business dropped 32% YoY due to weak demand for international air and ocean transportation services and falling freight rates.
　　Trends to watch
　　Parcel volume of express delivery business increased notably thanks to recovery in consumer demand and the firm's efforts to increase presence in the logistics market amid headwinds; watch sustainability in revenue growth. Data from the State Post Bureau of China shows that the parcel volume of the express delivery industry rose 11% YoY in 1Q23 （vs. up 10.5% YoY in 1Q22）。 We think YoY growth rates for parcel volume will increase notably going forward given lower base in 2Q22 and in the following quarters. We expect the express delivery industry to book double-digit growth in 2023.
　　In our opinion, the parcel volume and revenue of the firm's express logistics business will increase, as: 1） Demand for express delivery services may gradually recover; and 2） the company has gained market share in the express delivery services for e-commerce platforms market. In 1Q23, the parcel volume of the firm's express logistics business increased 18% YoY, 7.1ppt higher than the industry-average level.
　　Efforts to reduce costs paid off in 1Q23; we are upbeat on the value of SF Holding in the long term due to its sustainable and healthy development strategy. SF Holding stated during its earnings call that it would stick to a business strategy of healthy development in 2023. The firm is improving its cost and expense control by leveraging integration of multiple networks, as evidenced by the higher recurring net profit margin in 1Q23. We think the company will continue to improve quality and efficiency and boost earnings growth of each business segment. We suggest paying attention to three aspects:
　　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）。
　　Ezhou Huahu Airport （commencing operation in April 2023）： We expect the hub-and-spoke model for transfer and collection at Ezhou Huahu Airport in Hubei province to help reduce SF Holding’s per-parcel cost, enhance the efficiency in delivery 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.
　　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 multinational corporations and offers express delivery service in Southeast Asia. We expect effective synergies between the two parties.
　　Financials and valuation
　　We keep our 2023 and 2024 earnings forecasts unchanged. The stock is trading at 30x 2023e and 24x 2024e P/E （or 32x 2023e and 25x 2024e recurring P/E）。 We maintain an OUTPERFORM rating and a target price of Rmb65.83. Our TP implies 36x 2023e and 29x 2024e P/E （or 38x 2023e and 30x 2024e recurring P/E）， offering 20% upside.
　　Risks
　　Disappointing growth in business volume due to COVID-19 resurgence 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。