SF HOLDING(002352)：PREANNOUNCED 1H23 RESULTS SLIGHTLY BEAT;MAINTAINS SUSTAINABLE AND HEALTHY GROWTH

　　Preannounced 1H23 attributable net profit grew 60-68% YoY
SF Holding (SF) preannounced its 1H23 results, estimating attributable　net profit grew 60-68% YoY to Rmb4.02-4.22bn and recurring net profit grew 65-74% YoY to Rmb3.54-3.74bn. In 2Q23, attributable net profit rose 54-68% YoY to Rmb2.30-2.50bn, and recurring net profit increased 64-80% YoY to Rmb2.02-2.22bn, slightly beating our expectations. We attribute its sound performance to its focus on long-term sustainable and healthy development.
　　According to the preannouncement from the firm’s listed subsidiary,
　　SF Intra-City, attributable net profit turned profitable from -Rmb144mn in 1H22. We believe its new businesses are gradually turning profitable.
　　Trends to watch
　　Revenue: Enhancing product competitiveness; providing in-time and high-quality services to meet diverse demand; expecting stable and healthy growth for express logistics business. Over January-May　2023, the firm's parcel volume of express logistics services grew 18% YoY as the industry recovered (parcel volume of the industry grew 17% YoY according to the State Post Bureau). Revenue from the express delivery logistics business rose 16% YoY to Rmb75.29bn, and total revenue stood at Rmb99.049bn, largely flat YoY.
　　Revenue from the supply chain and global businesses fell 30% YoY to Rmb23.76bn. We attribute the decline to falling international air and sea freight demand and prices. In our opinion, the firm's revenue from the express logistics business is growing steadily on the back of its focus on stable and high-quality services as well as healthy development.
　　Costs: Improving customer service system through the integration of multiple networks; optimizing cost structure. In our opinion, the firm is　improving its ability to control costs and expenses by integrating multiple　networks. In May, it announced a plan to transfer all of its equity interests in Shenzhen Fengwang Express Co Ltd to J&T Express for a　consideration of Rmb1.183bn. We believe this shows that the firm will continue to improve customer service system and focus on precise resource planning. We expect its cost structure to continue to improve.
　　Looking ahead, we expect the firm to further improve quality and efficiency, boosting earnings from diverse business lines. In the long　term, 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 taking advantage of opportunities from emerging market segments (e.g., manufacturing upgrades).
　　Ezhou Huahu Airport (launched the first international cargo　flight in April): We expect the hub-and-spoke model for transfer and collection at the Ezhou Huahu Airport to help reduce SF’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.
　　Global business: We expect SF’s air cargo transportation capability to improve further as the newly built Ezhou Huahu Airport ramps up.
　　Furthermore, Kerry Logistics, in which SF holds a controlling stake, specializes in freight forwarding and controls cargo sources. It serves many multinationals and offers an express delivery service in Southeast Asia. We expect effective synergies between the two parties.
　　The firm announced on July 8 that it is conducting research, consultation and discussion on equity financing in the Hong Kong capital market. We believe this shows that the firm, as the largest integrated logistics company in China and Asia and the fourth largest in the world, will continue to improve quality and efficiency. It aims to become a leader in the global smart supply chain.
　　Financials and valuation
　　We keep our 2023 and 2024 earnings forecasts unchanged. The stock is trading at 24x 2023e and 20x 2024e P/E (26x 2023e and 21x 2024e recurring P/E). We maintain OUTPERFORM and our TP, implying 36x 2023e and 29x 2024e P/E (38x 2023e and 30x 2024e recurring P/E) with 46% 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。