SINOTRANS LTD.(601598)：2Q25 EARNINGS LIKELY TO SEE YOY GROWTH BENEFITING FROM REITS ISSUANCE

　　2Q25 earnings expected to grow by 6%
　　We expect Sinotrans Ltd.’s 2Q25 net profit to increase by 6% YoY to Rmb1.21bn, primarily driven by one-time net profit boost of Rmb380mn from warehouse REITs issuance. For the core business, we anticipate the freight forwarding business to have faced some pressure in 2Q25 due to trade tariffs, and DHL-Sinotrans may see a further widening profit decline due to repeal of “de minimis” exemption by the US.
　　Trends to watch Core business may come under pressure in 2Q25 due to tariff
　　policies. A series of tariff hikes were implemented between China and the US in April. On May 2, the US eliminated the de minimis exemption policy.
　　After negotiations in May, China and the US simultaneously reduced tariffs on May 14. We believe the company's freight forwarding business was likely under some pressure in 2Q25 due to these tariff policy fluctuations.
　　Impacted by the elimination of the "de minimis" exemption, we think that JV DHL-Sinotrans' freight volumes may have been affected, while EUR appreciation against the RMB in 2Q25 (by approximately 7.2%) potentially exacerbated DHL-Sinotrans' cost pressure. We expect DHL-Sinotrans' profit decline in 2Q25 may have widened compared to 1Q25.
　　REITs issuance may bring a one-time profit boost. According to the
　　Shanghai Stock Exchange, Sinotrans REITs fund contract became effective on June 27, raising approximately Rmb1.31bn. We estimate that REITs issuance may boost the company's net profit for this year by around Rmb380mn.
　　We expect interim DPS to remain stable; full-year dividend could
　　potentially increase. The company initiated interim dividends starting in 2022. We expect this year's interim dividend to maintain at Rmb0.145 dividend per share (DPS), even though we forecast 1H25 profit to decline by 4.9% YoY. For the full year, considering the disposal of Loscam equity could potentially boost this year's net profit by Rmb1.35bn (referencing our report dated June 27), if the company adopts a 50% payout ratio based on the boosted profit figure, we estimate the full-year dividend could grow by 17% YoY. This would imply A-share and H-share dividend yields of 6.3% and 8.5%.
　　Financials and valuation
　　We keep our earnings forecasts unchanged, we estimate 2025-2026 net profit are Rmb3.56bn and Rmb3.70bn, representing YoY growth of -9.2% and +4.0%. The company's A-shares and H-shares are currently trading at 11.0x and 8.1x 2025 P/E.
　　We maintain an OUTPERFORM rating for A-shares and unchanged target price of Rmb5.80, implying 2025 P/E of 11.9x and 8.2% upside. We maintain our OUTPERFORM rating for H-shares and unchanged target price of HK$4.75, implying 2025 P/E of 9.1x and 12.3% upside.
　　Risks
　　Air freight rates decline; uncertainties over global trade policies; divestment slower than expected
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