With roughly three weeks to go before Tmall’s “Double Eleven” shopping festival, a Chinese version of Cyber Monday, e-commerce related stocks are once again under the spotlight.
Amid this situation, Sinotrans Air Transportation Development (SATD, 600270.SH) has seen its shares break out above their six-month resistance level. Meanwhile, transaction volumes have also risen considerably.
As a leading player in cross-border e-commerce business, the stock appears to be a good bet. Investors should utilize any corrections to buy into the counter.
SATD has built a nationwide network with a huge number of warehouses, logistics vehicles and other facilities. It has secured large land reserves and established a presence in key areas all across the country.
The company has branches in the seven pilot cities for cross-border e-commerce importing business, namely Ningbo, Zhengzhou, Shanghai, Chongqing, Hangzhou, Guangzhou and Shenzhen.
Its information system is connected with that of the Customs authorities, enabling it to fulfill the regulation requirements. In Hong Kong, the firm has transit warehouses which help reduce costs.
More overseas warehouses or branches are expected to be established overseas, including Germany, the United States and Japan, to support further growth plans.
The company is in a leading position by linking online and offline channels and building an integrated business model.
The cross-border e-commerce service website it built mainly provides B2B2C and B2C services.
B2B2C means the website operator will buy popular products in bulk from overseas sellers and store them in its bonded warehouses. The products will go through custom clearance and delivered to consumers after they place orders on the website.
B2C refers to the model where consumers place orders of overseas products on domestic e-commerce retailers. The website will buy the items from overseas partners and ship them to China via cheap and fast channels.
A study by China International Capital Corp. recently noted that although the total transaction value of cross-border shopping is more than 300 billion yuan a year, less than 20 percent went into China through channels with full compliance to the regulations.
If the government tightens regulation on grey channels, the market share of regular service platforms will soar.
Benefiting from fast growth of cross-border express businesses in Europe and the US, and the depreciation of the euro, SATD’s joint venture with DHL reported 32.76 percent year-on-year growth in net profit for international express business for the first half of this year.
SATD renewed its joint venture agreement with DHL for another 25 years in 2011. The venture’s potential profit in the future can be very significant.
In addition, a report from Essence Securities points out that DHL-Sinotrans joint venture accounts for nearly half of China’s international express market. It is now a major logistic service provider for the cross-border e-commerce merchants.
With the continuing growth of the industry, the business’ profit margin hit all-time high in the first half and the level is expected to remain stable in the third quarter.
In the first half, SATD’s revenue was up 4.6 percent from a year earlier to 2.05 billion yuan. Net profit surged 134.2 percent to 480 million yuan. The performance was in line with market expectations.
On October 11, it announced in a filing that its profit for third quarter will be up 10 to 30 percent from a year ago due to increase in investment returns. And profit for the first nine months was seen up 70 to 90 percent, exceeding market expectations.
Another thing to be noted is that the company will benefit from China’s state-owned enterprise (SOE) reform scheme. The market has strong expectations for Sinotrans and its related entities.
This article appeared in the Hong Kong Economic Journal on Oct. 23.
Translation by Myssie You
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