SF posted revenue/ adj. net profit increase of 20%/ 25% YoY in 2Q19, driven by 1) accelerated volume growth backed by new preferential services and 2) rigorous cost control. We believe most of negatives have been reflected in current price, and expect 1) solid business presence in various new initiatives and 2) steady volume growth to boost further growth afterwards. We raised FY19/ 20E adj. EPS by 8%/ 7%, and upgraded it to BUY with TP of RMB46.53, representing 39x/ 33x FY19/ 20E P/E.
- Bottom-line beat in 2Q19. Since new business progressed robustly and volume growth recovered moderately in Jun, revenue increased 19% YoY, in line with our est. Adj. net profit reached RMB1,494mn (+25% YoY), 16% higher than our est, due to 1) improved loading rate and 2) continued cost cuts. Looking into 2H19E, we expect volume growth recovery to continue backed by 1) share gain in mid/low-end market and 2) further penetration into fresh products and upmarket categories.
- Bullish on new initiatives. As pioneer in new business initiatives, SF progressed significantly through consistent heavy investment and close cooperation with global logistics giants (e.g. DHL). Revenue contribution from new business (cold chain, heavy cargo, supply chain and etc.) shot up from 16% in 1H18 to 24% in 1H19. Going forward, we believe SF’s first-mover advantages will be better recognized in view of 1) brand recognition among enterprise customers, 2) economies of scale and 3) increasing entry barriers, against the backdrop of other major peers rushing to expand presence in those fields under LT growth pressure.
- Ample cash reserve to fuel Capex. We expect Capex to be RMB11bn/ RMB13bn in FY19/ 20E mainly for warehouses and civil airport. Recently CSRC approved SF to issue CB as much as RMB5.8bn, and we believe it would help mitigate the Company’s financial pressure in NT. After financing, we forecast the cash on hand will be amounted to RMB19bn by End -FY19. If fully converted, the bond would dilute common shares by less than 3%, in our estimate.
- Upgraded to BUY with TP of RMB46.53. We lifted our FY19-21E adj. EPS by 6-8% to reflect our upbeat outlook on volume recovery and new business. Therefore, we upgraded it to BUY and raised TP to RMB46.53, based on 33x FY20E P/E (roll-over from previous 33x FY19E P/E).
