With its GDP up 9.8% year over year, China is growing fast, and it seems well on the path to becoming the largest economy in the world within a few years.
However, there is already an industry in China that has reached the peak of the global ranking. This is the logistics industry, which in 2020 surpassed all other countries in terms of turnover rate and total volume of goods and deliveries according to The National Development and Reform Commission of the People's Republic of China.
The sector is strategic, not only for the ambitions of China but also for the growth objectives of production and consumption activities around the globalized economy. Ken Research expects that the Chinese logistics industry's total revenues will keep on expanding over the upcoming years by approximately 7.5% per annum to reach the value of 15 trillion yuan ($2.34 trillion) by 2025.
If in search of opportunities among equities holding strong upside potential, I believe investors may want to have a look at Chinese publicly-traded logistics operators, as industry growth means they have a high likelihood to beat the market. In particular, Sinotrans Limited (HKSE:00598, Financial) is well-positioned in the Chinese logistics industry, and its shares appear fairly valued.
Based in Beijing, Sinotrans is a leading provider of a broad range of integrated logistics services and one of the most used operators. In addition to most traditional services such as sea and air freight services, shipping agency services and rail freight forwarding, the company provides storage, terminal services and trucking.
The company is reporting strong volume growth in all its business segments, with contract logistics up 15% year over year to 27 million tons and project logistics up 24% to 4.5 million tons in the third quarter of 2021.
The forwarding and related business division also performed very well as sea freight forwarding exceeded 10 million Twenty Equipment Units (TEUs), while air channel and rail freight forwarding went up by 66.4% and 65.2% year over year, respectively. Also, shipping agency volume increased by 10% to 18.60 million TEUs and warehouse and yard service volume rose by nearly 29% to 16.80 million tonnes.
The e-commerce business division reported incredible improvements too. On a year-over-year basis, cross-border e-commerce logistics climbed up dramatically by 106.3% to 328 million units as well as the logistics e-commerce platform. Its volume jumped 133% to 910,000 TEUs.
As a result, the operating income increased by 60% to ¥36.14 billion and net profits from ongoing operations grew 6% year over year to ¥974.27 million.
Over the past six weeks, shares have gone down, not because of problems with the company's fundamentals but due to the forming of some pessimism toward Chinese stocks in general. The market was more cautious with Chinese equities because activities were slowing down in the mainland due to short-term headwinds such as Covid-19 outbreaks and electricity blackouts in some of the regions that were hit hard by monsoon rainfalls.
The share price closed at 2.42 Hong Kong dollars ($0.31) on Thursday for a market cap of HK$17.91 billion, well below the 50-day moving average value of HK$3.008 and the 200-day moving average value of HK$3.248.
At the end of the third quarter, the balance sheet looked strong. It had nearly HK$13 billion in cash on hand and short-term investments as opposed to total debt of nearly HK$15 billion, with an interest coverage ratio of 18.
The cash provisions are also sufficient to ensure the payment of dividends. On a forward basis, the yearly dividend amounts to HK$0.14 per share, yielding 5.88% as of the writing of this article.
