Sinotrans copes with a sluggish cycle

The annual results of Sinotrans, China’s largest state-owned logistics services provider, showed that while its top-line was almost unchanged year-on-year, its operating profits bounced back nicely, boosting earnings per share.

Sales were down 0.3% to about CNY45.5bn (US$6.9bn) in the twelve months ending December 31, while EBIT surged 34% to CNY1.6bn ($185m) from CNY1.2bn in the prior year. Net profit was almost CNY1.5bn, and earnings per share rose 14% to CNY0.32.

Sinotrans’ President, Li Guanpeng, acknowledged that 2015 was a year of “unprecedented pressure”, but on March 22 he also pointed out that group profits “rose to a record high” as the main business indicators “achieved continuous growth, while operating cash flow improved substantially.”

Its three pillars are freight forwarding, logistics services and storage and terminal services.

Freight forwarding is by far the largest revenues contributor among the company’s portfolio of assets. The unit’s revenues declined 2.4% to CNY34bn in 2015, but earnings came in at CNY716m, up 0.5% year-on-year, which implies a 2.1% net margin.

Meanwhile, sales in logistics services rose 10.8% to CNY6.9bn from CNY6.2bn in 2014. Underlying profits rose 8.1%, and stood at CNY322m, yielding a net margin of 5.1%.

The storage and terminal services division recorded revenues of CNY1.9bn, down 7.8% year-on-year. Segment profit was CNY354m, down 5.6%, for a level of net profitability of 18.6%.

Other services, such as trucking, coastal shipping and express, added CNY2bn of sales at group level, up 11.1% year-on-year, and CNY51.8m of net income, which rose 317.7% from CNY12.4m in 2014.

The group said that investment income from express services ventures rose to CNY888.6m, with business volumes up 3.9% from 21.54m units in 2014 to 22.39m units last year.

“The three major businesses of freight forwarding and related businesses, logistics and e-commerce business made systematic progress and realised innovation and development,” Li Guanpeng said, adding that the regional integration of services was strengthened, while the construction of five major channels – shipping, land, air, road and overseas – “was further enhanced, improving the operating capabilities of the integrated networks”.

Li Guanpeng concluded by saying that “looking ahead to 2016, the global economy is expected to remain weak, while China’s economy will remain in a phase of readjustment, resulting in immense downward pressure”.

He added that growth in demand for China’s logistics services would slow, while the shipping industry will continue to struggle, although “more merger and acquisitions opportunities will emerge”.

The board recommended a final dividend of CNY0.07 per share.

Author: Alessandro Pasetti

Source: Transport Intelligence, 6th March 2016