Dea plan seems inline with our expectation
In our previous note “Another positive catalyst in sight; reiterating Buy”dated on Jan 17, 2018 ， we highlighted this PlanB - Sinotrans wil issue A-shares, which wil be used to swap with shares heldby Sinoair’s minority shareholders. Post this deal, Sinotrans wil become a duallistingcompany （ie A+H）。 The announcements from both Sinotrans and Sinoairpost market today appear to be in line with our previous expectation. We expectthis restructuring plan to serve as a positive catalyst for Sinotrans' stock price.
Things to watch…
While the detailed plan for the restructuring hasn't come out yet, there aretwo important things investors need to monitor: 1） Sinotrans' A-share issuingprice and 2） How much premium Sinotrans would offer to Sinoair's minority.
Based on our previous calculations （please refer to the same note above），assuming Sinotrans issues A-share at 17x P/E （or RMB6.2/share, which impliesa 77% premium over latest Sinotrans' H-share price） and offers 25% premium toSinoair's minority, there wil be no dilution. Given the average of 32x P/E of Asharelogistics companies and A/H gap of 94%, Sinotrans seems to have decentroom to come up with a plan, without leading to any EPS dilution. We certainlywon’t rule out the potentia of EPS accretion.
Stock is likely to react positively
Fundamentally, post this restructuring, Sinoair's resources such as cash can beeffectively utilized while peer competition can also be solved, which in turn shouldbring in synergies and efficiency gains ahead. Technically, once listed, it seemslikely that Sinotrans’ A-share should trade up, given its substantia valuationdiscount to A-share peers. This in turn would lift H-share, which in our view isstil considerably undervalued.
Reiterate Buy on Sinotrans; risks
Along with robust organic growth across al segments and looming synergiesfrom China Merchants Logistics injections, we expect Sinotrans' ROE to reach13% in 2018E. We reiterate Buy on Sinotrans with target price of HK$6.60. OurSOTP-based price implies 13x 2018E P/E. We believe it looks conservative asgloba peers are trading at an average of 20x forward P/E.
The key macro risk is weaker-than-expected trade flows. On the companyfront, we see poor execution of the expansion strategy and lower-than-expectedsynergies with CML as major risks.