Sinotrans plans to issue A shares and merge with subsidiary Sinoair（600270 SH）。 The Company is expected to issue 1,371.2 mn A shares atRMB5.32 per share in exchange for 353.6 mn Sinoair A shares. As a result,the subsidiary will be delisted. Sinotrans is expected to strengthen corporategovernance and synergies after the merger. Subsequently, Sinotrans will beable to use its entire cash amount for further overseas M&As. We expectmore synergies to be realized amid Sinotrans’ A-share listing.
Sino-U.S trade dispute less likely to drag down Sinotrans’ organicgrowth. U.S-bound operations amounted to around 7% of Sinotrans' 2017total transportation volume, while current Sino-U.S maritime trade （Sinotrans'major American service line, export-bound products） is dominated by lowvalue-added goods, which are not prime targets in the U.S government's 301report.
Incremental profit contribution to come from 3 aspects: pallet leasing,cold chain logistics, and CML resource sharing. Pallet leasing mightsustain growth given Southeast Asia's booming e-commerce prospects. Thecold chain segment might endure restructuring and enhance efficiency. By1Q18, Sinotrans' network will have covered over 50,000 vehicles shared byCML. We expect the docking of CML's vehicles/warehouses to be fullycompleted by 3Q18. Overall, we revise up Sinotrans' 2018/2019 net profitforecasts by 6.79%/0.02%.
Sinotrans' valuation is attractive. As the leading domestic B2B logisticsfirm, Sinotrans will benefit from stable consumption upgrade to achieve highprofit growth. Maintain "Buy" and revise TP to HK$5.20, corresponding to10.0x/8.2x/7.4x 2018-2020 PER.