FY18 results ahead of initial targets

QEX Logistics 3 May 2018 Update (1-4pgs)
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QEX Logistics

FY18 results ahead of initial targets

General industrials

NXT Company Spotlight

 

03 May 2018

Price

NZ$0.75

Market cap

NZ$38m

Share price performance

Share details

Code

QEX

Listing

NXT

Shares in issue

50.3m

Business description

QEX is a logistics company that facilitates direct trade between New Zealand/Australia and China, aiming to be a one-stop shop for Australasian entities looking to export products to China.

Bull

Fast growth into a large market.

Strong board.

Diversified relationships.

Bear

Acquisitions made could be dilutive.

Rapid growth may present management problems.

Majority of revenues dependent on daigou market.

Analyst

Milosz Papst

+44 (0)20 3077 5700

QEX Logistics coverage is provided through the NXT Research Scheme

QEX was able to exceed all of its four key operating measures (KOM) targets for FY18, with sales turnover growing by 42% y-o-y and gross margin at 16.0% (vs initial target of 14.3%), assisted by solid demand for dairy products. The company’s recently launched Australian operations performed ahead of expectations, although local competitors have already reduced prices to strengthen customer retention. FY19 targets are likely to be revised upwards by 31 May, with the sales turnover target to exceed the FY18 figure by more than 10%, according to management.

Sales driven by good demand for dairy products

QEX’s sales turnover reached NZ$31.5m in FY18 (unaudited figure), c 21% ahead of its original KOM included in the listing document (NZ$26m). The company was able to exceed its other top-line KOM targets, with monthly volume of exported dairy products reaching 178 tonnes in FY18 (vs targeted 155 tonnes) and the number of parcels cleared monthly through customs by Ditu at 75,698 (vs a target of 66,000). QEX benefitted from strong demand during the Chinese New Year season in February (leveraging the milk powder inventory it had built up in advance), which continued into March. QEX’s revenues were also assisted by better than expected performance of both its Australian operations and the Chinese subsidiary Ditu. However, the market for dairy products remains competitive while a potential shortage of infant formulas in Australia poses a short-term downside risk.

Higher margins amid favourable milk powder pricing

QEX’s gross margin reached 16.0% compared to its KOM target of 14.3%, driven by particularly strong profitability in Q418 at 18.4%. This was mostly due to favourable pricing amid milk powder shortages in China following the New Year. Moreover, the company also benefitted from lower direct freight cost due to the extent it used sea freight to deliver inventories to Shanghai. Moreover, QEX plans to obtain the full International Air Transport Association licensing in Q219, which will allow the company to cooperate directly with airlines rather than through freight forwarders. It has also moved to its new premises closer to the airport, providing new revenue opportunities in warehousing services.

Valuation: Peer comparison

QEX is priced at 14.8x FY17 (end-March 2017) EV/EBITDA, with logistics companies trading on multiples of c 10.1x EV/EBITDA and 21.6x P/E on a trailing 12-month basis. However, this ratio does not reflect QEX’s strong growth posted in FY18.

Company financials

Year end

Sales turnover (target in future)

PBT (NZ$m)

Cash (NZ$m)

Cash from operations (NZ$m)

03/16

18.1

0.6

0.3

0.9

03/17

22.2

2.6

0.1

0.4

03/18

31.5

N/A

N/A

N/A

03/19e

28.0*

N/A

N/A

N/A

Source: QEX (historicals and forecasts). Note: *QEX will review its FY19 targets by 31 May.

Valuation

QEX remains a small company and has few peers. We note that AuMake (a recently listed Australian company) is approaching the daigou market differently, planning to open at least 20 specialist stores in Australia targeting Chinese consumers. It generated LTM revenues as at end-December 2017 of c A$18m and raised A$14m on 22 January 2018.

There are a number of other logistics companies globally, which average 10.1x next-year EV/EBITDA multiples. As can be seen, analyst coverage of these is poor for any companies with market cap of less than c US$700m.

Exhibit 1: Comparative multiples

Market cap (US$m)

EV/EBITDA (x) trailing 12 months

P/E (x) trailing 12 months

Direct

 

AuMake International

55

-

-

 

Milk and health supplements

a2 Milk Co

6,224

25.4

60.2

Bellamy's Australia

1,547

-

-

Blackmores

1,532

28.7

31.5

Median

 

27.0

45.9

Logistics

United Parcel Service

98,527

11.1x

18.3x

FedEx

66,940

10.1x

18.6x

Deutsche Post

53,904

9.8x

17.7x

Kuehne + Nagel International

18,749

14.7x

24.7x

DSV

14,980

18.6x

27.4x

Bollore

14,627

21.9x

23.0x

JB Hunt Transport Services

13,030

13.3x

30.8x

CH Robinson Worldwide

12,894

15.6x

27.3x

Expeditors International of Washington

11,304

13.8x

26.1x

Yamato Holdings

10,596

16.1x

-

Nippon Express

7,546

7.4x

18.9x

Hyundai Glovis

5,905

7.9x

11.6x

Landstar System

4,345

14.6x

23.8x

Sinotrans

3,491

4.9x

12.1x

Sankyu

3,172

7.3x

16.2x

Panalpina Welttransport Holding

3,009

15.9x

39.8x

Hitachi Transport System

2,995

9.2x

16.1x

Mainfreight

1,755

14.1x

24.2x

Forward Air

1,606

10.4x

21.8x

Hub Group

1,522

10.0x

21.6x

Kintetsu World Express

1,343

9.9x

24.8x

Echo Global Logistics

777

14.9x

-

Eddie Stobart Logistics

700

-

-

Logwin

456

5.5x

13.1x

Wincanton

399

4.9x

7.8x

Hanjin Transportation

289

13.2x

-

Sebang

240

5.8x

9.2x

K&S

160

5.8x

38.9x

South Port New Zealand

119

10.2x

18.3x

TIL Logistics Group

109

-

-

Lindsay Australia

84

6.8x

19.9x

CTI Logistics

62

8.1x

21.7x

Bremer Lagerhaus-Gesellschaft

62

-

-

Hansol Logistics Co

40

5.4x

29.9x

Mercantile Ports and Logistics

17

-

-

Median

10.1x

21.6x

Source: Edison Investment Research, Bloomberg (priced on 30 April 2018).

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