3Q24 results missing our expectations

Hichain Logistics announced its 3Q24 results: Revenue fell 5.8% YoY to Rmb434mn; attributable net profit fell 4.9% YoY to Rmb68mn, and recurring attributable net profit fell 3.7% YoY to Rmb63.52mn. In 1-3Q24, revenue fell 8.1% YoY to Rmb1.25bn; attributable net profit dropped 11.3% YoY to Rmb218mn; recurring attributable net profit fell 9.7% YoY to Rmb175mn, missing our expectations due to disappointing performance of the alternative energy business.

Trends to watch

The consumer electronics industry continued to recover mildly in 3Q24. According to Canalys, global personal computer (PC) shipments grew 1.3% YoY to 66.40mn units in 3Q24, with Lenovo's global shipments rising 3% YoY to 16.5mn units. We believe end-market demand in the consumer electronics industry has been recovering moderately YTD, and the firm's consumer electronics business has been stable with the industry recovery. Revenue from consumer electronics and other businesses rose by Rmb16.95mn in 1H24, and we expect the steady growth to continue in 3Q24.

NEV business is actively expanding clients, but growth may remain under pressure in the near term. According to the firm's interim report, revenue from new energy vehicle (NEV) client L fell by Rmb180mn in 1H24, accounting for 20.66% of its revenue in 1H23. The firm actively expanded its presence in NEV clients S and V to offset the impact of client L. However, we believe the growth of its NEV business will remain under pressure in the near term. We believe the firm's AFV business has large growth potential in the long term. Data from the China Association of Automobile Manufacturers (CAAM) shows that NEV sales volume rose 32.5% YoY to 8.32mn units in 1-3Q24, suggesting a large downstream market.

The automation business is progressing smoothly and is likely to contribute incremental earnings in the future. According to the firm's interim report, it completed the renovation and upgrading of its Kunshan factory. In 1H24, its semiconductor logistics equipment and automation business grew by Rmb85.27mn. We believe that as the capacity ramps up　at the upgraded factory, the firm's logistics equipment and automation business will continue to grow and contribute incremental earnings.

Financials and valuation

Due to disappointing NEV business, we cut our 2024 and 2025 net profit forecasts 20.1% and 21.7% to Rmb280mn and Rmb324mn. The stock is trading at 16.6x 2024e and 14.3x 2025e P/E. Given the firm's long-term growth potential, we maintain an OUTPERFORM rating and TP of Rmb21.20, implying 17.5x 2024e and 15.1x 2025e P/E, offering 5.5% upside.

Risks

Disappointing expansion of NEV business and/or orders for automation integration business.