Macquarie: The Street's 'Over-Bearish' View On China's BEST Is Wrong

Loading...
Loading...

China-based Best Inc (ADR) BSTI, a smart supply chain, logistics solutions and services provider, faces "over-bearish" sentiment from the Street, but the stock is in fact undervalued and could generate a 26-percent return, according to Macquarie Research.

The Analyst

Analyst Eric Zong upgraded Best from Neutral to Outperform with a price target lowered from $12.60 to $8.20.

The Thesis

Best's biggest business unit, the parcel delivery division Express Service, accounted for more than 60 percent of total revenue in the second quarter and should see a 34-percent compounded annual growth rate in its parcel delivery volume through 2020, Zong said in the upgrade note.

The growth projection comes at a time when management is working on cost-saving initiatives to improve its higher than industry average unit transit cost of Rmb1.50/parcel, which implies a potential EBITDA margin increase to 7.7 percent in 2019 due to economies of scale, the analyst said. 

The Freight Service business — accounting for 16 percent of revenue — became profitable in the second quarter and holds a top-three market share in the country, Zong said. The segment showed a 5.2-percent GP margin, and EBITDA margins should reach as high as 6 percent in 2019 from improvements in route planning and optimization of Best's sorting-center network, he said. 

Best stock is trading at a market cap of around $2.4 billion, which only reflects the true value of the Express Service business and completely ignores the remaining businesses, Zong said. The firm's $8.20 price target implies a total valuation of $3.1 billion and the emergence of a value play after the stock hit a new 52-week low in early September, the analyst said. 

Price Action

Best shares were trading higher by 3.46 percent at $6.57 at the time of publication premarket Wednesday. 

Related Links:

A Peek Into The Markets: US Stock Futures Edge Higher Ahead Of Beige Book Report

6 Stocks To Watch For September 12, 2018

Loading...
Loading...
Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsChinaChina LogisticsEric ZongLogisticsMacquarie Research
We simplify the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...