QEX Logistics — Solid growth expected to continue in FY19

QEX Logistics — Solid growth expected to continue in FY19

In line with earlier management expectations, QEX Logistics has made an upward revision to its FY19 KOM targets following strong preliminary FY18 numbers. The company now aims at total sales turnover growth of 30% over FY18 to NZ$41m and gross profit at NZ$5.74m in FY19. This implies a 14% margin, which is somewhat below the initial target of 15% and suggests that in its current rapid growth phase, QEX decided to trade off some of its margin against top-line growth.

Milosz Papst

Written by

Milosz Papst

Director, Financials

QEX Logistics

Solid growth expected to continue in FY19

General industrials

NXT Company Spotlight

28 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

In line with earlier management expectations, QEX Logistics has made an upward revision to its FY19 KOM targets following strong preliminary FY18 numbers. The company now aims at total sales turnover growth of 30% over FY18 to NZ$41m and gross profit at NZ$5.74m in FY19. This implies a 14% margin, which is somewhat below the initial target of 15% and suggests that in its current rapid growth phase, QEX decided to trade off some of its margin against top-line growth.

Most FY19 KOM targets revised upwards

Following the recent positive announcement of FY18 KOM results on 26 April, QEX has completed its revision of KOM targets for FY19. It now expects to generate sales turnover of NZ$41m compared with the earlier target included in its listing document at NZ$28m, implying a 46.4% upward revision. This compares with FY18 sales turnover at NZ$31.5m (which was c 21% ahead of the initial KOM target) and suggests a c 30% y-o-y growth rate vs FY18. This is accompanied by an upward revision of the expected monthly volume of dairy products exported from 160 tonnes to 182 tonnes (up 13.8%) and the monthly number of parcels cleared from 72,000 to 80,800 (up 12.2%).

Gross margin KOM target slightly down

QEX’s gross margin target (as a percentage of the sales turnover target) was revised down slightly from 15% to 14%. This compares with 16.0% achieved in FY18 amid an exceptionally strong Q418 at 18.4%, which was assisted by favourable pricing due to the tight supply of milk powder in China. The new gross margin target is also somewhat below the initial FY18 target of 14.3% included in the listing document. However, given the higher top-line growth expectations, this still translates into a significantly higher gross profit target at NZ$5.74m (vs NZ$4.2m previously).

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 22.6x P/E on a trailing 12-month basis. However, this ratio does not reflect the strong growth QEX posted in FY18.

Company financials

Year
end

Sales turnover (target
in future) (NZ$m)

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

41.0

N/A

N/A

N/A

Source: QEX (historicals and forecasts)

QEX Logistics coverage is provided through the NXT Research Scheme

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 trailing 12-month 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 a 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

50

-

-

 

Milk and health supplements

a2 Milk Co

5,427

25.4

52.8

Bellamy's Australia

1,397

-

-

Blackmores

1,691

28.7

34.7

Median

27.0

43.8

Logistics

United Parcel Service

99,335

11.4

18.4

FedEx Corp

66,929

10.1

18.6

Deutsche Post

48,854

10.0

16.4

Kuehne + Nagel International

18,219

14.7

24.0

Bollore

15,761

17.5

29.9

DSV

14,932

21.8

23.7

JB Hunt Transport Services

13,677

13.3

32.3

CH Robinson Worldwide

12,849

12.4

27.0

Expeditors International of Washington

12,175

16.2

25.0

Yamato Holdings

11,670

12.3

-

Nippon Express

7,406

7.4

18.6

Hyundai Glovis

4,975

7.9

9.8

Landstar System

4,701

14.6

25.7

Sinotrans

3,615

4.9

12.6

Sankyu

3,466

7.6

17.2

Panalpina Welttransport Holding

3,067

9.2

16.5

Hitachi Transport System

3,021

15.9

40.0

Mainfreight

1,808

14.1

25.4

Forward Air Corp

1,736

10.4

23.5

Hub Group

1,660

10.0

23.5

Kintetsu World Express

1,494

8.4

24.8

Echo Global Logistics

784

14.9

-

Eddie Stobart Logistics

676

-

-

Logwin

463

5.3

9.1

Wincanton

453

5.5

13.4

Hanjin Transportation

280

11.3

-

Sebang

257

6.7

9.0

K&S Corp

160

5.8

38.9

Marsden Maritime Holdings

151

186.1

22.6

TIL Logistics Group

120

10.2

18.7

South Port New Zealand

101

-

-

Lindsay Australia

87

6.8

20.4

CTI Logistics

62

-

-

Bremer Lagerhaus-Gesellschaft

58

8.1

20.5

Hansol Logistics

41

5.4

30.6

Mercantile Ports and Logistics

16

-

-

Median

 

10.1

22.6

Source: Edison Investment Research, Bloomberg. Note: Prices as at 24 May 2018.

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