BEST Inc. (BEST)
Price (08 Mar. 19): US$5.6
Target price (12m): US$7.6
Expected share price return: +36%
Market Cap: $2.1bn
Investment Risk: medium
BEST INC. (BEST) is a leading and fastest-growing Smart Supply Chain service provider headquartered in China. The Company offers a cloud based platform, BEST Cloud which is integration of online and offline retail to offer delivery. Their multi-sided platform combines technology, integrated logistics and supply chain services, last-mile services and value-added services. They are well positioned to transform the logistics and supply chain industry in mainland China and 15 other countries and capture growth opportunities in the new retail era to offer a consumer-centric, omni-channel and global shopping experience through digitization and just-in-time delivery.
Rationale for investment
- BEST is distinctively positioned in China’s logistics space across multiple industry segments with large addressable markets; High scope for market-share gains and margin improvement;
- Aligned with emerging industry trends such as Alibaba’s retail strategy, which could develop into a meaningful new growth driver for the company in the medium term;
- Rise of China middle class.
My 12-month multiple-based price target of US$7.6 is based on a 2020E estimate of group EBITDA of RMB2.4bn at EV/EBITDA of 8x-industry median and Net Profit of RMB1.3bn. My analysis yields a target equity valuation of RMB19.2 (US$2.9bn), which equates to a FY20E P/E of 15X translating 36% upside.
- No profit track-record;
- Early stage development of its new businesses and execution risks;
- Intensifying competition;
- Slowdown of industry-wide e-commerce/inter-city parcel growth may lead to weaker-than-expected top line growth.
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