MingZhu Logistics: 2021 Should Bring Growth, But Valuation Remains High
Summary
- MingZhu's revenue was down in the first half of 2020 due to a lockdown in Xinjiang.
- Otherwise, ecommerce seems to be a significant boon to the company.
- Further, with new deals, the company is prepared for growth in 2021.
- Unfortunately, the company remains expensive compared to peers and barely profitable.
MingZhu Logistics (NASDAQ:YGMZ) is an interesting Chinese trucking company, whose revenue has taken a hit from Covid-19, but maintains the potential to significantly pickup with new agreements and growth in e-commerce. However, the company’s profitability remains limited and though its market cap is small, its relative valuation remains high.
Earnings
For the first half, MingZhu Logistics earned $8.9 million in revenue, a $0.8 million decrease year over year, due to a decrease in demand in Xinjiang. The company saw a 33% revenue increase in Guangdong to $5.2 million, which was offset by a 36.5% decrease in Xinjiang to $3.7 million. The reason behind this was a lockdown in Xinjiang, which had a worse Covid outbreak, and an increase in e-commerce in Guangdong. Net income for the period decreased year over year to $106.7 thousand from $317.2 thousand. This represents earnings per share of $0.01, down from $0.04 a year ago.
The company saw a significant impact from Covid-19, particularly when Xinjiang locked down again in June. Going forward, MingZhu should see an improvement in its business as demand continues to return in both provinces and e-commerce continues to stay strong. Likely too, as the economy recovers, MingZhu will be able to collect on some of its accounts receivable.
New Agreements
Over the past month, MingZhu has inked several new agreements. The first is an agreement with China Merchants in Xinjiang to provide exclusive first and last-mile transportation between slack coal mines and railroads. The slack coal market in Xinjiang is expected to reach 87.7 million tons in 2021, which translates to the equivalent of, at least, 1.75 million truckloads - potentially twice that. Though it should be recognized that MingZhu will not be transporting all of the coal in Xinjiang, nor that all coal will need to go to the railway. Other factors too will affect how this business operation plays out, such as the rate of pay and operating expenses.
The second was an agreement with Huawei Logistics to act as a trucking service linked to CRexpress, Huawei Logistics’ rail service. CRexpress itself has seen massive year over year growth, a more than 50% volume increase, which brought its TEUs transported for 2020 to 1,135,000. Though the actual revenue to be expected and most details about this agreement remain unknown, it is likely to help further the company’s expansion in Guangdong.
Balance Sheet
The company’s cash balance increased to $353.3 thousand from $129.8 thousand year over year. The company’s debt comprises primarily of short-term bank borrowings, worth $2.2 million, with an additional $230k of long-term loans. Their debt level has also dropped year over year, with total liabilities now at $8.73 million, versus $10.36 million. The company’s assets dropped by roughly the same amount to $18.8 million. This gives us a book value for the company of roughly $10 million, or 83 cents per share.
Valuation
Annualizing the company’s first half EPS gives us $0.02 in annual EPS for a price to earnings ratio of 389. The company’s price to sales ratio is roughly 5.49, annualizing first-half revenues. If we assume the company’s revenue increase in Guangdong remains and Xinjiang revenue at least normalizes, we can project 2021 revenue of $22 million, which gives us a 4.45 price to sales ratio.
Company | Price to Sales |
2.82 | |
7.18 | |
0.16 | |
MingZhu Logistics | 4.45 |
As we see in the above table, even when projecting a higher revenue level in 2021, MingZhu remains relatively expensive to its peers, especially when considering that the company is vastly less profitable than any of them.
Conclusion
MingZhu Logistics had a rough first half of 2020 due to a Xinjiang lockdown. However, the effect of this should be lesser in the second half, and much less so as we go into 2021. With new agreements that should support higher revenue, MingZhu looks prepared for significant year over year growth.
Furthermore, the company's balance sheet is generally strong though its price to book ratio is high. Unfortunately, the company’s valuation remains fairly high relative to peers, which suggests there is somewhat limited upside at this point until we see more information on these new opportunities and the company’s ability to turn a greater profit.
This article was written by
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Comments (3)
Will fly soon
