Market Update

CIMC vehicles eyes emerging cold chain logistics


A few important policies have been released to support the ongoing development of the manufacturing industry. These, along with the deployment of policies in recent months by the People’s Bank of China, China Banking Regulatory Commission and other departments, help to guide the financial industry in increasing support for manufacturers. All signs show that these policies have somewhat favoured the overall profitability of the manufacturing industry. Among which, CIMC vehicles, which has received much attention since its Initial Public Offering (“IPO”), has rallied much faster than many of its counterparts and continues to outperform the market.

Looking at the segmented fields of the semi-trailer industry, we draw attention to the growth prospects of the cold chain logistics industry. Since 2014, China’s cold chain industry has experienced a period of rapid development. According to the China Cold Chain Logistics Development Report (2019), the growth rate of China’s cold chain logistics increased from 19percent in 2014 to 20.3percent in 2018. The annual growth rate of circulation services and related equipment introduced by cold chain logistics has exceeded 30percent. With the improvement of China’s economy, the continued trend toward urbanisation and the implementation of a series of promotional policies for consumption upgrades and domestic consumption expansion, it is expected that the total volume of China’s cold chain logistics will continue to increase.

The report also pointed out that the total amount of cold chain logistics in 2018 accounted for only 1.7percent of total social logistics, which is still far off the numbers being registered in developed countries, suggesting that the industry is still in its early stages of development. With the development of cold chain logistics towards warehouse integration and logistics automation, the research and development (“R&D”) as well as production of cold cars and core components for cold car demand has ushered in huge new business opportunities.
CIMC Vehicles has been expanding its refrigerated-trailers business in North America since 2008. In 2018, CIMC Vehicles had a market share of 7 percent in the refrigerated-trailer market in North America. As of the first half of 2019, sales of refrigerated trailers in North America increased by 67percent over the same period last year, while the market share of refrigerated semi-trailers in North America continued to rise. With the prosperous development of the domestic cold chain industry, CIMC Vehicles is positioned to quickly capture significant market share. Currently, the CIMC Vehicles cold chain sector owns Shandong CIMC (covering various types of refrigerated-trailers) and Qingdao CIMC (covering refrigerated-trailers) production bases, of which standardisation and customisation are the two major development directions.

In addition, CIMC Vehicles is expected to continue benefitting from changes in the market structure driven by economic transformation, industrial upgrades, and the gradual increase of industry concentration, to become the biggest beneficiary under current market conditions.

Gaining attention from capital markets
CICC’s two recent industry reports also focused on CIMC Vehicles. Together with earlier reports by Haitong and CMB, various signs have indicated CIMC Vehicles is gradually gaining the attention of investors, with its stock price outperforming the HSI. The stock price of CIMC Vehicles began its ascension in September 27, and has so far rallied by over 38percent from its low. Compared with the HSI, which hit its low in early October and has so far rebounded by only 7.17percent, CIMC Vehicles has clearly made a positive impact among investors.

Unique investment concept
CIMC Vehicles is one of the few representatives of smart and high-end manufacturing in the Hong Kong stock market. It is also a global leader in segmented fields, occupying a leading position within the industry. As an advanced manufacturing company with a unique investment concept, CIMC Vehicles currently has “low valuations and high dividend returns” for investors.

Prior to listing, the company implemented a high dividend payout policy, with dividend payout ratios ranging from 20 to 30percent over the past three years. Dividend payout ratio was adjusted to 40 to 60percent after listing. CIMC Vehicles disclosed in its financial report for 1H2019 its operating cash flow was RMB 855 million, which provided capital reserves and a satisfactory buffer to continue implementing its historical high dividend payout policy, and to achieve high dividend returns.

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