This weekend is a hectic weekend with the Singapore Grand Prix. Lots of fun, excitement and concerts, but that also mean less time to resear...

Weekly Superstock Scan 18 Sep 2017 - 22 Sep 2017: Sino-Global Shipping America, Ltd (SINO)

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This weekend is a hectic weekend with the Singapore Grand Prix. Lots of fun, excitement and concerts, but that also mean less time to research and blog on the potential superstocks.

This week I have two potential superstocks, which is fantastic news since it translate to more opportunities. With my busy schedule, it will be a test of efficiency and prioritisation for me. (You can read on the other superstock of the week - Fanhua Ltd here)




The first potential superstock of the week will be Sino-Global Shipping America, Ltd (SINO). Despite its name, it is not a shipping stock, even though it used to be one. The restructured SINO now operates in three segments:
  • Inland Transport Management Services: SINO provided solutions to control potential commodities losses during the transportation process.
  • Freight Logistic Services: Provides services such as cargo forwarding, trucking and customs declaration and filing. 
  • Container Trucking Services: provides trucking services in the PRC and US
It has two dormant segments - Shipping Agency and Shipping & Chartering Services, which SINO suspended due to negative industry outlook.


Technical 



Since May this year, SINO has been trading at a relatively tight range from $2.70 to $3.60. Last week price broke strongly above the range and closed at $3.75. The volume of the week was around its average trading volume.

There was no news released last week. The cause of the surge is most likely the upcoming earnings release that may happen on Monday or Tuesday.

Previous Superstock

November 2016 was a month to remember for micro-cap traders. It was when shipping stocks skyrocketed led by DRYS. SINO, again I emphasise is not a shipping stock, benefited for a brief moment then. Till today, traders are still group SINO with DRYS, ESEA, GLBS and other shipping stocks when there is a change in the shipping industry outlook.

Being a previous superstock, most traders are still keeping this ticker in their watchlist and will notice the strong spike last week. Many of them might have taken action or are looking to buy or short the upcoming week, creating very volatile movements.


Fundamental


I was prepared to trade SINO based on technical alone, on account that it was a previous superstock. I was pleasantly surprised to find out that SINO has a very solid fundamentals. 

Including the current quarter, SINO recorded 4 consecutive quarters of EPS growth. More importantly, it was a turnaround for the company following its transformation. Not only did SINO record positive EPS for the last four quarters, the EPS was growing exponentially from quarter to quarter.

Transformation of Company

In FY2016, SINO suspended its ship management shipping business and in December 2015, SINO suspended its shipping and chartering services business. 

Simultaneously, SINO developed new revenue streams from new segments. In January 2016, SINO formed a new subsidiary company,  Sino-Global Shipping LA Inc., to provide freight logistic services.


In 2017, it formed a new joint venture company, ACH Trucking Center, with Jetta Global to provide short-haul trucking transportation and freight logistics services to customers located in the New York and New Jersey areas.

Also, since the second quarter of fiscal year 2017, SINO has provided container trucking services in the PRC, and began providing related services in the U.S. in the third quarter of fiscal year 2017. 

These are new segments with lower revenues but far higher profit margins, and less vulnerability to external conditions. Other benefits of the transformation include a more diverse client base and geographical area.

Short Haul Container Truck Services Platform

In December 2016, SINO completed development of a full-service logistics platform that leverages the Internet to solve the bottleneck problem of door-to-door transportation between the U.S and China. Using the portal, shippers can connect with independent trucking organizations. SINO's role will be to manage the portal and will receive a steady fee income from providing the connection. As the CEO described in the shareholder's letter, it is similar to  'ride-sharing applications'.



SINO is in the process of building a mobile based logistics application for short-haul trucking in the US ports to manage the 25 million containers moving between U.S and China each year.

Stream of Contract Wins and Partnerships

In the past couple of years, SINO has formed partnership with many major shipping partners including COSCO Logistics, COSCO Qingdao, COSCO Xinyang, COSFRE Beijing, Shandong Hi-Speed Group, Sinotrans Guangxi, Yaxin International and Tianjin Zhiyuan Investment Group.

For the partnership with COSCO and Sinotrans, it is related to the platform described earlier.SINO will receive a percentage of the total amount of each transportation fee for the arrangement of inland transportation services. It is encouraging for SINO to have big players onboard soon after the launch of the platform and it will give other shippers and transport operators more confidence to use the platform.

Easy Earnings Comparison

In Q4 FY2016, the EPS is quite low at $0.02. With the transformation of SINO, income is more predictable now are we are likely to see a very good year-on-year growth in EPS for the upcoming release. It will be a nice headline that can drive the stock price to a higher height.

Matrices
- Very small float of 6 million shares. The average volume is only 120 thousand shares, but with a small capitalisation, a volume spike may be multiples of the float, and we have seen that a few times in the past 2 years. 
- Low P/E of 10.7 times trailing 12 months EPS. For SINO the P/E based on annualised last quarter EPS might be more appropriate. Based on Q3 FY2017 EPS of $0.14, we are looking at a P/E of just 6.7.

Risk Factors/ Things I do not like

  • Lack of volume - For the spike in price last week, the volume was fairly mild considering the strength of the spike.
  • Overhead resistance - Price has failed to break above $4 for the past year, with price just under $4 this time round, price may bounce off the $4 level with a good set of earnings.
  • Commodity risk - A number of SINO's customer are dealing with commodities, especially in the Inland Transportation Management Services segment. If there is lower volume of commodities transported, SINO's financials will be affected.



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