TPS Trade Alert – September 22, 2015
Recommendation:
Buy Sino-Global Shipping America, Ltd. (NASD: $SINO) up to $1.10 per share.
Profile:
Sino-Global Shipping America, Ltd. is a shipping agency, logistics and ship management services company. The Company is headquartered in New York and has offices in China, Australia, Canada, and Hong Kong.
The shipping agency business is simple. It connects ships and shippers, and takes a commission. It’s responsible for the cargo being shipped, and acts as an agent.
The more ships that sail, and the higher the shipping rates, the more money the agency makes.
Sino-Global has been in this business since 2001. Last month, the company unveiled a new freight forwarding and logistics arm of its business. The move was designed to lessen the company’s dependence on chartering ships to and from Asia, where China’s economic woes mean fewer ships on the waterfront.
The new SGS arm of Sino-Global will focus on the US market. It will expand the company’s existing shipping footprint into freight forwarding. Freight forwarding services range from hauling cargoes to processing paperwork.
The game plan is for Sino-Global to create a door-to-door solution for shippers sending containers to China, or taking delivery of containers coming in from China.
SGS will target small and medium sized U.S.-based shippers as its clients.
Trade Rationale:
We believe that the markets have punished Sino-Global excessively by overreacting to the ongoing stream of bad news coming out of China.
While there is little doubt that imports will be sluggish for years, this doesn’t mean imports have ground to a halt. The absence of strong growth doesn’t mean the absence of shipping.
6 of the world’s 10 busiest ports are in China, including the two busiest, Ningbo-Zhousan and Shanghai.
Sino-Global Shipping knows the market. It has been in business for 14 years and has weathered other storms.
And the diversification into US logistics services is a smart move.
Investment Risks:
The key concern is with China’s economy.
The faster the recovery, or the slower the erosion of recent growth rates, the better position Sino-Global is in. The firm’s fortunes are directly tied to how many containers are loaded on and off of ships in ports like Shanghai and Hong Kong.
Another concern is overall shipping capacity, which is a pure reflection of supply and demand.
Right now, there are more ships than cargo. Shipping supply exceeds demand. And even though shipping volume is up, rates are down.
The Baltic Dry Index, which measures shipping price movements, skidded to a historic low earlier this year.
But here’s where it gets interesting, and why we see good things ahead for Sino-Global when we look beyond shipping supply and demand.
A key consideration involves how much iron ore China imports. Even though China’s economy has slowed down, and even though steel production is now lower than it was a few years ago, iron ore imports continue to grow.
The reason why: China can buy iron ore at low prices right now. It seems content to stockpile ore so it’s on hand for the steel mills when things pick back up and production increases.
According to Reuters, Chinese iron ore imports will hit a record this year.
Potential Return:
What kind of performance do we see?
No immediate uptick in the stock price. This is not the kind of a stock where we anticipate immediate and explosive growth.
What we do expect is the share price to double in the next two years. As the markets digest China’s recent turmoil, as imports start to rebound, and as massive cranes continue to load and unload ships in 6 of the world’s 10 busiest ports, look for Sino-Global to catch a rising tide.
Key Facts:
Company: Sino-Global Shipping America, Ltd.
Ticker: SINO
Recent Price: $1.01
Buy up to Price: $1.10
Market Cap: $7.48 million
Avg. Daily Volume (3 month): 23,295 shares
Chart:
Category: TPS Trade Alert
