Sino-Global Shipping America: A Positive Risk/Reward Scenario

A while back I came across Sino-Global Shipping America on a valuation screen. I’ve since bought a speculative position and – since the last SA coverage on the name is from 2015 and much has changed since then – I’m writing up my rationale for others looking for a positive, but speculative, risk/reward situation.

SINO is a nano-cap stock (about $30M market cap) with all the risks inherent in these types of stocks. However, as a result of a change in strategy, recent profitability and a solid balance sheet, I think that if the company executes even moderately well, the shares could advance materially; while if things don’t work or take longer than expected, the balance sheet and low valuation put a floor under the stock and thereby limit the risk.

The Company and Its New Strategy

SINO is a domestically domiciled company that had previously been involved in various aspects of Chinese shipping (shipping and chartering services, inland transportation management, and ship management services). For more details on the company’s history, see the latest investor presentation.

“In 2016, the company changed its strategy to facilitate bidirectional, end-to-end shipping between the US and China. Key developments occurred in July and August as outlined in the most recent 10-Q (my emphasis):

In July 2016, the Company signed a Strategic Cooperation Agreement (the “Agreement”) with COSCO Logistics (Americas) Inc. (“COSCO Logistics”), which belongs to the PRC’s largest integrated shipping company, China COSCO Holdings Company Ltd. Pursuant to the Agreement, both parties will mutually provide logistics services between the PRC and the U.S. and develop shipping customers as an end-to-end global logistics service. The Company expects to work with COSCO Logistics to provide inland transportation services in the U.S. for shipments to and from the PRC. According to the Agreement, the two companies will also assess locations in the U.S. to potentially establish warehouse and/or distribution facilities in the coming months and share pricing information for short-haul trucking services across selected regions of the country.

In August 2016, the Company announced the development of an internet-based application that will provide a full-service logistics platform between the U.S. and the PRC to short-haul trucking companies in the U.S. The decision to develop such an application follows an extensive review by the Company’s management team and the Board to identify the Company’s key competitive advantages as an expert in global logistics between the U.S, and the PRC, and then leverage that experience to both address the needs of its customer base and to provide solutions to current issues affecting the logistics and supply chain. Our internet-based application was launched in December 2016, and the management team believes this will move the Company to a new stage.

Our U.S. based container trucking business model is an innovative profit model that the Company began to develop during the second half of calendar year 2016 in order to better serve container shipping needs between the U.S. and the PRC. This model is based on the Company’s expertise as a global shipping solution provider, its professional services in shipping industry and its more than 30 years of business operations in freight forwarding, and the Company considers the new model to be an upgrade to our existing freight forwarding business model. Recognizing that the short-haul trucking transportation supply in the U.S. can barely keep up with the huge demand for container shipment from the PRC to the U.S., our new business model is committed to balance demand and supply by providing a mobile platform as well as physical door to door transportation services, and we believe that we will generate profit in doing so.

As part of the testing stage of our full-service logistics service platform, the Company has already initiated container trucking services in Shanghai, China since the second quarter of fiscal year 2017. The Company has recorded 241 TEU container imports and 37 TEU container exports in Shanghai alone during second quarter of 2017. These container trucking services have generated $159,879 revenue and $65,918 gross profit, with a gross margin of about 40%. The Company expects to expand the container trucking service in the U.S. through the full-service logistic platform starting from the third quarter of fiscal year 2017.

In December 2016, the Company completed the development of our full-service logistics platform, and a website portal to seamlessly connect shipping customers with short-haul trucking transportation services throughout the U.S. is now accessible through the Company’s website. In connection with our new logistics platform, the Company has signed cooperative agreements with two major Chinese shipping companies-COSCO (including both COSCO Beijing and COSCO Qingdao) and Sinotrans Guangxi-in December 2016 and January 2017 (See Note 16 to the unaudited condensed consolidated financial statements). We believe that the Company’s cooperation with COSCO should increase our volumes of door-to-door short-haul trucking and inland transportation service in the U.S.”