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Jiayou International Logistics’ share price has declined 24.7% YTD, underperforming the Shanghai Composite Index by 21.3ppt. We attribute this to pressure on the firm's coal supply chain business, driven by the weak performance of the Mongolia coal market. However, we believe the market has largely priced in this pressure. With Mongolian coal prices potentially near the bottom and the firm’s valuation at a historical low, we remain optimistic about the long-term growth prospects of its logistics business in Africa.

Comments

The firm’s Mongolian coal supply chain business may come under pressure due to a weakening Mongolian coal market. Since 4Q24, Mongolian coal prices have been declining, driven by subdued downstream demand and an increase in domestic coking coal supply. According to sxcoal, for instance, the price of Ganqimaodu 5# raw coal has fallen by 33%, from approximately Rmb1,270/t in early October 2024 to around Rmb850/t in April 2025 (average price since April).

While the firm does not primarily profit from the price spread of coal trade, we expect its Mongolian coal supply chain business to see higher sales volumes but thinner margins in 2025, for two key reasons: cross-border trucking freight rates tend to move in line with coal prices; and contract prices typically lag behind changes in spot prices. As a result, we forecast gross profit from this segment to decline by approximately 11% YoY in 2025.

The firm’s share price correction may have already factored in the pressure on its coal supply chain business; we are not pessimistic about the medium-term outlook. The share price has retreated 24.7% YTD, likely reflecting downside risks related to the Mongolian coal supply chain. The stock is trading at 9.5x 2025e P/E (based on revised earnings for this year; see below), near the bottom of its historical valuation range.

Looking ahead: 1)Logistics business in Africa progressing steadily: The Sakania port project in Zambia, along with the Tanga port and Tunduma projects in Tanzania, are likely to begin operations between 2025 and 2027. 2) Limited downside for Mongolian coal business: According to sxcoal, the price of Ganqimaodu 5# raw coal is currently in the bottom quintile of its range since 2017. Further downside appears limited, and prices may bottom out if downstream demand improves marginally.

Financials and valuation

Given the pressure on the firm’s Mongolian coal supply chain business, we cut our 2024 and 2025 earnings forecasts by 12.3% and 22.7% to Rmb1.37bn and Rmb1.50bn, implying YoY growth of 31.9% and 9.4%. We also introduce our 2026 earnings forecast at Rmb1.87bn, representing YoY growth of 24.9%, mainly driven by land port projects and logistics operations in Africa. Accordingly, we lower our target price by 22.0% to Rmb19.94, implying 13.0x 2025e and 10.4x 2026e P/E, and offering 36.9% upside. The stock is trading at 9.5x 2025e and 7.6x 2026e P/E. Maintain OUTPERFORM.

Risks

Operation of logistics facilities in Africa disappoints; coal prices in Mongolia fall sharply.