Preannounced 2023 earnings up 48.2-59.4% YoY

Jiayou International preannounced its 2023 results: Net profit attributable to shareholders rose 48.2-59.4% YoY to Rmb1.01-1.08bn in 2023, beating market consensus of Rmb933mn and our expectations of Rmb960mn, mainly due to higher-than-expected China-Mongolia and China-Africa logistics business. The preannouncement implies attributable net profit of Rmb0.25bn-0.33bn in 4Q23, up 18.8-54.4% YoY.

Trends to watch

Strengthening presence in Africa; China-Africa business ramping up. According to corporate filings, the firm's Sakania project in the Democratic Republic of the Congo (DRC) began operations in 2023. The firm has invested in the Dilolo project in the DRC and the Sakania project in Zambia, and acquired a local cross-border transportation company, thus improving its logistics and transportation capabilities. Jiayou International has formed a logistics infrastructure network covering central and southern Africa, further creating its growth potential of the African market.

The firm also won a bid for a cross-border logistics and transportation project for copper products from the Kamoa copper mine in the DRC. We believe this underlines the firm’s competitiveness in the African market. As the firm continues to improve its logistics network in African, we believe China-Africa business is becoming an important earnings growth driver.

Traffic volume at Ganqimaodu port remains high; China-Mongolia business grows steadily. Data from cnenergynews.cn shows that Ganqimaodu port's import and export cargo volume rose 98.54% YoY to about 37.86mnt in 2023, the highest since its operation started. Coal imports through Ganqimaodu surged 102.37% YoY to about 36.51mnt in 2023. We believe the boom in coal imports from Mongolia has supported steady growth of the firm's coal supply chain business in Mongolia and of its warehousing business in Ganqimaodu.

Jiayou International a rare name in the overseas logistics sector; upbeat on its long-term growth potential. The company is a rare cross- border logistics name and a stock fully exposed to the Belt and Road Initiative. With land port asset investment as its development strategy, the company has been expanding into core logistics markets in Belt and Road countries, and into countries and regions including Mongolia, Central Asia,　and Africa, to enhance its core competitiveness and serve Chinese mining companies that are expanding internationally. In our view, the markets that Jiayou International entered have vast growth potential. We believe the company has strong core competitiveness and large growth potential in the long term.

Financials and valuation

Given higher-than-expected China-Mongolia and China-Africa logistics business, we raise our 2023 and 2024 attributable net profit forecasts 7.7% and 3.8% to about Rmb1.03bn and Rmb1.29bn. We introduce our 2025 attributable net profit forecast of Rmb1.53bn. The stock is trading at 9.9x and 8.4x 2024e and 2025e P/E. We maintain an OUTPERFORM rating and target price of Rmb23.18, implying 12.5x and 10.6x 2024e and 2025e P/E and offering 26.7% upside.

Risks

Geopolitical risks; disappointing economic growth.