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In the fourth report of our series on China’s logistics industry going global, we focus on Jiayou International Logistics, a provider of cross-border multimodal logistics services. Its attributable net profit almost doubled YoY to Rmb681mn in 2022, in line with our expectation1. In addition, the firm preannounced that its attributable net profit may grow 48-59% YoY to Rmb1.01-1.08bn in 2023.

Previously, Jiayou benefited significantly as cross-border logistics services between China and Mongolia resumed and the Sakania land port in Democratic Republic of the Congo (DRC) started operation, in our view.

Looking ahead, we think the firm’s strong competitive advantages in logistics services in Africa will offer new growth momentum, which will also be the focus of this report.

Reasoning Market of logistics services for DRC mining exceeds Rmb10bn. We

estimate the logistics market for copper ore exports from DRC totaled about Rmb11.1bn in 2022. This is based on data for copper ore exports from the country’s Ministry of Mines, and the average logistics costs for copper ores at Ivanhoe Mines (cost, insurance, and freight or CIF price at US$551/t).

The market is likely larger after including the transportation of cobalt, zinc and other mineral resources, in our view. We estimate the logistics cost for inland transportation in DRC (from mines to ports) at US$247-367/t, about 45-67% of the overall logistics cost.

Inland logistics in Africa is time-consuming, and characterized by high costs and a fragmented market. According to Ivanhoe Mines, the

round trips for major transportation routes such as the Lubumbashi-Port of Durban and Lubumbashi-Port of Dar es Salaam can take about 50 days and 40 days, respectively.

In addition, data from the Central Corridor Transit Transport Facilitation Agency (CCTTFA) shows inland transportation costs in Africa at US$0.10- 0.12/FTK, about 3-4 times that in China, due possibly to low fuel efficiency.

The implicit cost from delays (such as inventory transit cost) is also high, and may take up 19-59% of total logistics costs. Moreover, the market is fragmented without dominant players or significant economies of scale.

There are plenty of small and medium fleets and freight forwarders.

Jiayou will likely outperform thanks to its well-established logistics facilities and effective management, in our view. The firm boasts

concession rights for three inland ports, a fleet of over 500 trucks, and several bonded warehouses in Africa. The well-established facilities will improve Jiayou’s control over full-chain logistics, in our view. In addition, we think the firm’s localized fleet management team and successful track record should ensure more effective full-process cost management.

In the near term, we are upbeat on the growth of the firm’s logistics operation in Africa driven by its port resources. We estimate Jiayou’s logistics contracts account for only 10% of the freight volume of the Kamoa-Kakula mine. In the medium and long term, we anticipate higher market share for Jiayou in the African import and export logistics market as its projects in Sakania (Zambia) and Dilolo (DRC) gradually come online.

Financials and valuation We keep our 2023-2025 earnings forecasts unchanged at Rmb1.03bn, Rmb1.29bn, and Rmb1.53bn, implying YoY growth at

51.9%, 24.9%, and 18.2%. The stock is trading at 11.5x 2024e P/E. We raise our TP 27.5% to Rmb29.56 (offering 38.7% upside), as we roll over valuations to 2024e and assign a P/E of 16x based on the average of 2018-2019.

Risks

Disappointing copper output in DRC; poor fleet management in Africa; volatile prices of Mongolian coal.