2023 results in line with our expectations

Jiayou International Logistics (Jiayou) announced its 2023 results: Revenue rose 44.8% YoY to about Rmb7bn, and attributable net profit grew 52.6% YoY to Rmb1.04bn, in the middle of the preannounced range and in line with our expectations. In 4Q23, revenue rose 85.4% YoY to Rmb1.89bn, and attributable net profit grew 32.9% YoY to Rmb284mn.

Trends to watch

Land port project performs well; cross-border logistics business grows steadily. In 2023, Jiayou’s revenue from its land port project in Africa rose 322% YoY to Rmb424.5mn. This project had a gross margin of 62.3%, and contributed net profit of Rmb144mn in 2023 (12% of the firm's attributable net profit). We attribute the strong performance to higher-than- expected vehicle traffic at roads and ports. Cross-border logistics business's revenue fell 1.8% YoY to about Rmb2.0bn, mainly due to falling ocean freight rates. Its gross profit rose 5.6% YoY to Rmb569mn, and its gross margin rose 2ppt due to increased warehousing volume at Ganqimaodu.

China-Mongolia business benefits from booming coal imports from Mongolia. In 2023, revenue from the China-Mongolia coking coal segment rose 145.89% YoY to Rmb4.43bn, and gross profit of this business grew 66.4% YoY to Rmb522mn. We attribute the substantial profit growth to booming coal imports from Mongolia. According to www.cnenergynews.cn, Ganqimaodu Port imported 36.5122mnt of coal in 2023, up 102.37% YoY.

Looking ahead, we expect coal imports from Mongolia at Ganqimaodu to maintain solid growth. According to coal.in-en.com, 9.65mnt of coal had been imported at Ganqimaodu port TYD (as of April 1). In addition, the firm signed a long-term coal cooperation agreement with Mongolian Mining Corporation (MMC). According to the agreement, MMC needs to supply 1.5mnt of coal products to Jiayou per year in the first five years of the cooperation. We believe this could boost the firm's transportation volume of Mongolian coal.

We are upbeat on the firm's competitive advantages in the logistics market for commodity resources in the long term. The firm's customers are mainly in the copper concentrate and coking coal industries. As Chinese mining companies increase their overseas investment, we expect demand for cross-border logistics services for commodities to increase steadily. In our view, Jiayou may further expand its presence in the cross-border logistics market by leveraging its well- established logistics infrastructure network1 and refined management capabilities (localized fleet managers and the firm's management experience).

Financials and valuation

We keep our 2024 and 2025 earnings forecasts largely unchanged. The stock is trading at 14.4x and 12.0x 2024e and 2025e P/E. We maintain our OUTPERFORM rating and target price of Rmb29.56, implying 16.1x 2024e and 13.4x 2025e P/E, offering 11.7% upside.

Risks

Disappointing copper output in Democratic Republic of the Congo; poor fleet management in Africa; volatile prices of Mongolian coal.