1Q24 results beat our expectations

Jiayou International Logistics (Jiayou) announced its 1Q24 results: Revenue rose 25.97% YoY to Rmb1.995bn; net profit attributable to shareholders grew 51.85% YoY to Rmb307mn, hitting a record high. The results beat our expectations as the firm’s Mongolian coal business and Kasa port business in Zambia performed better than we expected.

Trends to watch

Freight traffic at Ganqimaodu staying high in 1Q24; China-Mongolia business to maintain solid growth. Freight traffic at Ganqimaodu port since the beginning of 2024 reached about 10.06mn tonnes (as of the morning of April 3), up 24.7% YoY1. According to www.moncoal.com, vehicle traffic at Ganqimaodu rose 10.3% YoY to about 940 units in 1Q24. Cross-border unmanned freight volume at Ganqimaodu port exceeded 900,000t in 1Q24, up 59.7% YoY2. We believe strong cross-border transportation of Mongolian coal may drive steady growth of the firm's Mongolian coal supply chain business and Ganqimaodu warehousing business.

Continuing to expand presence in Africa; China-Africa business to become an important profit growth driver. According to corporate filings, Jiayou has completed overseas investment filing procedures for the acquisition of an 80% stake in BHL. The firm has been advancing its logistics presence in the Democratic Republic of the Congo (DRC) to further improve its logistics infrastructure network in central and southern Africa.

We believe the mineral logistics market in Africa has large growth potential. According to Ivanhoe's announcement, Kamoa-Kakula copper mine may produce 440,000-490,000t of copper in 2024, up 12-25% from 2023. We expect the firm’s land port business and African cross-border logistics business to become its important profit growth drivers as mines in the DRC continue to ramp up.

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 network3 and refined management capabilities (localized fleet managers and the firm's management experience).

Financials and valuation

We raise our 2024 and 2025 net profit forecasts 9.0% and 10.0% to Rmb1.40bn and Rmb1.696bn, given upside surprise in the coal business in Mongolia and the future operation of the Kasa project in Zambia. The stock is trading at 12.6x and 10.4x 2024e and 2025e P/E. Maintain OUTPERFORM rating. We raise our target price by 8.4% to Rmb32.04, implying 16.0x 2024e P/E and 13.2x 2025e P/E, offering 27.4% upside.

Risks

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