What's new

Jiayou International Logistics (Jiayou) announced its 2024 employee stock ownership plan (ESOP). The firm will grant no more than 3.07mn shares (0.31% of the firm's share capital) to no more than 122 employees for Rmb11.45/sh (vs. the firm’s closing price of Rmb16.49/sh on July 29, 2024).

Comments A CAGR of 36% in attributable net profit over 2023-2026 is a prerequisite to unlock shares, higher than market expectations.

According to corporate filings, the firm will determine the proportion of shares granted to employees based on the higher value between net profit growth and cumulative net profit growth over 2024-2026. Specifically, prerequisites to unlock the shares include: 1) Attributable net profit in 2024, 2025, and 2026 increasing by 50%, 35%, and 25% YoY to Rmb1.56bn, Rmb2.11bn, and Rmb2.63bn; or, 2) attributable net profit in 2024 reaching Rmb1.56bn and cumulative attributable net profit growing to Rmb3.66bn over 2024-2025 and Rmb6.3bn over 2024-2026. These targets indicate a CAGR of 36.3% in attributable net profit over 2023- 2026, higher than the Wind consensus of 22.3%.

Wide coverage is conducive to motivating employees. This round ofESOP covers no more than 122 employees (vs. the coverage of no more than 41 employees in 2022), and has established a personal performance evaluation system. Therefore, we think this round of ESOP is more flexible but also more challenging for employees. In our view, the ESOP can effectively link the interests of the firm and its shareholders to those of employees and substantially incentivize employees.

Assessment targets of the ESOP are higher than market expectations, possibly because the market underestimated the growth momentum of Jiayou's businesses in China, Mongolia, and Africa.

China-Africa business: According to corporate filings, Jiayou completed the acquisition of BHL's fleet in 2Q24. We believe the firm will enhance its inland transportation network in Africa and gradually expand its logistics business from the Democratic Republic of the Congo (DRC) to the central and southern parts of Africa. In addition, we believe that the production　capacity of the Sakaniya project (on the Zambia-DRC border) will likely increase rapidly after the project commences operation, driven by increasing car traffic from the Sakaniya dry port in the DRC.

China-Mongolia business: We believe the firm will continue to expand its market share in Ganqimaodu port on its logistics resource integration capabilities. We also expect it to leverage the capabilities to develop businesses in other ports.

Financials and valuation

We keep our earnings forecasts unchanged. Our earnings forecast for 2025 does not factor in the commencement of the firm’s Sakaniya project.

The stock is trading at 10.7x 2024e and 8.8x 2025e P/E. We maintain an OUTPERFORM rating and our TP of Rmb22.89, implying 14.8x 2024e and 12.3x 2025e P/E, offering 38.8% upside.

Risks

Slower-than-expected capacity expansion in Africa; geopolitical conflicts.