Investment positives
　　We initiate coverage on J&T Global Express (J&T) with an OUTPERFORM rating and a SOTP-based target price of HK$8.00. J&T has established a leading position in the Asian express delivery market, and a global presence as well. In 2023, it ranked No.1 in Southeast Asia and No.5 in China by parcel volume. The firm operates in 13 countries, with those in Lantin America and the Middle East referred to as new markets in this report. We are upbeat on J&T’s growth prospects backed by its broad logistics network and global presence.
　　Why an OUTPERFORM rating?
　　Growth potential remains in the global express delivery industry; Southeast Asian, Chinese, and new markets are at different growth stages. Frost & Sullivan forecasts that express delivery volume in Southeast Asia, China, and new markets may grow from 12.8bn, 132.1bn, and 3.9bn parcels in 2023 to 23.5bn, 201bn, and 7.1bn parcels in 2027, translating to CAGRs of 16.5%, 11.1%, and 16.5%. We think express delivery demand may continue to grow boosted by the e-commerce boom, a rising portion of small parcels in total parcel volume, and increased sales returns.
　　J&T’s global presence: Leading position in Southeast Asia, strong competitive advantages in China, and consistent growth in the new markets (i.e., Latin America and the Middle East). By leveraging its worldwide logistics network and neutral stance towards cooperation with e-commerce platforms, J&T may work with e- commerce partners to expand its global presence under the “regional agent” business model. We are optimistic about the company’s solid leadership in Southeast Asia, competitive advantages in China, and rapid expansion in the new markets.
　　Improvement in operating leverage: Southeast Asian business drives stable earnings growth, Chinese business gradually turns profitable, and the new markets businesses expand rapidly. We expect the firm’s revenue from Southeast Asia, China, and the new markets to rise at CAGRs of 20.5%, 20.5%, and 43.7% over 2023- 2025. In Southeast Asia, we think EBITDA margin may stabilize at　14-15%; in China, we think operating profit may turn positive in 2024; and in the new markets, we think EBITDA may turn positive in 2024, and operating profit may turn positive as well in 2025.
　　How do we differ from the market? The market has yet to recognize J&T’s revenue growth potential backed by its global presence, and long- term earnings growth potential amid operational efficiency enhancement.
　　Potential catalysts: Easing of competition in Chinese express delivery market; operational efficiency enhancement thanks to strengthening of economies of scale; stronger-than-expected revenue growth in the new markets.
　　Financials and valuation
　　We forecast EPS of US$0.02 in 2024 and US$0.05 in 2025. We initiate coverage with an OUTPERFORM rating, and a target price of HK$8.0, implying 23x 2025e P/E, offering 31% upside. Under the SOTP valuation methodology, we give 13.6x 2024e EV/EBITDA to the Southeast Asian business, and 0.35x 2024e EV/Sales to Chinese and other businesses). The stock is now trading at 17.1x 2025e P/E.
　　Risks
　　Market competition once again intensifies; demand growth disappoints; overseas policy headwinds; costs of fuel and labor surge.