J&T's adjusted after-tax loss in 2023 came in at US$432mn, improving from - US$1.49bn in 2022 and is better than our estimate of -US$494mn. The key positive came from a surprising increase in ASP in China market in 2H23, which helped it achieve breakeven at the segmental gross profit level. Looking forward, we forecast China market to see potential for breakeven at net profit level at some point in 2024E. On the contrary, we expect the ASP pressure in SEA and new markets to continue in 2024E. We therefore revise down our SOTP-based target price to HK$12.8. Maintain HOLD as the valuation is not attractive enough, in our view.
SEA: Strong volume in line but ASP lower than expected. Revenue in 2023 grew 11% YoY to US$2.6bn, driven by 29% parcel volume growth (to 3.2bn units) but offset by a 14% ASP decline (to US$0.81). Market share in SEA expanded 2.9ppt YoY to 25.4%. Given a stable unit cost, the unit gross margin in 2023 dropped 13% YoY to US$0.14. In 2H23, parcel volume surged 39% YoY (1H23: +18%) while ASP dropped 17% YoY (1H23: -11%).
China: Breakeven at gross profit level driven by resilient ASP and cost reduction. Revenue in 2023 grew 28% YoY to US$5.2bn, driven by 28% parcel volume growth (to 15.3bn units) and a stable ASP (US$0.34). Market share expanded 0.7ppt YoY to 11.6%. On the back of a 14% YoY decline in unit cost, the segment achieved breakeven. In 2H23, parcel volume surged 39% YoY (1H23: +15%) while ASP surprisingly increased 2% YoY (1H23: -2%). The better-than-expected ASP was driven by an improved customer mix, as well as increases in the proportion of reverse parcels and individual orders.
New markets: Strong volume growth on track: Due to a low base, revenue in 2023 surged 3x YoY to US$327mn, driven by 3.7x parcel volume growth (to 230mn units) but offset by a 15% ASP decline (to US$1.42). In 2H23, parcel volume surged 2.6x YoY (1H23: +9.8x) while ASP dropped 22% YoY (1H23: +2%).
Upside risks: 1) further improvement in China market's profitability; 2) stronger-than-expected growth in new markets. Downside risks: 1) high dependence on the development of the e-commerce industry and key customers; 2) further ASP pressure; 3) fluctuations in foreign exchange rates.