With a solid track record in Southeast Asia's express delivery sector, we believe J&T Global Express ("J&T Global") is set to replicate its success story in Latin America and the Middle East market. Meanwhile, we expect J&T Global to narrow the loss significantly in China market, which will serve as a risk reduction driver. We forecast J&T Global to achieve net profit in 2024E. We initiate coverage on J&T Global with a HOLD rating and SOTP-based TP of HK$14.2. We believe the high valuation premium over peers has largely reflected J&T Global's promising outlook in overseas markets.

Largest express delivery operator in SEA with a competitive role in China. Established in 2015 in Indonesia, J&T Global is a global logistics services provider. J&T Global was the largest express delivery operator in Southeast Asia (SEA) by parcel volume in 2022, with market share of 22.5%. Following the acquisition of BEST China in 2021, J&T Global ranked 6th in China's express delivery market by parcel volume in 2022, with market share of 10.9%. J&T Global's major e-commerce platform partners include Shopee, Lazada, Pinduoduo, Taobao, Tmall and Shein, as well as live streaming platforms, such as TikTok, Douyin and Kuaishou.

E-commerce growth continues to be the key driver of SEA express delivery market. With increasing e-commerce penetration and the rise of social e-commerce, the e-commerce retail market in terms of transaction value in SEA is expected to reach US$374bn in 2027E (CAGR in 2023E- 27E: 18.6%), according to F&S. The parcel volume of SEA's express delivery market is expected to grow at a CAGR of 15.5% in 2023E-27E.

Expanding into fast-growing New Markets. New Markets include Saudi Arabia, the UAE, Mexico, Brazil and Egypt. Driven by rapid economic growth, infrastructure improvement, and growing demand from e-commerce, the express delivery markets in terms of parcel volume in Saudi Arabia/ the UAE/ Mexico/ Brazil/ Egypt are expected to grow at a CAGR of 20.6%/ 21.0%/ 18.7%/ 16.1%/ 15.3% in 2023E-27E, according to F&S. We expect New Markets to be J&T Global's growth driver over the coming years.

Earnings projection: Stripping out (1) the fair value change of convertible preferred shares, (2) listing expense and (3) share-based payment, J&T Global's adjusted net loss was US$1,488mn/264mn in 2022/1H23. We forecast the adjusted after-tax loss to be US$494mn in 2023, and potentially turn to profit of US$78mn/474mn in 2024E/25E.

What will make us more constructive on the stock? We see China market as a swing factor to the valuation given the fierce price competition in 2H23. We will turn more positive on J&T Global when the parcel ASP is stabilized.