CJT to operate new route out of Mexico for DHL highlighting strategic alignment between the companies
TSX: CJT | CAD 120.47 | Outperform | Price Target CAD 247.00
Sentiment: Positive
Our view. Yesterday, according to a news article from Reuters, DHL announced an increase to its Mexican investment. Key for investors in CJT is that DHL's investment is resulting in a new route, expected to be operated by CJT. While we do not expect the new business to be a meaningful driver of revenue growth, we are nevertheless positive on the announcement. Our view is that it speaks to the strategic alignment between CJT and DHL, which we believe insulates CJT in the event of a downturn, especially important in the near-term due to macro headwinds. Overall, CJT remains a top investment idea, and we continue to view the long-term FCF generation potential of the company as underappreciated by the market at current share price levels. See our Q4 preview note here.
What happened? Today, DHL announced that it will double its planned investment in Mexico through 2024, according to an article in Reuters. The company will invest $600MM in Mexico through next year, up from its previous plan to spend $300MM from 2019 to 2024, company executives said following an event with Mexican President Andres Manuel Lopez Obrador, according to the article. The strategy includes about $55MM for cargo operations at Mexico City's new Felipe Angeles International Airport, according to DHL country head Antonio Arranz. DHL expects three daily flights to come into Felipe Angeles by June, including one new route to be operated by Canadian partner Cargojet.