CIBCHave a $172.00 target. GLTA
EQUITY RESEARCH
September 27, 2024 Flash Research
CARGOJET INC.
Demand Trends Remain Healthy – Eastern Conference Key
Takeaways
We had the pleasure of hosting CJT at CIBC’s 23rd Annual Eastern
Institutional Investor Conference. With us from the company was Jamie
Porteous, Co-Chief Executive Officer. Below are our key takeaways from our
fireside chat with CJT.
Demand Trends Remain Healthy: Despite the ongoing freight recession,
CJT’s core revenue (Total Domestic, ACMI and Charter) has been up Y/Y for
four quarters in a row. This speaks to the resiliency and the moat around its
revenue. This is also the second quarter in a row where both revenue and
EBITDA are up Y/Y. The results in Q2/24 also address a pushback we heard
when revenue turned positive in H2/23 – that this was just driven by CJT’s
non-domestic segments which are lower quality. We disagree with this view
as we make the case that CJT runs a network. Nonetheless, CJT is now
seeing growth across all of its segments. Domestic network revenue was up
10.8% Y/Y in Q2/24. The company notes the Y/Y increase was due primarily
to an increase in e-commerce and B2B volumes during the period, and
contractual customers’ consumer price index increases. While the Domestic
segment typically experiences some seasonal softness in the third quarter,
we expect Y/Y positive growth trends in Q3/24 and a healthy peak season to
close out the year, aided by Amazon’s October Prime Big Deals Day. The
company noted that its customers are seeking more capacity this peak
season than last.
ACMI Remains A Growth Vehicle – Highlights CJT’s Unmatched Service
Model: CJT’s ACMI operations ended 2023 with 15 aircraft with two more
added on a temporary basis. Initially these incremental aircraft were to be
used for just Q1/24 but have been continuously extended and will now
operate for the remainder of the year. In addition, two more aircraft will enter
the ACMI fleet on October 1 for peak season. This highlights that ACMI
continues to be a growth vehicle for CJT, and we would expect some of the
incremental aircraft that have entered the fleet to continue on into 2025.
Chinese E-commerce – Good Growth Potential: CJT announced back in
June that it has entered into a three-year agreement with China-based Great
Vision HK Express to provide scheduled charter services from Hangzhou,
China to Vancouver, BC (and back), using B767-300F aircraft. CJT will
operate a minimum of three flights per week and began service on May 22,
2024, with eight flights successfully completed to date. Total revenue for this
program is estimated at over $160MM for the full term of the agreement. We
believe this sets up the foundation for continued growth for CJT. We would
note the following: 1) Great Vision HK Express is a freight forwarder that has
experience operating in Canada and primarily serves the Canadian market.
2) Demand for CJT’s service is already exceeding the base contract and will
have a fourth flight operating during peak season. 3) While the contract is to
ship goods into Vancouver, there are opportunities to move freight to Hamilton and into CJT’s domestic network. These would be incremental revenue opportunities. Overall, the relationship with Great Vision HK Express reminds us of how CJT has grown with other key customers like Amazon and DHL.