Company Reports

JD Logistics' second-quarter revenue growth of 8% is tracking toward our full-year estimate of 9%. Nonetheless, non-international financial reporting standards profit margin in the quarter was at a record 5.6%, markedly higher than our previous 2.3% full-year estimate and the 2.0% in the year-ago quarter. The higher margin was the result of economies of scale (which lower outsourcing and rental cost), warehouse network optimization (reduced transporting distance for goods), integration of logistics sites, and technology enhancement (investment in automation and algorithms to allocate resources more efficiently). We therefore raised the 2024 non-IFRS profit margin to 2.6%, although it is still lower than the first half’s 3.6%. This is because we expect JDL to reinvest some of its profit in the second half to drive business growth. For instance, JDL wants to invest in its transit centers and pick-up services. In addition, JDL will increase incentives for sales and front-line employees and reduce prices to attract customers. We maintain our fair value estimate of HKD 10.70 per share, as our longer-term assumptions are largely unchanged. We only expect non-IFRS profit margins to grow to 3.5% by 2028 versus 3.4% previously. We think JDL is undervalued. In the long term, we believe JDL will continue to consolidate the fragmented integrated supply chain market, supported by the data insights from JD.com.

JD Logistics, or JDL, differentiates itself from its peers through the insight acquired from years of providing integrated supply chain and logistics services to its parent JD.com. JD.com owns 64% of JDL as of Sept. 18, 2023. JDL assists its customers with omnichannel supply chain integration and all-scenario operations. Its understanding of various industries—especially those with meaningful e-commerce adoption—allows it to accurately match customer inventory in JDL’s warehouses, which are the nearest to the estimated customer base, with estimated demand, improving the in-stock rate and fulfillment efficiency. As of June 30, 2023, JDL operated over 1,600 warehouses and had over 2,000 third-party warehouse owner-operated cloud warehouses, which leverages JDL’s cloud-based warehousing technologies, standards, and brand name, covering nearly all counties and districts in China. Such industry know-how also enables JDL to play a role in increasing its customers’ operational efficiency by ensuring timely and accurate supply of materials for production.

JD Logistics’, or JDL’s, first-quarter 15% year-on-year revenue growth is tracking ahead of our full-year estimate of 9%. However, we maintain our forecasts and fair value estimate of HKD 10.70 per share as we expect full-year 2024 revenue growth to decelerate, given the higher base in the second half of 2023. JD.com reduced its free shipping threshold to CNY 59 from CNY 99 in August 2023, which led to higher parcel volume and revenue at JDL in the second half of 2023. While first-quarter non-IFRS margin was 1.6%, trailing our 1.9% full-year estimate, we think continuous efforts to increase efficiency and economies of scale—especially during the peak 6.18 and 11.11 shopping festivals—would help JDL to achieve our 2024 estimate. That said, we think this is reflected in its share price and JDL is fairly valued currently.

We keep JD Logistics’, or JDL’s, fair value estimate at HKD 10.70 per share, after reviewing our earnings assumptions. While we raise our EBIT estimates to account for better cost control and improving operating efficiency, these are offset by higher noncontrolling interests, largely due to Deppon Logistics, or Deppon, that were acquired in July 2022. We think JDL is undervalued currently and we believe JDL’s ongoing consolidation of the fragmented integrated supply chain industry in China will underpin its long-term growth.

JD Logistics, or JDL, differentiates itself from its peers through the insight acquired from years of providing integrated supply chain and logistics services to its parent JD.com. JD.com owns 64% of JDL as of Sept. 18, 2023. JDL assists its customers with omnichannel supply chain integration and all-scenario operations. Its understanding of various industries—especially those with meaningful e-commerce adoption—allows it to accurately match customer inventory in JDL’s warehouses, which are the nearest to the estimated customer base, with estimated demand, improving the in-stock rate and fulfillment efficiency. As of June 30, 2023, JDL operated over 1,600 warehouses and had over 2,000 third-party warehouse owner-operated cloud warehouses, which leverages JDL’s cloud-based warehousing technologies, standards, and brand name, covering nearly all counties and districts in China. Such industry know-how also enables JDL to play a role in increasing its customers’ operational efficiency by ensuring timely and accurate supply of materials for production.

While JD Logistics’, or JDL’s, 2023 revenue was 1% lower than our estimate, the non-IFRS net profit was 88% higher than our forecast. The better earnings were attributable to faster-than-expected improvement in JDL’s operating efficiency, resulting from cost-control measures such as reducing the number of times in transporting products, as well as lower unit outsourcing and rental costs, thanks to economies of scale. We maintain our 2024-26 revenue growth projection, as higher revenue from JD Group is partly offset by lower revenue from other customers. Our 2024-26 earnings forecasts are unchanged, as we have already assumed higher non-IFRS profit margin in these years because of its cost-efficiency program and economies of scale. Our fair value estimate of HKD 10.70 per share is also maintained. We think JDL is undervalued, and we like JDL’s ability to consolidate the fragmented integrated supply chain industry in China by leveraging JD.com’s unique insights.

We initiate wide-moat SF Holding, or SF, with a fair value estimate of CNY 54.00; narrow-moat ZTO Express with a fair value estimate of USD 14.70 per ADS and HKD 115.00 per share; no-moat Yunda Holding with a fair value estimate of CNY 10.00; no-moat YTO Express with a fair value estimate of CNY 7.80; no-moat STO Express with a fair value estimate of CNY 9.60; no-moat Kerry Logistics Network, or KLN, with a fair value estimate of HKD 11.90; and no-moat JD Logistics, or JDL, with a fair value estimate of HKD 10.70. We think SF and KLN are undervalued; Yunda, STO, and JD Logistics are fairly valued; and ZTO and YTO are overvalued.

JD Logistics, or JDL, differentiates itself from its peers through the insight acquired from years of providing integrated supply chain and logistics services to its parent JD.com. JD.com owns 64% of JDL as of Sept. 18, 2023. JDL assists its customers with omnichannel supply chain integration and all-scenario operations. Its understanding of various industries—especially those with meaningful e-commerce adoption—allows it to accurately match customer inventory in JDL’s warehouses, which are the nearest to the estimated customer base, with estimated demand, improving the in-stock rate and fulfillment efficiency. As of June 30, 2023, JDL operated over 1,600 warehouses and had over 2,000 third-party warehouse owner-operated cloud warehouses, which leverages JDL’s cloud-based warehousing technologies, standards, and brand name, covering nearly all counties and districts in China. Such industry know-how also enables JDL to play a role in increasing its customers’ operational efficiency by ensuring timely and accurate supply of materials for production.