Technology-driven and Digital Construction of a New era of Logistics
JD Logistics, Inc. is a leading technology-driven integrated supply chain solution and logistics service provider in China. With the rapid development of digital economy in China, the demand of enterprises and individuals for logistics is becoming more and more diversified, and the demand for technology-enabled logistics service providers is increasing. More and more enterprises are transforming to omni-channel retail model, which requires logistics service providers to have the ability of online and offline supply chain integration to provide reliable, traceable, on-demand, integrated end-to-end transportation and comprehensive warehousing solutions and services. We are optimistic about JD Logistics, Inc.: 1) mutually beneficial cooperation with JD.com Group, with a wide range of enterprises and customer groups; 2) continuous technology research and development and investment, advanced automation, digital and intelligent logistics network operation capabilities. We forecast that 2021E/2022E/2023E will have a net loss of 1.17 billion yuan under non-international financial reporting standards (Non-IFRS) and a net profit of 3.73 billion yuan for Non-IFRS in 2024.
Coverage for the first time, with a "buy" rating, with a target price of HK $34.50, based on 1.3x 2022E PS.
E-commerce gene and technology research and development form differential competitive advantage
JD.com Group is the largest listed retailer in China, with a large corporate and individual customer base. As an important part of the development of JD.com 's retail strategy, JD Logistics, Inc. has: 1) warehousing network and logistics infrastructure covering the whole country and distributed in important strategic locations; 2) profound operational experience and industry knowledge, including supply chain solutions tailored to the special logistics needs of different industries; 3) advanced technology, including automation technology and intelligent decision-making algorithms.
External expansion strategy helps to increase market share
Since 2017, JD Logistics, Inc. has begun to provide services to third-party customers, and its business has grown significantly, from the internal logistics department of JD.com Group to the largest integrated supply chain logistics service provider in China.
JD Logistics, Inc. 's income in 2020 increased by 94% over 2018, demonstrating the growth potential brought about by its external business expansion. 1H21 external customer revenue increased by 109.6% year-on-year, accounting for 55% of the company's total revenue, surpassing the revenue contribution from JD.com Group for the first time. We expect that with the expansion strategy of external customers, the external business will maintain a strong growth trend.
Income growth and economies of scale will drive long-term earnings growth
We believe that the continued growth of JD.com 's retail business and the expansion of external customers will help JD Logistics, Inc. improve its logistics infrastructure and network utilization and gradually achieve economies of scale. We expect that with income growth and the emergence of economies of scale, JD Logistics, Inc. 's losses are expected to narrow year by year and turn losses into profits by 2024. We predict that the company's 2021, 2022, 2023, and 2024 external customers' operating income will increase by 66.7%, 42.0%, 30.0%, 20.0% and 17.7%, 15.6%, 13.0%, 10.0% from JD.com Group, respectively, compared with the same period last year. To sum up, we expect the overall operating income of JD Logistics, Inc. to grow by 40.3% in 2024 compared with the same period last year, 23.2% and 16.3% in 2021, 2022, and 2023, respectively, compared with the same period last year.
Risk tips: 1) the revenue growth rate of JD.com Group is lower than expected; 2) the income growth rate of external customers is lower than expected; 3) the operating cost is higher than expected; 4) fierce competition in the industry; 5) policy risk.