JD Logistics may benefit from improved management capabilities and the release of scale effects in the second half of the year. The adjusted net profit was 280 million yuan, reversing losses over the previous year. In 2021, the company's external customer expansion revenue accounted for more than 50% for the first time, and the revenue of external integrated supply chain customers increased sharply by 54.7% year-on-year. It is expected that the growth rate will continue to lead the company as a whole in the future.
The company has made clear breakthroughs in integrated supply chains such as the famous automobile brand Volvo. The quality service continues to be favored by brands such as Xiaomi and Volvo. The integrated supply chain service network continues to be consolidated, promoting the automation and intelligent transformation and upgrading of warehousing and sorting centers. Continued capital investment is expected to significantly improve the efficiency and competitiveness of warehouse network operations. JD Zhuofeng, a wholly-owned subsidiary, transferred 99.99% of Debon Holdings' shares and indirectly controlled 66.5% of Debon's shares held by Debon Holdings. After that, JD Zhuofeng will trigger an offer to buy 277 million shares from other tradable shareholders at an offer price of 1,315 yuan per share. The purpose of the tender offer is to terminate the listing status of Debon shares. It is expected that the Debon Express Network directly managed by JD will achieve collaborative integration with JD's warehouse network, Cross Express, etc. Looking at the long term, the company's profit is expected to increase markedly. The core net interest rate is expected to reach 1.5% in 2024, and the prototype of an integrated logistics giant with an integrated supply chain is gradually emerging.
Benefiting from customer expansion, the company's revenue increased 42.7% year-on-year in 2021, with adjusted net profit loss of 1.23 billion yuan, of which the adjusted net profit reversed losses in 2021H2. The company achieved main business revenue of 104.7 billion yuan in 2021, benefiting from the rapid expansion of external integrated supply chain customers and other customers, a sharp increase of 42.7% over the previous year. Among them, 2021H2 revenue increased 34.4% year-on-year to 56.22 billion yuan, and the revenue side maintained a high growth rate. Operating costs increased 47.4% year-on-year due to business expansion and reduced government support benefits related to the pandemic, which was 4.7 pcts higher than revenue growth, causing gross margin to drop by 3.1 pcts to 5.5%. The company's total sales/R&D/management expenses increased by 57.8% in 2021, driving the expense ratio (excluding financial revenue and expenses) by 0.8pcts to 8.4% year-on-year.
The company's net loss/adjusted net loss in 2021 was 1566/ 1.23 billion yuan. The gap was mainly due to the fact that the company confirmed a loss of 12.8 billion yuan in the fair value of convertible and redeemable preferred shares in the first half of the year, of which adjusted net profit of 280 million yuan in the second half of the year, reversed losses from the previous year, or benefited from improved management capacity and the release of scale effects.
For the first time, external customer expansion revenue accounted for more than 50%, and revenue from external integrated supply chain customers increased sharply by 54.7% year-on-year. In 2021, the company's integrated supply chain business revenue increased 27.8% year-on-year to 71.1 billion yuan, of which revenue from internal/external customers increased 16.5%/54.7% year-on-year to 456/255 billion yuan, benefiting from the steady growth of Jingdong Mall GMV and the active development of new customers, respectively. The revenue share of external integrated supply chain customers increased 6.2 pcts to 35.9% year on year in 2021, due to a 41.7% increase in the number of external customers and a 9.2% increase in ARPC. Revenue from other customers increased 89.5% year-on-year to $33.6 billion during the same period, mainly benefiting from the merger effect after the takeover, which contributed $11.3 billion in revenue across 2021, accounting for 33.6% of other clients' revenue. Overall, the company's annual revenue from external customers increased 72.7% year-on-year to 59.1 billion yuan, and the proportion of total revenue increased 9.9pcts to 56.5% year-on-year, exceeding 50% for the first time, fully demonstrating the competitiveness of the company's supply chain service capabilities. The company made clear breakthroughs in integrated supply chains such as Volvo, a well-known automobile brand. Based on insight into the characteristics of parts and products, the company established SKU-dimensional portraits and models to achieve nationwide warehouse network planning, sales forecasting, and intelligent replenishment, effectively improving order fulfillment rates and inventory turnover rates. The company has accumulated revenue in 6 major industries, and it is expected that the revenue contribution of external customers will continue to increase.
The rapid expansion of business and continued investment in infrastructure led to rising costs and expenses. Gross margin fell 3.1pcts to 5.5% year on year, and improved to 7.1% month-on-month in the second half of the year. In 2021, the company's operating costs increased 47.4% year on year, 4.7 pcts higher than revenue growth. Mainly due to increased expenses due to business expansion and reduced government incentives related to COVID-19, labor costs/outsourcing costs/leasing costs/depreciation amortisation/other costs increased 37%/55%/44%/33%/65% to 358/404/95/19/19/11.4 billion yuan. Among them, the sharp increase in outsourcing costs was mainly due to the rapid expansion of external business, the sharp increase in express delivery volume and the use of more external suppliers, and outsourcing brought about by acquisitions There are more tasks. The company continues to increase infrastructure construction and consolidate the market. It is still in the investment period. Gross margin fell 3.1 pcts to 5.5% in 2021. Among them, gross margin improved to 7.1% month-on-month in 2021H2 due to increased revenue. It is expected that the profit level will gradually improve as resource investment and scale effects expand.
Sales/R&D/management expenses increased 69.5%/36.9%/70.8% year-on-year during the same period. The sharp increase in sales expenses stemmed from the expansion of external customers. The increase in management expenses was related to salary increases and acquisition leaps. Financial costs increased 58.1% year over year to $720,000, mainly due to the increase in rental interest due to a 20% increase in leasing debt.
The integrated supply chain service network continues to be consolidated to promote the automation and intelligent transformation and upgrading of warehousing and sorting centers. Continued capital investment is expected to significantly improve the operational efficiency and competitiveness of the warehouse network. By the end of 2021, the company operated 1,300+ warehouses and 7,200+ distribution stations. In addition to its own facilities, the company also expanded network resources through strategic partners. Currently, it covers 1,000+ air cargo routes in China (including all 12 freighter routes). The high quality service and continuous consolidation of the chassis have made the company's business continue to be favored by customers. Leading customers include Xiaomi Youpin, Volvo, Chivas, etc. The company's capital expenditure in 2021 was 4.09 billion yuan, accounting for nearly 4% of total revenue. Mainly used for the layout of new warehouses, the automation and intelligent upgrading of existing warehouses and sorting centers, optimization of sorting network layout, and procurement of transportation equipment, etc. Continued capital investment is expected to significantly improve the efficiency and competitiveness of warehouse network operations.
JD Zhuofeng transferred 99.99% of Debon Holdings' shares and indirectly controlled 66.5% of Debon's shares held by Debon Holdings. After that, JD Zhuofeng will trigger an offer to buy 277 million shares from other tradable shareholders at an offer price of 1,315 yuan per share. The purpose of the tender offer is to terminate the listing status of Debon shares. It is expected that the Debon Express Network directly managed by JD will achieve collaborative integration with JD's warehouse network, Cross Express, etc. On March 11, Debon Co., Ltd. issued a series of announcements such as the “Notice Concerning Changes in the Shareholder's Shareholding Structure and Actual Controller Changes”. JD Zhuofeng, a wholly-owned subsidiary of JD Logistics, transferred 99.99% of Debon Holdings' shares and indirectly controlled 66.5% of Debon's shares held by Debon Holdings. The overall transaction will be carried out in three phases. The first phase of the transaction includes a share transfer transaction for the founding shareholders, directors, supervisors, and minority shareholders, which transferred 53.1 million shares of Debon Holdings for 5.078 billion dollars. On the day of the first phase of the transfer of shares of the founding shareholders, Mr. Cui Weixing completed the transfer of voting rights for all remaining shares of Debon Holdings. At the same time, Mr. Cui Weixing directly pledged 4.19% of his shares in the listed company to JD Zhuofeng. After the first phase is completed, Mr. Cui Weixing will no longer be the actual controller of Debon Holdings, and JD Zhuofeng will trigger a full offer to the other tradable shareholders. Based on the offer price of 1,315 yuan per share, and assuming that the number of other tradable shareholders of Debon Co., Ltd. was 277 million shares, the maximum capital required for this tender acquisition was 3.644 billion yuan.
In order to improve the efficiency of JD Group's integration of its subsidiary logistics business segments, the tender offer aimed at terminating the listing status of Debon shares. We anticipate that the Debon Direct Express Network is expected to achieve collaborative integration with JD's warehouse network, cross-express delivery, etc., which will help the logistics networks and product categories of the two parties complement each other's advantages, improve network operation efficiency, reduce comprehensive operating costs, and continue to create greater value for customers.
Risk factors: Labor, fuel, etc. costs have risen rapidly; competition in the supply chain logistics industry has intensified; the growth rate of logistics revenue from Jingdong Mall has clearly slowed; the company's forward profit margin level fell short of expectations, and Debon's integration fell short of expectations.
Investment advice: The company's net loss/adjusted net loss in 2021 was 157/1.2 billion yuan. The gap mainly comes from the company's confirmed loss of 12.8 billion yuan from changes in fair value in the first half of the year. The second half of this may have benefited from improved management capabilities and the release of scale effects, adjusted net profit of 280 million yuan, reversing losses over the previous year. In 2021, the company's external customer expansion revenue accounted for more than 50% for the first time, and the revenue of external integrated supply chain customers increased sharply by 54.7% year-on-year. It is expected that the growth rate will continue to lead the company as a whole in the future. The company has made clear breakthroughs in integrated supply chains such as the famous automobile brand Volvo. The quality service continues to be favored by brands such as Xiaomi and Volvo. The integrated supply chain service network continues to be consolidated, promoting the automation and intelligent transformation and upgrading of warehousing and sorting centers. Continued capital investment is expected to significantly improve the efficiency and competitiveness of warehouse network operations. JD Zhuofeng transferred 99.99% of Debon Holdings' shares and indirectly controlled 66.5% of Debon's shares held by Debon Holdings. Afterwards, JD Zhuofeng will trigger an offer to buy 277 million shares from other tradable shareholders at an offer price of 1,315 yuan each. The purpose of the tender offer is to terminate the listing status of Debon shares. It is expected that the Debon Express Network directly managed by JD will achieve collaborative integration with JD's warehouse network, Cross Express, etc. According to the announcement, we forecast that the company's EPS for 2022/23/24 will be -0.72/0.15/0.51 yuan (originally forecast 2022/23 - 0.31/0.16 yuan, new in 2024). In the long run, the company's profit is expected to increase significantly. The core net interest rate in 2024 is expected to reach 1.5%. Comparing comparable companies with a potential net interest rate of around 4%, 30 times PE, we estimate JD Logistics's target market value of 2018 billion yuan over the next 12 months, corresponding target price of HK$33, maintaining the “buy” rating.