1Q22 External business maintained strong growth; affected by the epidemic prevention and control, there was uncertainty. JD Logistics announced 1Q22 results in the second quarter: 1) Total revenue increased 22.0% year-on-year to 27.4 billion yuan, mainly due to strong external business growth; 2) gross margin increased to 5.3% (1Q21:1.0%); 3) Net loss/non-IFRS losses were 1.39 billion/80 billion yuan, narrowing the year-on-year loss (1Q21: -1.11 billion/1.37 billion yuan).
Profitability improvements are mainly due to scale effects brought about by continued growth in external business, refined cost control, and revenue growth. Since April, epidemic prevention and control measures have disrupted commercial activities and logistics operations, and we believe that 2Q22 is still uncertain. We lowered our 2022 revenue forecast by 7% to $124.5 billion; lowered gross margin by 1 percentage point to 5.5%; lowered our net loss/non-IFRS loss forecast to $31/15 billion (previous value: $19.90/$340 million); and kept the 2023/2024 forecast unchanged. We lowered the target price by 27% to HK$25.2 (based on 1.1x 202E PS, the average 2022 EPS of comparable companies was 0.7x. The valuation premium was mainly due to the company's higher revenue growth rate than the industry average). Maintain a “buy” rating.
External business revenue increased 30% year-on-year in the first quarter
JD Logistics's external business grew strongly in 1Q22, with revenue increasing 30% year over year to 16 billion yuan, accounting for 58% of total revenue (up from 57% in 2021); revenue from JD Group was 11.4 billion yuan, up 12% year on year. The number of external integrated supply chain customers increased 20% year over year to 58,818; average revenue per customer increased 4% year over year. We believe the continued growth in the number of external customers and average revenue per customer reflects JD Logistics's strong competitive advantage in providing integrated supply chain solutions and services. We expect that the continued expansion of JD Logistics's external business will gradually have a scale effect, reduce unit costs, and help the company achieve profits in the medium to long term.
The main reason for the year-on-year improvement in gross margin was refined cost control and scale effects, which gradually showed that the profit level of JD Logistics 1Q22 increased significantly compared to the same period last year. Gross profit reached 1.5 billion yuan (1Q21:
$230 million); gross profit margin 5.3% (1Q21/2021:1.0%/5.5%). The main reasons for improving profit margins:
1) Refine cost control; 2) Optimize customer structure; 3) Scale effects brought about by revenue growth.
The prevention and control of the epidemic brings short-term uncertainty
The epidemic prevention and control measures have had a great impact on warehousing and logistics operations, so we are cautious about 2Q22. However, we expect the company's revenue to continue to grow throughout the year as the pandemic eases and business activities gradually resume, compounded by the seasonal peak season in the fourth quarter. Our previous target price was HK$34.5, based on 1.3x202E PS.
Risk warning: repeated epidemics; revenue growth falling short of our expectations; costs higher than our expectations; intensifying competition; and policy risks.