In 1Q22, JD Logistics recorded a non-IFRS net loss of 798 million yuan, with a net interest rate of -2.9%. The loss situation narrowed sharply from the same period last year to 1,366 million yuan, continuing the positive trend of 2H21, and profit levels continued to improve
Total revenue: In 1Q22, the company's total revenue reached 27.4 billion yuan/ +22%, of which revenue contributed by external customers reached 16 billion yuan/+30.4%, and the share of external revenue increased further, reaching 58.4%.
ISC business: The company's ISC business revenue reached 17.9 billion yuan/ +16.2%, of which revenue from external ISC customers reached 6.5 billion yuan/+24.6%. There are two major factors driving revenue growth for external integrated supply chain customers: 1) the company simultaneously promoted strategies to expand the leading and middle class customer base of the industry, effectively driving the number of external integrated customers to increase 19.9% year-on-year in 1Q22; 2) the average revenue of a single customer increased 3.9% year-on-year. Furthermore, the company has made a breakthrough in the field of live e-commerce.
1Q22 was invited as a logistics partner for the Douyin e-commerce promotion campaign “Douyin Will Not Stop During the Spring Festival”.
Other business: The company's other business revenue reached 7 billion yuan/ +34.8%, mainly benefiting from improving network efficiency and customer experience, thereby driving the growth of business volume.
Gross profit margin: Beginning in 2H21, the company's gross margin gradually improved. Although 1Q22 was affected by the Spring Festival and the epidemic, the company's gross margin improved sharply year-on-year, reaching 5.3%, an increase of 4.3 percentage points over the same period in 2021. We believe that the company's gross margin is climbing and can reach a steady state level of 9.6% by 2025 and beyond.
Cost: The company's operating cost in 2021 was 25.9 billion yuan/ +16.7%. Among them, 1) Employee remuneration and welfare expenses were 10 billion yuan/ +17.2%. The main reason for the increase was the increase in the number of first-line operating employees, but this cost as a proportion of total revenue fell 1.5 percentage points year on year, mainly due to the release of economic effects after the increase in business scale and the level of fine management; 2) Outsourcing costs reached 9.7 billion yuan/ +10.8%, accounting for 3.6 percentage points of total revenue, mainly due to the decline in the share of transportation expenses, thanks to the company's continuous improvement in the accurate placement and efficient matching of vehicles and routes; 3) Rental expenses were 9.45 billion yuan/ +17.7%, accounting for 9.3% of total revenue, down 0.4 percentage points from the same period in 2020. As of 1Q22, the number of warehouses operated by the company was about 1,400, an increase of nearly 300 over the same period in 2020.
The pandemic disrupted for a short period of time, and Q2 performance gradually picked up. Since March of this year, the COVID-19 epidemic has rebounded on a large scale, showing a trend of frequent distribution. The impact on logistics was mainly reflected in April. In April, about 700 terminal delivery sites of JD Logistics were unable to operate normally, which had a major impact on the company on both the revenue side and the cost side. In May, the company's operating capacity gradually recovered, and the business showed a gradual recovery trend. However, the e-commerce promotion in June still determined the company's Q2 performance. We are optimistic about the company's 2Q22 results.
Profit forecast and investment advice: We expect that from 2020 to 2025, the compound growth rate of the company's external revenue will reach 40.2%, exceeding the compound growth rate of 29.4% of the company's total revenue. Among them, the company's total revenue in 2022 will reach 134.4 billion yuan (original forecast of 134.468 billion yuan)/+28.4% YoY, and external revenue will reach 80.26 billion yuan/ +35.7% YoY. We have seen a significant improvement in the profit situation of the 1Q22 company compared to 1Q21. The main reason is that the initial investment has gradually paid off. The increase in the company's business volume and technological updates and management capabilities have had a direct impact on profits.
Looking ahead to 2022, we expect non-IFRS net profit in 2022 to be drastically reduced from 2021 to -77 million yuan (the original forecast was that an adjusted net loss of 600 million yuan will be achieved in 2002). Since the company is in a period of rising production capacity and rapid business expansion, we still use the PS valuation method. Due to the low sentiment in the Hong Kong stock market and bleak transactions, we gave the company 1.5 times PS in 2022 (unchanged) and lowered the company's target price to 38.4 Hong Kong dollars (original target price of 39.3 Hong Kong dollars, down 2%), maintaining a superior market rating.
Risk warning: Macroeconomic growth fell short of expectations, business expansion fell short of expectations, vehicle and equipment utilization was lower than expected, and labor costs increased dramatically.