Incidents:
On March 6, 2024, Debon Co., Ltd. released the 2023 Annual Results Report:
In 2023, the company achieved operating income of 36.279 billion yuan, a year-on-year increase of 15.57%, completed net profit of 746 million yuan, an increase of 13.32% over the previous year, and completed deducted net profit of 568 million yuan, an increase of 76.85% over the previous year.
Based on this, we estimate that in 2023Q4, the company achieved operating income of 10.836 billion yuan, an increase of 26.37% over the previous year; completed net profit of 274 million yuan, a year-on-year decrease of 14.92%; and completed deducted net profit of 286 million yuan, an increase of 34.67% over the previous year.
Investment highlights:
Profit without return to mother achieved rapid growth. The company's cost reduction and efficiency effect was remarkable. The growth rate of the company's net profit after deduction in 2023 was much higher than the growth rate of profit due to changes in fair value. The company's daily operations were improving normally. In 2023, the company's revenue scale increased steadily, the cost and expense side was properly controlled, and the profitability of the main business continued to increase. Net profit to mother increased 13.32% year on year. The slightly lower growth rate was mainly due to a decrease in the fair value of financial assets and a decrease in government subsidies, etc., which led to a 47.23% year-on-year decline in non-recurring profit and loss. If net profit not returned to mother is taken into account, the year-on-year increase was 76.85%, and the performance recorded a high increase.
The company achieved rapid growth in profits withheld from mother, mainly due to significant cost reduction and efficiency. On the one hand, the company improves operational efficiency in delivery, sorting, etc. by adjusting the location layout of outlets and couriers, and improves transportation efficiency through measures such as “small cars for large cabinets”, branch line integration, and line straightening. On the other hand, the company continues to promote technological empowerment and process optimization to flatten the functional organizational structure, and achieve a qualitative reduction in management costs.
Under JD's continued diversion and fair pricing, the company is expected to increase revenue and profit. According to the “2023 Daily Related Transaction Forecast Notice” issued by the company on March 16, 2023, the company is expected to provide 2,283 billion yuan of labor to the JD Group and its controlling companies in 2023. On October 31, 2023, the company issued the “Notice on Increasing the Forecast for Daily Related Transactions in 2023". The estimated tax-free amount of related transactions in 2023 is not more than 1,362 billion yuan. After the increase, the estimated transaction amount for 2023 is 3,646 billion yuan.
On December 1, 2023, the company issued the “Notice on the Company's 2024 Daily Related Transaction Forecast”. In 2024, the company expects to provide 7.800 billion yuan of labor to the JD Group and its control companies, accounting for 21.50% of the company's revenue in 2023. Combined with the company's own growth, we expect the company's revenue to increase by about 20% in 2024.
In the context of JD's continuous increase, on the one hand, the company's revenue is expected to maintain a high growth rate; on the other hand, related transactions are the company's daily actions. Transactions are based on market prices, and follow the principles of fair, just, and fair pricing, which will also bring considerable profit growth to the company.
Network integration+production capacity is climbing, and cost savings are expected to bring additional performance flexibility. Currently, the “network integration” work between the company and JD Logistics is progressing steadily. Phase 1:
The transfer yard takeover work was completed in August 2023, and the company has fully taken over 83 forwarding centers in the JD Logistics Express business.
The “network integration” work between the company and JD Logistics is about to enter the second phase: resource integration, including site integration, route planning, and vehicle/sorting equipment investment. As network integration progresses, it will effectively catalyze the decline in company costs, which is expected to bring additional performance flexibility.
Profit forecast and investment rating According to the company's performance report, we adjusted the profit forecast. The estimated operating income of Debon Shares in 2023-2025 will be 36.144 billion yuan, 44.389 billion yuan and 48.876 billion yuan respectively, net profit to mother will be 745 million yuan, 1,224 billion yuan and 1,590 billion yuan, respectively. The corresponding PE for 2023-2025 will be 19.34 times, 11.76 times and 9.05 times, respectively. Based on the acceleration of business cooperation between the company and the JD Group, it will catalyze the company's revenue growth, cost reduction and efficiency, and maintain a “buy” rating.
Risks suggest that macroeconomic growth is slowing; integration progress falls short of expectations; synergy and scale effects fall short of expectations; price wars are restarting; and cost optimization is slowing down.