Key points of investment:
Debon Co., Ltd.: A leader in large express delivery, deeply involved in the industry for more than 20 years. The company has been deeply involved in express shipping for more than 20 years and has become a leading enterprise in the middle and high-end LTL industry. In 2022, JD completed the acquisition of the company, and JD Logistics became the actual controller of the company. The company's business structure is driven by two-wheel express delivery and express business, and the compound revenue growth rate in 2017-2023 was about 10.1%.
LTL transportation industry: The trillion dollar market has potential for growth. The dividend pattern is beginning to show that changes in the sales business system and the upgrading of the manufacturing supply chain are expected to drive medium- to long-term LTL growth. The overall LTL market size in China will reach 1.67 percent in 2023, and the LTL market size is expected to reach 1.8 percent by 2027. Among them, the share of the LTL network is expected to increase from 4.5% to 10.0%.
Currently, the LTL transportation market concentration is low. As a leading enterprise in the LTL transportation industry, the company is expected to fully enjoy the dividends of the pattern of increased industry concentration and rising freight rates.
Endogenous growth: Continuing to consolidate the operating chassis, focus on cost reduction and efficiency. In 2018, the company officially focused on the bulky express delivery business, increased resource investment in infrastructure, and achieved rapid network expansion through the “direct management+partner” model. Under the control of the direct management model, the headquarters uniformly manages all aspects of delivery and transportation, and has significant brand advantages in terms of delivery quality and customer experience. The improvement of the company's refined management capabilities drove savings and fee reduction. As of the first quarter of 2024, the company's management expenses rate dropped from 8.86% in 2021 to 4.19%.
Collaboration with JD: The dual support of networks and business resources enables the long-term development of JD Logistics. It has significant advantages in terms of warehouse network layout and integration of warehousing and distribution, while trunk line capacity resources and network coverage are relatively weak. As an established express shipping company, Debon has rich resource advantages in transit and transportation. The company's deep integration of transit and distribution and main line transportation resources in the JD Logistics Express business helps to complement the resources and advantages of both parties. At the same time, the natural advantages of JD Retail in the 3c and home appliance categories are also expected to provide new impetus for the company's business growth.
Profit Forecasts and Ratings
The company's 2024-2026 revenue is expected to be 41.853/47.895/53.535 billion yuan, with year-on-year growth rates of 15.36%/14.44%/11.78%, respectively; net profit to mother of 1.054/1.39/1.65 billion yuan, respectively, with year-on-year growth rates of 41.28%/31.90%/18.78%; 3-year CAGR of 30.32% and EPS of 1.03/1.35/1.61 yuan/share, respectively. In view of the company's focus on the middle and high-end express delivery market, the synergy effect brought about by the integration of network resources is expected to boost business scale, and profitability is expected to continue to increase under fine management. Coverage for the first time has given it an “increase in weight” rating.
Risk warning: The macroeconomic growth rate fell short of expectations, industry price competition intensified, and JD's resource integration progress fell short of expectations.