In the supply chain logistics industry, the country's largest warehouse network, industry-leading logistics automation and supply chain digital intelligence technology, absolutely leading industry insight from logistics peers, and high-end service brand image have all built the core competitiveness of JD Logistics. JD Logistics can not only provide customers with a package of logistics services, but also provide customers with high value-added services such as supply chain consulting, planning, design, transformation, optimization, and execution. What the company wants to do is not only logistics, but also wants to open up the integrated supply chain service capabilities it has mastered in the process of serving the JD Mall to external customers to help customers upgrade the supply chain process. The company's short-term loss expansion is not only the result of increasing investment and strengthening the infrastructure chassis layout, but also the process of accelerating the development of KA customers, speeding up learning about industry knowhow, and enhancing its own supply chain service capabilities. Covered for the first time, giving it a “buy” rating.

JD Logistics is not limited to logistics, but focuses on an integrated supply chain. Warehousing+technology+Knowhow+ brands build core barriers. JD Logistics started with the internal logistics department of the JD Mall and began developing external logistics services in 2017. Through six infrastructure networks, including warehousing, integrated transportation, and bulky goods, JD Logistics provides customers with various standardized logistics product services such as warehousing, integrated transportation, and bulky goods. JD Logistics does not just want to be a simple “Party B” logistics provider, but rather hopes to become a customer partner by providing customers with integrated supply chain services including warehousing, trunk transportation, warehouse transfer, terminal delivery, and reverse logistics, participate in the design and execution of the customer's supply chain, and grow together with the customer. The company's core barriers are: 1) the warehouse network, the largest warehousing network in the country (21 million square meters by the end of 2020). Warehousing is one of the most important links in the supply chain; 2) Technology, the company's intelligent, automated and technical algorithms for logistics solutions are at the forefront of the industry. Last year, R&D expenses were 2 billion plus; 3) Knowhow, the company's biggest advantage over other logistics companies is that it can reach JD retail and has deep insight and understanding of supply chains in different industries; 4) Brand, JD Logistics uses “211 time-limited delivery” products to consumers and enterprises A high-end express delivery brand image is formed among customers.

The supply chain of enterprises is undergoing changes in professional outsourcing, integration, channel integration, and digital intelligence. The supply chain of retailers, manufacturers, etc. is undergoing the following changes: 1) Professional outsourcing. More and more enterprises tend to outsource supply chain logistics to specialized tripartite logistics companies, especially for emerging domestic brands that focus on front-end marketing and have a weak back-end supply chain layout. According to data from the China Industrial Information Network, the current penetration rate of supply chain logistics outsourcing in China is 44%, which is significantly lower than 70% in Europe and the US; 2) logistics outsourcing integration, enterprises are gradually shifting from independent bidding and outsourcing of all aspects of logistics to outsourcing of integrated solutions (packaging multiple logistics services); 3) channel integration. Enterprises face a sharp rise in logistics and inventory management difficulties brought about by the increase in the number of sales channels. Enterprises need supply chain logistics companies to help them open up data interaction between channels to complete multi-channel inventory management; 4) Supply chain digitalization. The chain is visually and intelligently transformed to meet the flexible demand of the supply chain and the “bullwhip effect” brought about by multiple channels

The amplification.

Many parties are competing for the $2 trillion integrated supply chain market, and the “logistics+Internet” supply chain platform-based logistics companies are showing impressive performance. Under the trend of logistics outsourcing integration, the 2 trillion yuan integrated supply chain market is expected to have a CAGR of ~ 10% over the next 4 years. There are many players in the trillion-dollar supply chain industry, but we can see a clear trend of differentiation: 1) Revenue growth of traditional contract logistics companies has stagnated or even shrunk in recent years because their services cannot keep up with changes in the supply chain demand of upstream and downstream customers; 2) Logistics departments within the manufacturing industry develop supply chain services externally. These players grow with manufacturers, are familiar with changes in commercial flow, and can accurately resolve supply chain pain points for external customers.

These players include Rishun (Haier), Ande (Midea), and On-time Delivery (Foxconn), with a CAGR of ~ 20% in recent years; 3) The third category of players originated in the logistics department of e-commerce platforms, had deep contact with commercial flow, accumulated knowhow in a large number of industries, and also had Internet gene addition, and strong technology research and development capabilities. In addition to simple logistics handling, they can also provide enterprises with automated and intelligent logistics solutions. In addition to simple logistics handling, these players can also provide automated and intelligent logistics solutions for enterprises. These players mainly include JD Logistics and Cainiao, which have developed rapidly in recent years, with a CAGR of 30-40%; 4) Logistics such as LTL The company has entered the supply chain market. Currently, the most successful one is SF Express. Through the acquisition of DHL's supply chain business in China, plus its own logistics infrastructure network and technology, it has achieved relatively rapid development.

JD Logistics is accelerating the export to external customers of the high-quality integrated supply chain capabilities it has acquired from the JD Mall service process. As the JD Mall grows, JD Logistics's insight into commercial flow continues to deepen, and its integrated supply chain capabilities are also constantly being updated and iterated. Under the strong supply chain services of JD Logistics, although SKUs in the JD Mall have continued to grow, inventory turnover levels and fulfillment fees have shown a downward trend in recent years. Based on its experience in serving the JD Mall, JD Logistics develops integrated supply chain services externally. It can not only provide a package of basic logistics services (warehousing, handling, etc.), but also provide a smart supply chain (warehouse network optimization, warehousing automation, sales volume and inventory optimization, etc.) and personalized value-added services. At present, JD Logistics has successfully developed brand KA customers in various industries, such as Amway and Nestle in the FMCG industry, Skechers, Li Ning, and Anta in the apparel industry, and SAIC-GM-Wuling in the automotive industry. Currently, the company has 2,306 KA customers, and the number of KA customers in 2019 and 2020 grew by 38% and 49% respectively.

JD Logistics has adopted a parallel mode of operation that is heavy and asset-light. It rationally views the company's short-term losses and is optimistic about a recovery in long-term profits. The nature of the logistics business determines the asset-heavy nature of JD Logistics. The company invests a lot in logistics equipment. At the same time, the company's 190,000 couriers are included in the report, and the human capital attribute is heavy. At the same time, JD Logistics also maintains a certain asset-light model: 1) Land and warehousing are not self-purchased or self-built; most of them are leased from groups or third parties; 2) Many of the company's basic logistics services are outsourced (air charters, terminal distribution procurement and delivery services, transportation outsourcing, and investment in online freight platforms), reflecting the company's platform experience and ideas. The company is currently adopting the idea of prioritizing revenue volume and share, and short-term losses are unavoidable, but the rapid expansion of KA's leading customer supply chain projects has helped the company to accumulate a large amount of industry knowhow and supply chain implementation experience. After modularizing the benchmark high-quality customer service, the company was able to export high-quality supply chain services to subsequent shoulder and waist customers at lower marginal costs, thereby gaining growth in revenue and benefits. Therefore, we believe that JD Logistics's business idea of pursuing revenue volume and KA customer expansion in the short term is correct. According to financial data from listed contract logistics companies, the net interest rate of traditional contract logistics companies is currently around 3%. Considering that JD Logistics is a leader in the integrated supply chain industry and has leading industry scale effects and technology-driven operating efficiency, while also providing customers with many smart supply chain services with high added value, we believe that the long-term net interest rate of JD Logistics is expected to reach a high level of 5%.

Risk factors: Labor, fuel, etc. costs are rising rapidly; competition in the supply chain logistics industry is intensifying; the growth rate of logistics revenue from JD Mall has clearly slowed down; the company's long-term profit margin level has fallen short of expectations.

Investment advice: JD Logistics wants to be more than a simple logistics service provider, but to become a customer's supply chain partner, deeply involved in the customer's supply chain design, digital transformation, optimization, and execution.

The company wants to bring customers not only a reduction in logistics costs, but also added value such as reduced inventory levels, improved fulfillment quality, effective SKU management, and even increased revenue. This requires us to set aside the traditional logistics perspective to look at the business logic and long-term growth space of JD Logistics. We expect JD Logistics's revenue for 2021/22/23 to be 105.8 billion/143.9 billion/191.6 billion yuan respectively, corresponding PS of 1.4/1.0/0.8 times, and net profit of -2.5 billion/-1.6 billion/1.3 billion yuan respectively. Regarding the valuation of JD Logistics, we adopted the “potential profit PE” method. It is estimated that the company can achieve a net interest rate level of 5% in the long term. Considering that the company is currently the leader in the integrated supply chain industry, given 30 times the PE valuation level, it is finally estimated that the target market value of JD Logistics in the next 16 months is 215.8 billion yuan. Currently, the company's market value is 145.5 billion yuan, covering the “buy” rating for the first time.