1Q24 revenue to reach Rmb40bn; adjusted net profit at Rmb80mn

We expect JD Logistics' 1Q24 revenue to rise 9% YoY to Rmb40bn, mainly driven by rising order volume on JD.com's retail platform. We expect adjusted net profit to reach Rmb80mn in 1Q24 (turning around from -Rmb712mn in 1Q23; turning positive in 1Q for the first time since quarterly data was disclosed). We estimate adjusted net margin at 0.2%, which we attribute to efficiency optimization.

Trends to watch

Revenue to grow steadily in 1Q24; watch growth potential of domestic orders; demand from external integrated supply chain clients yet to recover.

Revenue from JD.com: We think revenue from JD.com Inc and businesses with third-party (3P) merchants may continue to grow, thanks to the upgrading of the customer experience on JD.com's retail platform (free shipping for PLUS users and Rmb59 threshold for ordinary users). We expect the growth of order volume on the retail platform in 1Q24 to continue the YoY growth in 4Q23, and we anticipate a mid-to-high single-digit growth in 2024.

Revenue from external integrated supply chain customers: We believe the progress of business expansion remains to be seen due to the macroecnomic environment. We think full-year demand is yet to recover. However, thanks to the firm's advantages in the directly- operated system and high-quality services, we expect customer loyalty to continue improving and revenue contribution from external customers to remain high.

Revenue from other clients: Thanks to parcel volume growth driven by improved network efficiency and enhanced customer experience, we think revenue from other clients (including Deppon Group) is likely to grow steadily.

Focusing on stable operations; efficiency to gradually improve; adjusted net margin to grow YoY in 2024. We expect the firm's economies of scale to improve as its business scale grows. Furthermore, as the firm continues to focus on stable operations, we expect its profit margin to keep rising amid revenue growth and adjusted profit margin to rise YoY in 2024, thanks to:

Organizational restructuring

Cost reduction and efficiency improvement driven by enhanced management and business fine-tuning

Profit margin of the express delivery business improving after integration with Deppon's express delivery network

Synergies between JD Logistics and the air cargo backbone network after JD Logistics Airlines started operations.

Financials and valuation

As efficiency optimization may beat expectations in 2024, we raise our 2024 non-IFRS net profit forecast 25% to Rmb3.57bn. However, we lower our 2025 non-IFRS net profit forecast by 5% to Rmb4.32bn, as demand from external clients is yet to recover. The stock is trading at 12.5x 2024e and 9.8x 2025e non-IFRS P/E. We maintain our target price at HK$11.0, implying 18.1x 2024e and 4.3x 2025e non-IFRS P/E, offering 46% upside. Maintain OUTPERFORM.

Risks

Disappointing logistics demand; surging costs.