Estimated 3Q24 revenue up 6.5% YoY to Rmb44.37bn

We estimate that in 3Q24, JD Logistics' revenue increased 6.5% YoY to Rmb44.37bn, with the growth of JD.com's retail platform slightly outpacing that of the integrated supply chain industry, and the growth of the mid- range and low-end express delivery and freight delivery businesses outpacing the growth of the high-end business. We estimate that in 3Q24, the firm's adjusted net profit rose 78% YoY to Rmb1.5bn and the adjusted net margin stood at 3.4%, slightly beating our expectation, mainly thanks to efforts to reduce costs and improve efficiency.

Trends to watch

Revenue growth likely slowed QoQ in 3Q24; domestic order growth likely relatively stable QoQ; demand from customers in the integrated supply chain industry still recovering.

Revenue from JD.com: Due to the lingering impact of the base effect of the adjusted postage-free program, we think revenue from JD.com likely remained stable QoQ and maintained mid-to-high single-digit growth in 3Q24.

Revenue from customers in the integrated supply chain industry: We think demand from large clients has yet to fully recover due to macroeconomic conditions, but mid-sized clients maintained high growth thanks to the firm's efforts to introduce third-party merchants.

Other revenue: We think revenue from other clients (including Deppon) likely maintained solid growth in 3Q24, thanks to the rapid growth of e-commerce express delivery and the reverse logistics, improved network efficiency, and strengthened customer experience.

We think adjusted net profit likely maintained high growth in 3Q24 and will likely double in 2024 as the firm focuses on stabilizing business operations and continues to cut costs and improve efficiency.

We expect the firm's profit margin to continue improving along with stable revenue, thanks to: 1) Improving operating efficiency after adjustments in the organizational structure; 2) refined business management and structural adjustment, which may reduce costs and enhance efficiency;

3) the YoY decline in third-party shipping capacity and rental cost; 4) rising profit margin of the express delivery business after the integration with Deppon's express delivery network; and 5) earnings improvement of express delivery business driven by the growth of reverse logistics. We expect the firm's adjusted net profit to double in 2024, as it continues to reduce costs. We estimate that the adjusted net profit increased 78% YoY to Rmb1.5bn in 3Q24.

Financials and valuation

We raise our 2024 and 2025 non-IFRS net profit forecasts 15.6% and 13.9% to Rmb5.53bn and Rmb6.32bn, as the firm has improved its operating efficiency and continues to reduce costs and optimize efficiency this year. The stock is trading at 15.1x and 12.9x 2024e and 2025e non- IFRS P/E. Given the improving fundamentals and rising sector valuation, we raise our target price 35% to HK$18.5, implying 20x 2024e and 17x 2025e non-IFRS P/E, offering 32% upside. We maintain OUTPERFORM.

Risks

Demand for logistics is weaker than expected; costs soar.