JD Logistics（02618.HK）：23第3季度利润激增;全年增长保持稳定

Internal order growth and profit beat our expectations in 3Q23

JD Logistics (JDL) announced its 3Q23 results: Revenue rose 16% YoY to Rmb41.66bn, slightly beating our expectations due to higher-than- expected growth in companies' internal orders. Non-IFRS net profit grew 89% YoY to Rmb843mn, implying a net profit margin of 2%. Non-IFRS attributable net profit increased 118% YoY to Rmb554mn, with attributable net profit margin of 1.3%. Its 3Q23 results beat our and market expectations, as its cost control and efficiency enhancement are more effective than we expected.

Revenue:

The firm's revenue from integrated supply chain customers rose 8% YoY to Rmb19.6bn in 3Q23, with revenue from JD.com Inc growing 8% YoY to Rmb11.83bn. Its revenue from JD.com Inc fell 3% in 2Q23 and grew 0% in 3Q22. We attribute the growth in revenue from internal business to JD.com's adjustment of the free shipping policy for its retail business (users can get free shipping by joining PLUS membership or spending Rmb59 or more on their orders) and the elimination of the impact from Jingxi Pinpin.

Revenue from external customers rose 6% YoY to Rmb7.78bn, the number of external customers dropped 13% YoY and grew 4% QoQ to 54,000, and average revenue per customer increased 23% YoY to Rmb143,000 in 3Q23. We attribute the sound results to the firm's focus on providing high-quality integrated supply chain services to strengthen target customer stickines.

Revenue from other clients (including Deppon Group) grew 26% YoY to Rmb22.1bn in 3Q23, due to parcel volume growth driven by improved delivery network efficiency and enhanced customer experience. Overall, the firm's external revenue accounted for 72% of its total revenue in 3Q23, up 2ppt YoY.

Costs: Operating costs rose 16% YoY, and GM grew 0.5ppt YoY to 7.9% in 3Q23. We believe there are four factors contributing to the trend. First is the contribution from the Deppon consolidation. Second, the firm saw economies of scale as its business scale expanded. Third, the proportion of small parcels increased under the new free shipping policy (Rmb59 threshold for ordinary users), bolstering the improvement of gross profit.

Fourth, the firm's efficiency improved driven by organizational restructuring, cost reduction and efficiency enhancement.

Trends to watch

We expect the firm to increase investment in 4Q23 to improve service capabilities, and its full-year earnings to remain stable. We estimate the firm's YoY revenue growth will slow to around 7% in 4Q23, as the boost from the consolidation of revenue from Deppon will likely fade. Considering that average sales per customer is trending downward under the new free shipping policy, we expect the firm's revenue growth momentum from JD.com Inc and third-party merchants to remain intact, and revenue from other clients to increase quarter by quarter. In our opinion, the firm will likely keep investing in improving service capabilities in 4Q23. We expect its non-IFRS net profit margin to weaken YoY and QoQ and to stand at 1% in 2023.

The firm's profit margin to keep rising in 2024 driven by improving services. We expect the number of external integrated supply chain customers and average revenue per order to resume sound growth in 2024. In addition, we foresee growth in revenue contribution of external customers, given the firm's adjustment to its organizational structure, cost reduction and efficiency enhancement, improving profit margin of express delivery business under Deppon's express delivery network, and the firm's synergy with JD Airlines. We expect the firm's profit margin to keep rising as revenue increases.

Financials and valuation

The firm faced growth pressure related to the number of external customers but recorded higher revenue contribution from small parcels and effective cost control and efficiency impirovement. Therefore, we cut our 2023 and 2024 revenue forecasts 1% and 1% to Rmb165.48bn and Rmb185.47bn, and raise our 2023 and 2024 non-IFRS net profit forecasts 27% and 27% to Rmb1.63bn and Rmb2.86bn. The stock is trading at 36.0x 2023e and 20.6x 2024e non-IFRS P/E. Considering that the firm maintains stable earnings, we roll over to the P/E valuation method, and maintain our TP at HK$15.5, implying 32.5x non-IFRS P/E, offering 57.8% upside. We maintain an OUTPERFORM rating.

Risks

Weaker-than-expected logistics demand; sharply rising costs.