JD Logistics Strong growth of external business positive outlook in 2022

This report must be read with important disclosures and analyst certifications located on the end of the report. 1 Equity Research Report JD Logistics (2618 HK) Strong growth of external business, positive outlook in 2022 Huatai Research Annual Results Review Rating (Maintain): BUY Target price (HKD): 34.50 13 March 2022 │ China (Hong Kong) Warehousing & Logistics Results beat, external business to remain strong growth in 2022 JD Logistics (JDL) posted 2021 results: 1) total revenue rose 42.7% to RMB104.7bn, in line with our expectation, and non-IFRS net loss of RMB1.2bn (2020: net profit of RMB1.8bn) was better than the RMB3.1bn net loss we estimated, given lower costs with better gross margin. The loss was mainly due to rising costs and expenses yoy prompted by accelerating business expansion, and we expect JDL to narrow its loss (non-IFRS) in 2022 and turn profitable in 2023 as revenue ramps up and benefits of scale economies kick in (we previously estimated losses in both 2022/2023). We estimate 2022 non-IFRS net loss of RMB341mn, and 2023/2024 net profit of RMB957/3,766mn. We maintain our target price of HKD34.5, based on 1.3x 2022E PS, a premium over its peers as we expect JDL to record faster revenue growth over the next few years. Strong growth in number of external customers in 2021 In 2021: 1) revenue from external integrated supply chain customers demonstrated strong growth of 54.7% yoy to RMB25.5bn, which was driven by increase in both the number of customers (up 41.7% yoy) and average revenue per customer (ARPC, up 9.2% yoy); 2) revenue from other external customers (such as express delivery and freight delivery services) grew a robust 89.5% yoy to RMB33.6bn, mainly driven by the acquisition of Kuayue-Express and improving network coverage and utilization. Overall, revenue from external customers rose 72.7% yoy to RMB59.1bn, accounting 56.5% of JDL’s total revenue (2020: 46.1%), and revenue from JD group reached RMB45.6bn in 2021 (up 15.4% yoy). Notable margin improvement in 2H21 JDL registered gross margin of 5.5% in 2021, higher than our previous estimate of 3.5%. In 2H21, JDL achieved gross margin of 7.1% and non-IFRS net profit of RMB276mn (1H21: gross margin of 3.7% and net loss of RMB1.5bn). The significant margin improvement was driven by JDL’s expanding external customer base, which boosted scale economies via higher utilization of its logistics infrastructure and networks and higher efficiency of its facilities. We revise up JDL’s 2022/2023 gross margin to 6.5/7.3% (previous: 5.0/5.9%) considering its revenue ramp-up and the benefits of scale economies. Business expansion and scale economies underpin LT profitability We expect JDL to continue expansion of its business with external customers, and believe that over time, the company should enjoy economies of scale. We forecast total revenue to grow 27.9/23.2/16.3% yoy in 2022/2023/2024, with loss narrowing in 2022 and a turnaround to profit in 2023 (previous estimates of 2022/2023 net losses of RMB2.1/1.2bn), on a non-IFRS basis. Risks: lower revenue growth than we expect; higher costs than we expect; intense competition; and policy risks. Analyst LIN Shan SAC No. S0570520080001 SFC No. BIR018 linshan@htsc.com +86-21-28972209 Analyst SHEN Xiaofeng SAC No. S0570516110001 SFC No. BCG366 shenxiaofeng@htsc.com +86-21-28972088 Key data Target price (HKD) 34.50 Closing price (HKD as of 11 Mar) 19.00 Potential upside -/+ (%) 82 Mkt cap (HKDmn) 117,482 6m avg daily val (HKDmn) 153.36 52wk price range (HKD) 17.78-48.15 BVPS (RMB) 6.14 Share performance Source: S&P Financials YE 31 Dec 2020 2021 2022E 2023E 2024E Revenue (RMBmn) 73,375 104,693 133,918 164,965 191,880 +/-% 47.20 42.68 27.91 23.18 16.32 Net profit (RMBmn) (4,134) (15,842) (1,941) (653.00) 2,160 +/-% - - - - - EPS (diluted, RMB) (1.05) (3.19) (0.31) (0.11) 0.35 ROE (%) - - - - 5.76 PE (x) (14.67) (4.84) (49.24) (146.38) 44.25 PB (x) (11.80) 2.02 2.66 2.70 2.55 EV EBITDA (x) 21.38 20.29 13.22 10.43 7.77 Source: Company announcements, Huatai Research estimates (9)(4)15101926334047May-21Aug-21Dec-21Mar-22(%)(HKD)JD LogisticsRel. to HSI (rhs) This report must be read with important disclosures and analyst certifications located on the end of the report. 2 JD Logistics (2618 HK) Fig.1: JDL: key changes to earnings estimates New Previous Changes (%) Total revenue (RMBmn) 2020 73,375 nm nm 2021 104,693 nm nm 2022E 133,918 133,918 - 2023E 164,965 164,965 - 2024E 191,880 na na Gross margin (%) 2020 8.6 nm nm 2021 5.5 nm nm 2022E 6.5 5.0 up 1.5pp 2023E 7.3 5.9 up 1.4pp 2024E 8.8 na na Gross profit (RMBmn) 2020 6,294 nm nm 2021 5,784 nm nm 2022E 8,694 6,739 29.0 2023