An undervalued logistics giant with extensive network supporting the growth of e-commerce
Hong Kong-listed JD Logistics is China’s leading technology-driven supply chain solutions and logistics services provider. The company offers a full spectrum of supply chain solutions and high-quality logistics services enabled by technology, and abundant insights based on a logistics network that covers the whole nation and globally. The company was spun off from China’s e-commerce giant JD.com for its separate listing in May 2021, and currently has a market cap of HK$100 billion ($16.9 billion).
JD Logistics’ key competitive advantage that sets them apart from competitors is its focus on technological innovation and long-term investment in technology and innovation. Its technology-driven products and solutions cover all major supply chain processes and key steps — including logistics parks, warehousing, sorting, transportation and delivery — for improved forecasting, decision-making and smart execution capabilities.
The logistics infrastructure and networks of the company are built on six highly synergised networks:
• The warehouse network, which is one of the largest networks of its kind in China with nationwide coverage and serves as a core component for the company’s integrated supply chain logistics services;
• The line-haul transportation network, of which the company has expanded the coverage and flexibility by collaborating with strategic partners in the land, marine and air transportation sectors;
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• The last-mile delivery network, consisting of delivery stations, service stations and self-service lockers, enabling JD Logistics to provide best-in-class last-mile delivery services, which is critical in driving end-customer satisfaction and strengthening its brand image;
• The bulky item logistics network, comprises multi-level warehouses, to-door delivery, value-added installation and after-sales service capabilities;
• The cold chain logistics network, consisting of cold storage warehouses designated for fresh, frozen and refrigerated products along with pharmaceuticals and medical instruments;
• The cross-border logistics network, which consists of bonded warehouses, international direct mail warehouses and overseas warehouses.
For the company’s most recent 3QFY2022 ended Sept 30, 2022, its results were solid, with a y-o-y increase of 38.9% for its revenue and 108.6% for its gross profits. Also, the non-IFRS profits were positive, compared to losses that were made in the previous year. Some of the company’s business highlights include becoming one of the first logistics companies connected to Douyin’s e-commerce platform, and providing high-quality delivery services such as to-door delivery to Douyin users; and receiving the certification from the Civil Aviation Administration of China, which marked the official commencement of the operation of JD Logistics Airlines.
The company’s acquisition of over 50% equity interest in Deppon Holdco was also strategic, as the latter is an integrated, customer-centred logistics company providing a wide range of solutions, including less-than-truckload transportation, full-truckload transportation, delivery services, and warehousing management.
JD Logistics’ one-year total return was –37.9%, although its business performance was decent. It has had three years of positive operating cash flow and free cash flow, as shown in the chart. Financial safety-wise, JD Logistics has strong liquidity with a current ratio of 1.85 times, and solvency is not a concern as the company is net cash. In terms of yield, the company’s operating cash flow and free cash flow yields are 5.2% and 6.5%, respectively, which is much more attractive than the risk-free rate of 2.9%. Globally, the company trades at 8% and 38% discount for its EV/Ebitda and P/B ratios, respectively, implying that it is relatively more attractive than peers at current prices.
Sentiments-wise, the company has 19 “buy” calls, two “hold” calls, and no “sell” calls, with a consensus target price of close to 40% above its current trading price of HK$16.68. Based on our in-house valuations of the company, we believe that the intrinsic value of the company is around 25% above its current trading price. JD Logistics is a great company with good cash flow and a strong balance sheet, and is certainly undervalued.
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Photo Credit: Bloomberg
Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
