JD Logistics: -20.8%
Being cash-flow-positive while having a strong balance sheet is something attractive and good-quality businesses generally have, and JD Logistics is one such company. Despite losing 20.8% and underperforming the Hang Seng benchmark which lost 7.8%, we believe that the stock is trading cheaply and is undervalued.
Based on our updated in-house valuations, we think the intrinsic value of the company is around 35% above its current trading price of HK$13.58 ($2.33). The overarching risk of unfavourable government-related risk is something that is overplayed and has affected good-quality businesses such as this company, along with a gloomy stock market which usually dictates general market sentiment.
To recap, JD Logistics is China’s leading technology-driven supply chain solutions and logistics services provider. The company has a comprehensive logistics network that spans China and globally which it uses to provide a spectrum of supply chain solutions and technology-driven logistics services. JD Logistics was spun off from JD.com, the Chinese e-commerce giant, and was separately listed in May 2021. JD Group owns 63.5% of JD Logistics currently.
JD Logistics focuses on technological innovation and long-term investment in technology and innovation is what separates them from peers as its technology-driven products and solutions cover all major supply chain processes, which include logistics parks, warehousing, sorting, transportation and delivery. Some of the company’s core technology products include self-developed automated and guided vehicles, high-density storage systems, robotic picking and packaging systems, and intelligent delivery vehicles — all of which are using and have benefitted from enhanced forecasting, decision-making and smart execution capabilities through technological innovation.
For companies in the logistics industry, time is key as it is important to minimise the lag when providing logistics and delivery services to customers. The company’s logistics infrastructure and network address this through its six highly synergised networks, which gives it a competitive advantage. JD Logistics’ focus over the near term is on cultivating its business in the integrated supply chain services market, providing industry-specific integrated supply chain solutions and service products for customers in fast-moving consumer goods, home appliances and home furniture, apparel, 3C, automotive and fresh produce industries.
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For the company’s most recent 1QFY2023 ended March 31, revenue increased 34.3% while gross profits grew 11.9% y-o-y. Losses for the period were reduced by 23.2%, while non-IFRS losses for the period were also reduced by 10.8%, indicating better relative business performance. Also, operating cash flow was positive for the financial quarter. JD Logistics has a current ratio of 1.7 times and is net cash, reflecting a strong balance sheet as liquidity and solvency are unlikely to be a concern for the company. Compared to global peers, JD Logistics trades at a 27% and 46% discount for its EV/Ebitda and P/B ratios respectively, indicating that it is relatively more attractive compared to peers at current prices.
The stock has 22 “buy” calls, three “hold” calls and no “sell” calls, with a consensus target price of close to 60% above its current trading price.
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Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
