JD Logistics Earnings: Non-IFRS Profit Beat Our Estimate Thanks to Cost Control; Shares Undervalued

While JD Logistics’, or JDL’s, 2023 revenue was 1% lower than our estimate, the non-IFRS net profit was 88% higher than our forecast. The better earnings were attributable to faster-than-expected improvement in JDL’s operating efficiency, resulting from cost-control measures such as reducing the number of times in transporting products, as well as lower unit outsourcing and rental costs, thanks to economies of scale. We maintain our 2024-26 revenue growth projection, as higher revenue from JD Group is partly offset by lower revenue from other customers. Our 2024-26 earnings forecasts are unchanged, as we have already assumed higher non-IFRS profit margin in these years because of its cost-efficiency program and economies of scale. Our fair value estimate of HKD 10.70 per share is also maintained. We think JDL is undervalued, and we like JDL’s ability to consolidate the fragmented integrated supply chain industry in China by leveraging JD.com’s unique insights.