Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng China Enterprises Index / Event-Driven

Last evening, Hang Seng Indexes announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".Apart from the changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a>, it was also decided that the weight of all <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> constituents, including Secondary Listings and WVR Securities, would be capped at 8%. While this was not a part of the market consultation, we had highlighted this as a possibility in our earlier <a href="https://www.smartkarma.com/insights/hscei-dividends-structural-sell-bank-dividends-the-swing-factor" target="_blank" rel="noopener">Insight</a>.Post the 2 inclusions and 4 deletions in the March review, we see a further 3 potential changes at the June review.The big impact of the 8% cap on index constituents will be felt on the HSCEI dividend futures market. With a bulk of the 2021 dividends scheduled to go ex after the implementation of the rebalance, the dividend futures should move lower. The HSCEI 2021/22 dividend steepener should trade less negative than where it has been trading prior to the announcement.In this Insight, we look at the potential changes and their impact on the stocks and the dividend futures.<div class="content-highlight">This Insight is marked Bearish since we expect the HSCEI 2021 dividend futures to move lower.</div>

Last evening, Hang Seng Indexes announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".Apart from the changes to the Hong Kong Hang Seng Index (HSI INDEX), it was also decided that the weight of all Hang Seng China Enterprises Index (HSCEI INDEX) constituents, including Secondary Listings and WVR Securities, would be capped at 8%. While this was not a part of the market consultation, we had highlighted this as a possibility in our earlier Insight.Post the 2 inclusions and 4 deletions in the March review, we see a further 3 potential changes at the June review.The big impact of the 8% cap on index constituents will be felt on the HSCEI dividend futures market. With a bulk of the 2021 dividends scheduled to go ex after the implementation of the rebalance, the dividend futures should move lower. The HSCEI 2021/22 dividend steepener should trade less negative than where it has been trading prior to the announcement.In this Insight, we look at the potential changes and their impact on the stocks and the dividend futures.This Insight is marked Bearish since we expect the HSCEI 2021 dividend futures to move lower.

HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">
Our base case valuation of JD Logistics is EV of 344 billion RMB and implied market cap of 368 billion RMB (US$57 billion). At an implied market cap of $57 billion, this represents a 43% higher level than the recent valuation of $40 billion mentioned in a recent Bloomberg <a href="https://www.bloomberg.com/news/articles/2020-11-24/jd-s-logistics-unit-said-to-mull-ipo-at-40-billion-valuation" target="_blank" rel="noopener">article.</a> Given the solid upside, we have a positive view of the JD Logistics IPO. 
Our high end value of JD Logistics is an implied market cap of 478 billion RMB ($74 billion). So, we think that post the IPO, JD Logistics' market cap could have an "initial pop" to nearly $74 billion, which would be 85% higher than the recently mentioned valuation of $40 billion.
</div>We forecast the company to generate revenue of 93.8 billion RMB in 2021 (up 30.2% YoY) and 117.1 billion RMB in 2022 (up 24.8% YoY). We have assumed the company's sales growth rate to decline gradually in the ensuing years and we estimate JD Logistics to generate sales of 184.8 billion RMB in 2025.


Our base case valuation of JD Logistics is EV of 344 billion RMB and implied market cap of 368 billion RMB (US$57 billion). At an implied market cap of $57 billion, this represents a 43% higher level than the recent valuation of $40 billion mentioned in a recent Bloomberg article. Given the solid upside, we have a positive view of the JD Logistics IPO. 
Our high end value of JD Logistics is an implied market cap of 478 billion RMB ($74 billion). So, we think that post the IPO, JD Logistics' market cap could have an "initial pop" to nearly $74 billion, which would be 85% higher than the recently mentioned valuation of $40 billion.
We forecast the company to generate revenue of 93.8 billion RMB in 2021 (up 30.2% YoY) and 117.1 billion RMB in 2022 (up 24.8% YoY). We have assumed the company's sales growth rate to decline gradually in the ensuing years and we estimate JD Logistics to generate sales of 184.8 billion RMB in 2025.

Alpha-Centric ESG Research

Kyle Rudden

In <a href="https://www.smartkarma.com/insights/carbon-footprint-of-freight-transportation-and-logistics-and-other-esg-issues" target="_blank" data-smartkarma-citation="insights:48581" rel="noopener">Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues</a>, I addressed the most material aspects of global freight and logistics – specifically, its carbon footprint and future direction thereof. It also conveyed optimism, a silver lining around a mostly negative ESG topic.<a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> is part of that silver lining, an unequivocal bright spot, and a company that is more "solution" than "problem" in what is otherwise a problematic space from a sustainability/ESG perspective. JDL is a clear leader in the "greening" and decarbonisation of global supply chains.This is especially important given JDL's China-focus, one of the two largest logistics markets worth nearly US$3 trillion (and growing) of the US$10-12 trillion global total. Whilst an economic boon, the yang that goes with that yin is GHG emissions, and China needs companies like JDL.

In Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues, I addressed the most material aspects of global freight and logistics – specifically, its carbon footprint and future direction thereof. It also conveyed optimism, a silver lining around a mostly negative ESG topic.JD Logistics (JDL HK) is part of that silver lining, an unequivocal bright spot, and a company that is more "solution" than "problem" in what is otherwise a problematic space from a sustainability/ESG perspective. JDL is a clear leader in the "greening" and decarbonisation of global supply chains.This is especially important given JDL's China-focus, one of the two largest logistics markets worth nearly US$3 trillion (and growing) of the US$10-12 trillion global total. Whilst an economic boon, the yang that goes with that yin is GHG emissions, and China needs companies like JDL.

JD Logistics: More Solution Than Problem in a Problematic ESG Space

The collective carbon footprint of global freight transportation and logistics is utterly massive, and growing. Freight and logistics accounts for 10-15% of the world's greenhouse gas (GHG) emissions, or 3.4-5.1 billion tonnes of carbon dioxide (CO2) per year of the world's 34 billion-tonne total. Current GHG mitigation and decarbonisation policies will be enough to fully offset GHG emissions from expected growth in freight transportation and logistics. Projections suggest a 60-80% increase in emissions by 2050, when a decrease of 55-80% is needed to meet the Paris Agreement goals.Climate impacts of trade growth are compounded by how it will shift freight movement from North Atlantic to Indian Ocean corridors, increasing average distances 12%. More critical is the local leg; 10% by tonne-kilometres but 30% of GHGs (inland modes like trucking are more GHG-intensive).On a company level, carbon footprint – present and future – depends on several things. Aside from macro issues like regional fuel mix and climate policies, two big factors are: 1) a company's specific function (e.g., freight trains vs. logistics software), and 2) its decarbonisation initiatives.The collective carbon footprint is a major ESG issue but we should not apply a broad-brush. Freight and logistics companies are vital to the economy and deliver life-critical goods like medication and food. Moreover, companies like <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> – are leading a "greening" of supply chains.This is an important ESG issue to watch, but not an "exclusionary screen" by any means.

The collective carbon footprint of global freight transportation and logistics is utterly massive, and growing. Freight and logistics accounts for 10-15% of the world's greenhouse gas (GHG) emissions, or 3.4-5.1 billion tonnes of carbon dioxide (CO2) per year of the world's 34 billion-tonne total. Current GHG mitigation and decarbonisation policies will be enough to fully offset GHG emissions from expected growth in freight transportation and logistics. Projections suggest a 60-80% increase in emissions by 2050, when a decrease of 55-80% is needed to meet the Paris Agreement goals.Climate impacts of trade growth are compounded by how it will shift freight movement from North Atlantic to Indian Ocean corridors, increasing average distances 12%. More critical is the local leg; 10% by tonne-kilometres but 30% of GHGs (inland modes like trucking are more GHG-intensive).On a company level, carbon footprint – present and future – depends on several things. Aside from macro issues like regional fuel mix and climate policies, two big factors are: 1) a company's specific function (e.g., freight trains vs. logistics software), and 2) its decarbonisation initiatives.The collective carbon footprint is a major ESG issue but we should not apply a broad-brush. Freight and logistics companies are vital to the economy and deliver life-critical goods like medication and food. Moreover, companies like JD Logistics (JDL HK) – are leading a "greening" of supply chains.This is an important ESG issue to watch, but not an "exclusionary screen" by any means.

Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues

<a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> is getting ready to complete its IPO in the next several weeks. JD Logistics was spun off from JD.com in 2017. JD Logistics is a leading logistics services provider in China. The company provides a comprehensive supply chain solutions and logistics services including warehousing to distribution, across a wide range of customers in diverse industries. JD Logistics is the largest player in China's integrated supply chain logistics services market in terms of revenue in 2019.The company generated revenue of 49.8 billion RMB in 2019 (up 31.6% YoY) and 49.5 billion RMB in 1Q-3Q 2020 (up 43.2% YoY). The company's revenue growth has been solid in the past three years. The employee benefit expenses as a percentage of sales declined nicely from 45.1% in 2018 to 39.5% in 2019, and 36.1% in 1Q-3Q 2020, which suggests improving economies of scale and a greater efficiency of its employees.One of the long-term positive trends for JD Logistics is that it will continue to capitalize on the 5G, AI, big data, cloud computing and IoT to improve its capabilities in automation and digitalization of the logistics services. At the end of 2020, the company employed 258.7k employees. It is likely that the company will find ways to improve the revenue/employee ratio and the overall labor efficiency through innovative technologies and this is a major positive long-term positive factor for the company.

JD Logistics (JDL HK) is getting ready to complete its IPO in the next several weeks. JD Logistics was spun off from JD.com in 2017. JD Logistics is a leading logistics services provider in China. The company provides a comprehensive supply chain solutions and logistics services including warehousing to distribution, across a wide range of customers in diverse industries. JD Logistics is the largest player in China's integrated supply chain logistics services market in terms of revenue in 2019.The company generated revenue of 49.8 billion RMB in 2019 (up 31.6% YoY) and 49.5 billion RMB in 1Q-3Q 2020 (up 43.2% YoY). The company's revenue growth has been solid in the past three years. The employee benefit expenses as a percentage of sales declined nicely from 45.1% in 2018 to 39.5% in 2019, and 36.1% in 1Q-3Q 2020, which suggests improving economies of scale and a greater efficiency of its employees.One of the long-term positive trends for JD Logistics is that it will continue to capitalize on the 5G, AI, big data, cloud computing and IoT to improve its capabilities in automation and digitalization of the logistics services. At the end of 2020, the company employed 258.7k employees. It is likely that the company will find ways to improve the revenue/employee ratio and the overall labor efficiency through innovative technologies and this is a major positive long-term positive factor for the company. 

China

JD Logistics, Inc. offers logistics services. The Company provides cargo transportation, cargo distribution, warehousing, and other services. JD Logistics is located in China.

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JD Logistics (2618 HK)

HSCEI June Index Rebalance Preview: Potential Changes & Impact of 8% Cap on Dividends

The change in capping at 8% in the HSCEI at the June 21 review will result in large turnover at the review. The change will have a large impact on...

Brian Freitas

JD Logistics IPO Valuation Analysis

Our base case valuation of JD Logistics is EV of 344 billion RMB and implied market cap of 368 billion RMB (US$57 billion).

Douglas Kim

JD Logistics: More Solution Than Problem in a Problematic ESG Space

JD Logistics is more "solution" than "problem" in what is a problematic space for the environment; a clear leader in the "greening" and...

Kyle Rudden

Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues

The carbon footprint of global freight and logistics is large, growing, and a source of ESG risk for investors. Fortunately, firms like JD...

Kyle Rudden

JD Logistics IPO Preview

JD Logistics (JDL HK) is getting ready to complete its IPO in the next several weeks. JD Logistics is a leading logistics services provider in China.

Douglas Kim

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