HK/China Equity Long-Short

Osbert Tang, CFA

Equity Capital Markets

<p>We think the 72.7% YoY plunge in gross profit at <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> in 1Q21 reflects that it lacks pricing power, even though it is the largest player in the integrated supply chain logistics services industry. Meanwhile, the express industry witnessed an overall YoY contraction in unit revenue and profitability in 1Q21, continuing a structural declining trend. With a market share of 2.7%, JDL is not expected to see material change in its profitability even if this is doubled as the industry stays fragmented and it will still be susceptible to industry price competition, in our view.</p><p>Instead, we see <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> the beneficiary of JDL's significant capital investment in logistics infrastructure over the near-to-medium term. In fact, there are other more attractive pure logistics options like <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a> which have longer track record, better profitability and higher dividend yield. Fundamentally, we are not a big fan of JDL at its proposed valuations.</p>

We think the 72.7% YoY plunge in gross profit at JD Logistics (JDL HK) in 1Q21 reflects that it lacks pricing power, even though it is the largest player in the integrated supply chain logistics services industry. Meanwhile, the express industry witnessed an overall YoY contraction in unit revenue and profitability in 1Q21, continuing a structural declining trend. With a market share of 2.7%, JDL is not expected to see material change in its profitability even if this is doubled as the industry stays fragmented and it will still be susceptible to industry price competition, in our view.Instead, we see JD.com Inc. (9618 HK) the beneficiary of JDL's significant capital investment in logistics infrastructure over the near-to-medium term. In fact, there are other more attractive pure logistics options like Sinotrans (598 HK) and Kerry Logistics Network (636 HK) which have longer track record, better profitability and higher dividend yield. Fundamentally, we are not a big fan of JDL at its proposed valuations.

JD Logistics IPO: We Play Devil's Advocate

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> , the delivery arm of China’s second largest e-commerce platform JD.com has filed for an IPO to list its shares on the Hong Kong Stock Exchange. According to news media outlets, JD Logistics is looking to raise about US$3-4bn through the IPO. The company won the approval for its HKEX listing and released its post-hearing information pack (PHIP) on Sunday (02<sup>nd</sup> May). On Thursday (13<sup>th</sup> May), JD Logistics released its revised PHIP and this insight focuses on new data points from the revised filing.</p>

JD Logistics (JDL HK) , the delivery arm of China’s second largest e-commerce platform JD.com has filed for an IPO to list its shares on the Hong Kong Stock Exchange. According to news media outlets, JD Logistics is looking to raise about US$3-4bn through the IPO. The company won the approval for its HKEX listing and released its post-hearing information pack (PHIP) on Sunday (02nd May). On Thursday (13th May), JD Logistics released its revised PHIP and this insight focuses on new data points from the revised filing.

JD Logistics: Margins Sink as JDL Prioritises Market Share but Peer Margins Shrink Too in 1Q21

<p><a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> , the delivery arm of China’s second largest e-commerce platform JD.com has filed for an IPO to list its shares on the Hong Kong Stock Exchange. In our previous insights on JD logistics’ IPO, we examined the company’s business model, revenue, margins and the outlook for the company.</p><p>According to news media outlets, JD Logistics is looking to raise about US$3-4bn at a valuation of US$40bn. This insight focuses on our financial forecasts and thoughts on the company’s rumoured US$40.0bn valuation.</p><p>Read our previous insights:</p><p><a href="https://www.smartkarma.com/insights/jd-logistics-investment-for-growth-to-hurt-margins-in-the-medium-term-but-key-to-long-term-profits" target="_blank" data-smartkarma-citation="insights:50984" rel="noopener">JD Logistics: Investment for Growth to Hurt Margins in the Medium-Term but Key to Long-Term Profits</a> </p><p><a href="https://www.smartkarma.com/insights/jd-logistics-ipo-expanding-external-customer-base-supports-top-line-growth-and-gpm-expansion" target="_blank" data-smartkarma-citation="insights:48526" rel="noopener">JD Logistics IPO: Expanding External Customer Base Supports Top Line Growth and GPM Expansion</a> </p><p><a href="https://www.smartkarma.com/insights/jd-logistics-ipo-margin-improvement-likely-with-expanding-external-revenues-and-falling-costs" target="_blank" data-smartkarma-citation="insights:48764" rel="noopener">JD Logistics IPO: Margin Improvement Likely with Expanding External Revenues and Falling Costs</a> </p>

JD Logistics (JDL HK) , the delivery arm of China’s second largest e-commerce platform JD.com has filed for an IPO to list its shares on the Hong Kong Stock Exchange. In our previous insights on JD logistics’ IPO, we examined the company’s business model, revenue, margins and the outlook for the company.According to news media outlets, JD Logistics is looking to raise about US$3-4bn at a valuation of US$40bn. This insight focuses on our financial forecasts and thoughts on the company’s rumoured US$40.0bn valuation.Read our previous insights:JD Logistics: Investment for Growth to Hurt Margins in the Medium-Term but Key to Long-Term Profits JD Logistics IPO: Expanding External Customer Base Supports Top Line Growth and GPM Expansion JD Logistics IPO: Margin Improvement Likely with Expanding External Revenues and Falling Costs 

JD Logistics IPO: Financial Forecasts and Initial Thoughts on Rumoured US$40.0bn Valuation

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

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<p><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 the largest player in China’s integrated supply chain logistics services market, with a 2.2% revenue market share in 2019, according to CIC. JD Logistics was founded with the formation of <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>’s in-house logistics department in 2007.</p>
<p>JD Logistics is seeking to raise up to $3-4 billion at a $40 billion valuation, according to press reports. Merrill Lynch and Haitong, which are part of the syndicate, have valued JD Logistics at $30.0-45.4 billion and $42.4-44.3 billion, respectively, <a href="https://www.thestandard.com.hk/section-news/section/2/229859/JD-Logistics-gets-ball-rolling-for-US%244b-IPO" target="_blank" rel="noopener">according to press reports</a>. </p>
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<p>In <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-initiation-the-flow-of-things" target="_blank" data-smartkarma-citation="insights:48279" rel="noopener">JD Logistics IPO Initiation: The Flow of Things</a>, we stated that JD Logistics is an indirect play on the shift of some customer behaviour permanently to online shopping, particularly in fast-moving consumer goods. We concluded that JD Logistics fundamentals are attractive and it remains well-placed to address consumers demand faster and more flexible supply chain logistics services.</p>
<p>In <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-prioritizing-market-share-gains-over-margins" target="_blank" data-smartkarma-citation="insights:50976" rel="noopener">JD Logistics IPO: Prioritizing Market Share Gains over Margins</a>,  we noted that the PHIP which discloses the 2020 results and recent developments underscore the positives which are strong growth, rising margin and cash generation. However, the outlook is mixed as JD Logistics cautions that it will pursue market share gains at the cost of profitability over the medium term. We opined that JD Logistics has the right ingredients to ride out the industry’s current price-competitive dynamics and deliver good shareholder returns over the medium term. </p>
</div><div><div><div class="content-highlight"><p>In this note, we update our forecasts and valuation presented in <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-valuation-first-look" target="_blank" data-smartkarma-citation="insights:48384" rel="noopener">JD Logistics IPO: Valuation First Look</a> for the latest set of results and the margin guidance. Overall, based on valuation analysis, we think that the rumoured $40 billion valuation target is fair, particularly in the context of JD Logistics' positioning and higher than peers forecasted growth. </p></div></div></div>


JD Logistics (JDL HK) is the largest player in China’s integrated supply chain logistics services market, with a 2.2% revenue market share in 2019, according to CIC. JD Logistics was founded with the formation of JD.com Inc (ADR) (JD US)’s in-house logistics department in 2007.
JD Logistics is seeking to raise up to $3-4 billion at a $40 billion valuation, according to press reports. Merrill Lynch and Haitong, which are part of the syndicate, have valued JD Logistics at $30.0-45.4 billion and $42.4-44.3 billion, respectively, according to press reports. 

In JD Logistics IPO Initiation: The Flow of Things, we stated that JD Logistics is an indirect play on the shift of some customer behaviour permanently to online shopping, particularly in fast-moving consumer goods. We concluded that JD Logistics fundamentals are attractive and it remains well-placed to address consumers demand faster and more flexible supply chain logistics services.
In JD Logistics IPO: Prioritizing Market Share Gains over Margins,  we noted that the PHIP which discloses the 2020 results and recent developments underscore the positives which are strong growth, rising margin and cash generation. However, the outlook is mixed as JD Logistics cautions that it will pursue market share gains at the cost of profitability over the medium term. We opined that JD Logistics has the right ingredients to ride out the industry’s current price-competitive dynamics and deliver good shareholder returns over the medium term. 
In this note, we update our forecasts and valuation presented in JD Logistics IPO: Valuation First Look for the latest set of results and the margin guidance. Overall, based on valuation analysis, we think that the rumoured $40 billion valuation target is fair, particularly in the context of JD Logistics' positioning and higher than peers forecasted growth. 

JD Logistics IPO: Valuation and Forecast Update

<p><a href="https://www.smartkarma.com/entities/sf-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:31496:1" rel="noopener">SF Real Estate Investment Trust (SF HK)</a> is a REIT formed with an initial focus on income-generating logistics properties in Hong Kong and China. The sponsor is <a href="https://www.smartkarma.com/entities/maanshan-dingtai-rare-a" target="_blank" data-smartkarma-citation="entities:4128:1" rel="noopener">S.F. Holding (002352 CH)</a>. SF REIT will be the first logistics-focused REIT to be listed in Hong Kong.</p><p>SF REIT has launched its IPO with an indicative price range of HK$4.68-5.16 per unit. The total proceeds will be HK$2,433.6-2,683.2 million ($313-345 million) at the price range. Two cornerstone investors will subscribe for $50.0 million of the offer units (15.2% of the offer units at the mid-point of the price range). The cornerstone investors are China Orient International Asset Management and <a href="https://www.smartkarma.com/entities/ci-financial-corp" target="_blank" data-smartkarma-citation="entities:25448:1" rel="noopener">Ci Financial (CIX CN)</a>. </p><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/sf-reit-ipo-initiation-the-reit-flow-of-things" target="_blank" data-smartkarma-citation="insights:50673" rel="noopener">SF REIT IPO Initiation: The REIT Flow of Things</a>,  we noted that SF REIT offers an attractive proposition for investors willing to invest in a niche segment of the Asian REIT sector. However, our valuation analysis suggests that units are fully priced at the minimum offer price. Consequently, we are inclined to give this IPO a pass and wait for a lower entry point. </p></div>

SF Real Estate Investment Trust (SF HK) is a REIT formed with an initial focus on income-generating logistics properties in Hong Kong and China. The sponsor is S.F. Holding (002352 CH). SF REIT will be the first logistics-focused REIT to be listed in Hong Kong.SF REIT has launched its IPO with an indicative price range of HK$4.68-5.16 per unit. The total proceeds will be HK$2,433.6-2,683.2 million ($313-345 million) at the price range. Two cornerstone investors will subscribe for $50.0 million of the offer units (15.2% of the offer units at the mid-point of the price range). The cornerstone investors are China Orient International Asset Management and Ci Financial (CIX CN). In SF REIT IPO Initiation: The REIT Flow of Things,  we noted that SF REIT offers an attractive proposition for investors willing to invest in a niche segment of the Asian REIT sector. However, our valuation analysis suggests that units are fully priced at the minimum offer price. Consequently, we are inclined to give this IPO a pass and wait for a lower entry point. 

China

S.F. Holding Co., Ltd operates as a holding company. The Company, through its subsidiaries, provides logistics, order tracking, supply chain management, and warehousing services. S.F. Holding operates worldwide.

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S.F. Holding (002352 CH)

JD Logistics IPO: We Play Devil's Advocate

We think the weak 1Q21 gross profit and margin at JDL reflect its lack of pricing power in the industry despite its largest market share position....

Osbert Tang, CFA

JD Logistics IPO: Financial Forecasts and Initial Thoughts on Rumoured US$40.0bn Valuation

JDL’s higher revenue growth, market share and its improving margins are already priced into the rumoured US$40.0bn valuation and it is unlikely...

Shifara Samsudeen, ACMA, CGMA

JD Logistics IPO: Valuation and Forecast Update

JD Logistics is set to launch its IPO to raise $3-4 bn in May. The rumoured $40 bn valuation is fair, particularly in the context of its...

Arun George

SF REIT IPO: Valuation Insights

SF REIT has launched its IPO to raise $313-345 million at the price range. Our valuation analysis suggests that units are fully priced at the...

Arun George

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JD Logistics IPO: We Play Devil's Advocate

We think the weak 1Q21 gross profit and margin at JDL reflect its lack of pricing power in the industry despite its largest market share position....

Osbert Tang, CFA

JD Logistics: Margins Sink as JDL Prioritises Market Share but Peer Margins Shrink Too in 1Q21

JDL's GPM for 1Q2021 was 1% compared to 6.2% for 1Q2020 and drop in peer GPM in implies that the logistics industry as a whole was affected during...

Shifara Samsudeen, ACMA, CGMA

JD Logistics IPO: Financial Forecasts and Initial Thoughts on Rumoured US$40.0bn Valuation

JDL’s higher revenue growth, market share and its improving margins are already priced into the rumoured US$40.0bn valuation and it is unlikely...

Shifara Samsudeen, ACMA, CGMA

JD Logistics IPO: Valuation and Forecast Update

JD Logistics is set to launch its IPO to raise $3-4 bn in May. The rumoured $40 bn valuation is fair, particularly in the context of its...

Arun George

SF REIT IPO: Valuation Insights

SF REIT has launched its IPO to raise $313-345 million at the price range. Our valuation analysis suggests that units are fully priced at the...

Arun George