China’s Logistics Sector: A Comprehensive Analysis of JDL and Kuayue Express
Broker Name: UOB Kay Hian
Date of Report: Wednesday, 11 December 2024
Overview of China’s Logistics Sector
In recent updates, China’s logistics industry has shown promising growth with the Logistics Performance Index (LPI) standing at a robust 52.8 as of November 24, 2024. This figure marks the highest level year-to-date, reflecting an expanding demand in logistics across the nation. The e-commerce logistics index (ELI) has reached 115.5, the highest since 2018, indicating a thriving sector driven by increased consumer spending and industrial upgrades.
JD Logistics: Leading the Charge in China’s Logistics Market
JD Logistics (JDL) stands out as a top player in the market, maintaining an OVERWEIGHT recommendation. JDL is set to acquire the remaining 36.4% stake in Kuayue Express, which is expected to be earnings accretive. The acquisition is a strategic move aimed at enhancing JDL’s freight network and operational capabilities.
Financial Performance and Projections
JDL is poised to deliver an impressive financial performance in the seasonally strong fourth quarter of 2024. The company’s net profit is forecasted to rise by 122% year-on-year to Rmb2.31 billion, driven by high-single-digit revenue growth and improved operating margins. This growth is attributed to favorable operating leverage and enhanced cost efficiency.
2025 Outlook
Looking ahead to 2025, the logistics sector is expected to benefit from China’s focus on boosting domestic consumption. The China Politburo’s recent press release highlights domestic consumption expansion as a key area of economic focus, promising a favorable environment for logistics players with strong domestic networks like JDL.
Strategic Acquisition of Kuayue Express
JDL’s proposed acquisition of Kuayue Express is a significant development. The acquisition will be conducted in three tranches over 2025-2027, with a total consideration of no more than Rmb6.49 billion. This move aligns with JDL’s strategy to strengthen its logistics network and enhance operational efficiency.
About Kuayue Express
Founded in 2007, Kuayue Express is a leading integrated express transportation enterprise specializing in less-than-truckload (LTL) freight operations in China. JDL initially acquired a 55.1% controlling stake in Kuayue back in 2020, increasing it to 63.6% in 2022. Kuayue is expected to contribute Rmb567 million in net profit to JDL in 2024, forming about 8% of JDL’s full-year net profit forecast.
Benefits of the Acquisition
- Full ownership of Kuayue allows JDL greater strategic and operational control.
- Enables deeper integration, resource optimization, cost reduction, and operational efficiency improvements.
- The acquisition valuation is fair, with considerations pegged to a 15x trailing PE, aligning with industry peers.
- The deal is earnings-accretive, utilizing a portion of JDL’s significant net cash position effectively.
Investment Recommendations
UOB Kay Hian maintains an OVERWEIGHT rating on the China logistics sector, anticipating a supportive policy environment as the country focuses on domestic consumption growth. JDL remains the top pick due to its market leadership, potential growth from collaborations with platforms like Taobao/Tmall, and compelling valuation metrics.
In conclusion, the outlook for China’s logistics sector is optimistic, with JDL positioned as a key beneficiary of the country’s economic strategies. Investors are encouraged to consider JDL for its robust market position and growth potential within the evolving logistics landscape.
