JD Logistics (SEHK:2618) Could Be 76% Below Fair Value On CFO Change

JD Logistics (SEHK:2618) is back in focus after the company announced that long serving finance executive Hao Wu has resigned as chief financial officer, with experienced insider Henry Jun Mao stepping into the role.

Against this backdrop, JD Logistics’ share price has been under pressure, with a 30 day share price return of down 24.98% and a 90 day share price return of down 13.81%, while the 3 year total shareholder return of 8.45% contrasts with a 1 year total shareholder return of down 14.67%. This suggests that recent momentum has faded despite a longer term gain.

Compare JD Logistics with a curated set of logistics and infrastructure peers by scanning the 39 power grid technology and infrastructure stocks that have recently caught investors' attention around capital allocation and leadership shifts.

Bulls point to JD Logistics’ solid revenue and net income figures, along with a wide discount to analyst targets. Bears focus on weak recent returns and leadership change. Which side does the current valuation support next?

Preferred P/E of 8.6x for JD Logistics: Is it justified?

On the numbers, JD Logistics looks inexpensive compared to its own earnings and to peers. The stock trades on a P/E of 8.6x, while the SWS DCF model suggests a fair value of HK$46.43 against a last close of HK$11.17.

The P/E ratio compares what investors are paying today for each unit of a company’s earnings. For a logistics business such as JD Logistics, which already reports profits and has an established revenue base of HK$243,298.447m and net income of HK$7,359.331m, earnings-based valuation is a common reference point for many investors.

Analysts currently see earnings growing at 12.24% per year, and the company has already moved from losses to profitability over the past 5 years, although last year’s 13% earnings growth was below its 5 year average. In that context, a P/E of 8.6x compared to an estimated fair P/E of 12x suggests the market is pricing JD Logistics more cautiously than the earnings profile and growth forecasts might imply. There may be scope for the multiple to move closer to that fair level if those expectations play out.

Compared with peers, JD Logistics trades at a discount. Its P/E of 8.6x is below both the peer average of 15.5x and the Asian logistics industry average of 14.5x, which represents a wide gap for a company whose earnings are forecast to grow faster than the wider Hong Kong market and which has been assessed as having high quality earnings.

Explore the SWS fair ratio for JD Logistics.

Result: Price-to-earnings of 8.6x (UNDERVALUED)

However, recent share price weakness and the leadership change at JD Logistics could challenge confidence in the current P/E narrative if sentiment becomes more cautious.

Find out about the key risks to this JD Logistics narrative.

Another View on JD Logistics Using Our DCF Model

There is a different read on JD Logistics when looking at cash flows instead of earnings multiples. The SWS DCF model points to a fair value of HK$46.43 per share, while the stock most recently closed at HK$11.17. That suggests a very large gap that could either signal opportunity or highlight that the cash flow assumptions are too optimistic. Which possibility appears more realistic to you?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out JD Logistics for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 257 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this combination of discounted valuation and leadership change at JD Logistics leaves you undecided, take a closer look now and weigh the potential advantages yourself. To understand why some investors remain optimistic, review the 5 key rewards.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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