JD Logistics, Inc. (822.F) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to JD Logistics Second Quarter 2025 Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Sean, Head of the IR team at JD Logistics.

Thank you, operator. Good day, ladies and gentlemen. Welcome to our second quarter 2025 results conference call. Joining us today are our Executive Director and CEO, Mr. Hu Wei, and CFO, Mr. Wu Hao. Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and discussion. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-IFRS financial measures for comparison purpose only. For definition of the non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results, please refer to the announcement of the results of the 3 months and 6 months ended June 30, 2025, issued earlier today. For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management's statements in the original language will prevail. I will now turn the call over to Mr. Hu Wei. Please go ahead, sir.

Dear investors and analysts, welcome to JD Logistics Second Quarter 2025 Earnings Call. This is Hu Wei, CEO of JD Logistics. Thank you for joining us today. In the second quarter of 2025, amid China's sustained and positive economic recovery, the modern logistics industry continued to serve as a vital link in the economic circle, injecting new momentum into industrial upgrading. During the quarter, we consistently enhanced our capacities, increasing our competitiveness across products and services. These efforts elevated customer experience and satisfaction and drove accelerated revenue growth. In the second quarter of 2025, JDL's total revenue reached RMB 51.56 billion. The year-over-year growth rate accelerated further from the previous quarter, reaching 16.6%. Revenue from external customers reached RMB 33.8 billion, increasing 10.2% year-over-year, alongside accelerated revenue growth. We also effectively improved resource utilization efficiency through tech empowerment, net structure optimization and refined operations, resulting in stable profitability. Our non-IFRS profit was around RMB 2.59 billion, up [ 5.24% ] year-over-year. And our non-IFRS profit margin reached 5.0%, reflecting ongoing profitability resilience. Revenue from ISS customers reached RMB 26.91 billion in the second quarter, up 26.3% year-over-year. This included RMB 17.76 billion in revenue from JD Group, increasing 31.2% year-over-year and RMB 9.15 billion in revenue from external ISC customers, maintaining a double-digit growth trajectory. This quarter, leveraging our omnichannel supply chain solutions, differentiated and high standard service capacities and ongoing supply chain product upgrades, we achieved growth in both the number of our external ISC customers and this segment's average revenue per customer. In the second quarter of 2025, the number of external ISC customers amounted to 65,854, up 13.8% year-over-year, while serving more customers. We also deepened and broadened our engagement with existing customers. In the second quarter of 2025, our ARPC for external ISC reached RMB 139,000 with a year-on-year growth rate turning positive to 3.5%. We provide industrial-specific ISC solutions and service products for customers in fast-moving customer goods, home appliances, home furniture, 3C, apparel, automotive, fresh products and other industries. In the face of the constantly evolving business landscape and customer market, we remained focused on experience, cost and efficiency. We continuously enhance our industry-specific service capacity, upgrade our supply chain offerings and provide products and solutions tailored to the unique needs of customers across different industries based on their specific characteristic. In the home appliance industry, we continue to cultivate our industry-specific capacities to enhance end-to-end industry coverage of our ISC products and services. During this quarter, we deepened our collaboration with well-known home appliance brand, expanding our service capacities from inbound to warehouse transportation, warehousing, delivery and replenishment forecasting to also include integrated delivery and installment model. This further enriched the business scenarios covered by our ISC service offering, helping our customers effectively improve operational efficiency and optimize customer experience. This partnership contributed to significant improvements across the brand's key operational metrics, driving a substantial reduction in the brand damage rates and customer complaint gain. Notably, the customers' on-time delivery rate and inventory turnover rate improved by 20%. Our omnichannel model has become industrial benchmark for addressing key pain points in the home appliance dealer installation. Moving forward, we will scale this model to more home appliance brand customers empowering industry to develop a more efficient fulfillment system. In the April industry upgrades to our warehousing and distribution services has supported our ISC business expansion. In second quarter, we enhanced our base logistics services for warehouse and distribution within the official launch of a new service model featuring 3 core services: 211 warehouse distribution, Express warehousing distribution and the Economy warehousing and distribution deeply integrated within our industry-specific custom capacities. This model offers a high timeless with great hassle-free service, helping merchants reducing cost, improving efficiency and enhance customer experience. Recently, we deepened our cooperation with a well-known international sportswear brand, expanding our partnership from express delivery to ISC services. Our warehousing and delivery services under 211 timeless model significantly shortened the order fulfillment time for the customer. For example, customers in Guangdong who placed orders by 10:00 a.m. can receive same delivery, while late night orders enjoy next-day delivery. Overall, regional order fulfillment time has improved by over 13% compared with the customers' previous setup. Our upgrade to their logistics services not only help the customer address industry challenges such as high return rates and slow inventory turnover on the e-commerce platforms but also attracted more traffic for our customers by improving customer store ratings, supporting a new business growth trajectory. In the auto industry, we extended our presence along the supply chain, quite expanding from sales-related supply chains to production-related supply chains while also upgrading our supply chain products and service planning capacities. In the second quarter of 2025, we partnered with a leading new energy vehicle customer to jointly develop a preproduction inbound logistics solution under just-in-sequence mode, covering the entire production supply chain from line haul, transportation, warehousing, material sequencing and short delivery to empty container retrieval and recycling packaging. This solution helps the customer save space, improve storage density and reduce capacity expenditure. Moreover, it strengthened our full process ISC capacities for the auto industry, laying a solid foundation for future expansion into preproduction logistics for manufacturing-related supply chain. While steadily strengthening our leadership in China's ISC market, we are also actively expanding our overseas footprint. In June 2025, we launched Joy Express our self-operated express delivery brand in Saudi Arabia, rolling out multiple high service for local customers, such as same-day and next-day delivery, cash on delivery, to-door delivery. Joy Express local delivery operations are supported by a dedicated local customer service team, enhancing our last mile fulfillment capacities in the Middle East region. Leveraging our existing overseas warehousing services, we have now established a comprehensive logistics for Saudi Arabia encompassing warehousing, sorting and last-mile delivery, further upgrading our localized operational capacities in the overseas market. This enables us to provide a full suite of diversified end-to-end logistics services and solutions, including our ISC and speed services for various countries and customers. As part of our overseas warehouse expansion, we accelerated our global smart supply chain network plan backed by our globally leading expertise in warehouse operations and logistics technology. We have established a comprehensive global supply chain logistics network with overseas warehousing capacity at its core, providing efficient and convenient ISC logistics service to more Chinese brands and overseas customers. In the second quarter of 2025, our newly opened overseas warehouse expanded further in multiple countries, including United States, France, South Korea, Vietnam and Saudi Arabia. In the second quarter of 2025, our revenue from other customers, primarily including express and freight delivery services reached RMB 24.66 billion with a year-over-year growth rate of 7.6%. In our freight delivery business, we continue to enhance our delivery term capacities and product competitiveness with a focus on funding of a high timeliness services. For example, during lychee season in the second quarter, we addressed the key pain points in the fresh product industry, namely short shelf life and low delivery timeliness with an upgraded end-to-end logistics solution featuring precooling and production zone temperature control through the entire process and multimodal transportation. By combining all cargo airplanes by air capacity, high-speed rail and short-haul cold chain vehicles all under high-precision temperature control, we achieved next morning delivery from production zones to major cities nationwide, comprehensively improving our fresh product delivery service customer experience and order fulfillment capacities. Meanwhile, we continued to invest in pickup and marketing operations, consistently deepening category penetration and expanding customer coverage, driving sustained growth momentum for our high timeliness fulfillment products. Furthermore, we continue to optimize our service mode and enhance our capacities in the second quarter of 2025. We began recruiting and managing full-time riders to support JD Food delivery through deep integration with our existing express delivery last mile fulfillment. This initiative helped improve fulfillment efficiency across multiple scenarios and optimize resource scheduling, consistently enhancing the customer experience. Throughout our business development process, we have adhered to our core value, customer first. JD Logistics maintained dedicated to offering premium services such as the delivery, on-demand pickup and delivery and return and exchange, continuously enhancing the quality of our express delivery services with such professional and reliable services. We have earned the trust and preference of our customers and consumers. In the second quarter 2025, according to a survey results published by State Post Bureau of People's Republic of China, our express delivery service have consistently maintained best-in-class customer satisfaction ratings. We secured leading positions among logistics service providers in multiple mainstream e-commerce platforms service quality rankings by providing high-quality and reliable logistics services. We help merchants improve store ratings and attract more traffic, driving business growth. In Hong Kong and Macau, we continue to broaden our layout, sustaining our rapid growth momentum in the regions. With the official commencement of operations at the Jingdong Express operations and Hong Kong Island in the first quarter of 2025, we significantly improved both sorting and delivery efficiency for our Hong Kong express delivery services on the business development front. We actively extended our collaboration network offering express delivery service to diverse e-commerce platforms and brand merchants. In the second quarter of 2025, we supported a globally renowned customer goods brands with integrated Shenzhen Hong Kong service model covering full process operations from Shenzhen-founded warehouse, customer clearance, transportation, Hong Kong transit warehouse all the way to delivery. This model helped the brand ease operational pressure and improve fulfillment efficiency. We continue to strengthen our presence in Hong Kong and Macau markets, delivering high-quality diversified logistics service to merchants and consumers through technological innovation and service upgrades. Regarding the freight delivery business with the consolidation of Deppon Logistics and Kuayue Express, we ranked among the top tier in China in terms of cargo volume and revenue scale of freight delivery services. We have tailored our offerings to the unique characteristic and needs of very specialized markets, creating a diversified product portfolio that offers our customers stable, reliable and flexible freight delivery solutions. These products cater to various customers' needs to our business growth, expanding our market share across multiple specific industries of our network infrastructure and continuously improving technology are the cornerstone supporting our steady development. Our network consists of 6 logistics networks, including warehouse, line haul transportation, last-mile delivery. At end of June 2025, our warehouse network covered nearly all countries and districts in China, consisting of over 1,600 self-operated warehouse and over 2,000 third-party warehouse, owner-operated cloud warehouses on our Open Warehouse platform. Our warehouse network has an aggregate gross floor area of more than 34 million square meters, including warehouse space managed through the open warehouse platform. We continued to expand and optimize our warehouse network in low-tier regions. In April, JD Logistics Kaska warehouse officially commenced operation, significantly enhancing the local customer experience and efficiency. As of June 30, 2025, JD Airlines has the 10 self-operated all cargo airplanes in regular operation. In the first half of 2025, JD Airlines launched the new Shenzhen, China to Bangkok, Thailand and Chengdu to Yangon, Myanmar Uantrip International cargo routes, marking a further step in the deployment of JD Airlines global logistics network. In addition, we covered more than 2,000 air cargo routes through cooperation with partners. We consistently prioritize technological innovation. Through ongoing investment in automation equipment, AI and other advanced technologies, we have deeply integrated the digital and intelligent technologies into every stage of the logistics value chain from planning and design to warehouse management, sorting, transportation, scheduling and last-mile delivery, we have implemented intelligent applications across all scenarios. This end-to-end smart integration driving ongoing cost reductions and efficiency improvements through the entire logistics process. In the second quarter of 2025, we expanded our self-developed JINGDONG Logistics Zhilang good [ to prove ]an automated warehousing solutions beyond our in-house operations to several external customers. With the official launch of the Phase 3 of our apparel warehouse in Xinjiang Guangzhou, we further strengthened our technological layout in the apparel production zone. As JD Logistics' largest operated and automated warehouse in the Xinjiang production zone, of our Xinjiang Phase 3 facility features integrated forward and reverse logistics service design, encompassing forward outbound logistics return, reverse return processing, product restoration capacities and full scenario warehousing services. This setup helps customers improve efficiency and reduce costs in the field of unmanned vehicle applications. We focus on high-value scenarios, including last-mile delivery and short-haul transportation. Through iterative technology upgrades, pilot program expansion and operation, we reduced the cost and enhanced efficiency across diverse process such as transportation, pickup and delivery. As of June 30, we have deployed hundreds of unmanned vehicles across more than 10 provinces in China, including Jiangsu, Guangzhou, Zichuan and put them into regular operation between delivery stations and delivery zones using them for last mile transportation, reduced the transfer frequency per courier by 2 to 3 trips a day and extended couriers active pickup and delivery hours within their delivery zones by 3 to 4 hours. This has directly improved workout pickup, delivery productivity, pickup timeliness and successful delivery rate, providing strong support for our high timeless services and notably reduced our last mile service of this operation costs. Moving forward, we continue to scale up unmanned vehicle deployment targeting the 1,000 unit level. At the same time, we plan to broaden pilot coverage and further explore the value they bring to diverse scenarios, injecting fresh momentum into our cost reduction, efficiency improvement and business model innovation efforts. Moving ahead, we remain dedicated to optimizing customer experience, cost and efficiency. While adhering to our customer-first approach guided by our mission of being driven, we will further reinforce our foundation of supply chain capacities and product competitiveness, continuously creating value for our customers. With a firm commitment to undertaking substantive valuable and long-term actions, we will actively fulfill our social responsibilities to contribute to reducing overall cost and improving the sustainable hybrid growth. Now I'm going to welcome Mr. Wu Hao to discuss with the financial performance.

Hello, everyone. I'm so happy to present JD Logistics' financial performance for the second quarter of 2025. In the second quarter of 2025, China's macroeconomy maintained stable with continued improvement, supported by our ever strengthening service and product classes. JDL achieved revenue growth by maintaining a healthy level of profitability in the second quarter, while revenue reached 15 -- RMB 1.56 billion with a year-over-year growth of 15.6%, marking a further acceleration compared to previous quarter, IFRS profit was RMB 2.35 billion, increasing 4.6% year-over-year and IFRS profit margin was 4.2%. Non-IFRS profit was RMB 2.59 billion with over year-over-year increase of 5.4%, non-IFRS 5.0%. Let's look at the segmented business lines. Our revenue from ISC customers totaled RMB 26.91 billion in the second quarter year-over-year increase of 26.3%. Among them ISC revenue from JD Group amounted to RMB 17.76 billion, up 31.2% year-over-year, benefiting from growth in the main categories of JD Retail. Meanwhile, our revenue from external customers reached RMB 9.15 billion, up 17.8% year-over-year with the growth rate improving by 6.2% compared to the first quarter of 2025. Leveraging our Warehouse network advantages and warehousing operating practice, we have deepened our collaboration with leading customers in April and fast-moving consumer goods, upgrading our ISC products and services to provide omnichannel ISC solutions and differentiated high standard services that help customers reduce cost and enhance efficiency. In the second quarter, our average revenue per external ISC customer reached RMB 139,000, representing a year-over-year growth of 3.5%. Furthermore, we continue to expand our high potential customer base by targeting scenarios with strong ISC synergy. The number of external ISC customers amounted to 65,854 in the second quarter, up 13.8% year-over-year, extending its multi-quarter growth trend. In the second quarter of 2025, our revenue from other customers, primarily including express and freight delivery services maintained healthy growth, reaching RMB 24.66 billion, up 7.6% year-over-year. For express delivery services, we focus on high-value markets and invested in areas such as air freight resources, land transportation routes and delivery personnel. These efforts enabled us to enhance our service quality and delivery timeliness, driving rapid growth across multiple business scenarios. In the freight sector, we rank among the top tier in China in terms of cargo volume and revenue scale. Our flexible and diverse freight delivery services meet customers' varying needs across timeliness and service dimensions, supporting our deepening market penetration across different freight delivery segments. Moving on to cost and profitability. In the second quarter of 2025, our gross profit margin was 10.6%. On one hand, we continue to optimize cost through technology-driven network structure upgrades, innovations in the operation models and refined cost management. On the other hand, we increased our investments in enhancing our service experience and improving timeliness while maintaining broadly stable profitability to drive JD Logistics' long-term high-quality business growth. Now let's turn to the major parts of the cost of revenue. First, employee benefit expenses were RMB 18.19 billion in the second quarter, up 20.1% year-over-year. This was mainly attributable to a year-over-year increase in the number of frontline operation, employees in delivery and warehousing operations from approximately 430,000 at the end of the second quarter of last year to approximately 615,000 at the end of second quarter of this year, including full-time food delivery riders. The increase was attributable to the addition of our own employees to key operation processes such as last mile delivery and warehousing aiming at upgrading our products and services, elevating customer experience. In the second quarter, JD Logistics maintained a leading position among logistics service providers in multiple mainstream e-commerce platforms, satisfaction rankings for express delivery. Employee benefit expenses accounted for 35.3% of total revenue, up 1.0 percentage point year-over-year. Second, our outsourcing cost was RMB 16.86 billion in the second quarter, up 20.5% year-over-year. It accounted for 32.7% of total revenue for the quarter, up 1.1 percentage points year-over-year. The increase in outsourcing costs and outsourcing cost as a percentage of total revenue was primarily driven by changes in deposit structure. Third, our total rental cost was RMB 3.27 billion in the second quarter, down 0.7% year-over-year as we continue to promote site integration and optimized network structure. We continued utilization efficiency of our sites. Our total rental cost accounted for 3.3% of total revenue in the second quarter with a year-over-year decrease of 1.1 percentage points. Apart from the major costs mentioned above, our ongoing business expansion has resulted in improved economies of scale, driving down our depreciation and amortization cost as a percentage of total revenue by 0.2 percentage points year-over-year. Meanwhile, due to the growth of services such as installation and maintenance, other costs as a percentage of total revenue increased by 0.4 percentage points year-over-year. In terms of expenses, our operating expenses in the second quarter of 2025 were RMB 3.51 billion, up 15.4 percentage year-over-year, accounting for 6.8% of total revenue with a year-over-year decrease of 0.1 percentage points. Among them, sales and marketing expenses increased by 15.3% year-over-year to RMB 1.58 billion, accounting for 3.1% of total revenue, down 0.04% point year-over-year. Sales and marketing expenses accounted for 4.7% of the revenue from external customers, up 0.2 percentage points year-over-year. We maintained moderate investments in sales and marketing personnel to drive business growth. In the second quarter of 2025, R&D expenses were RMB 1.01 billion, up 14.2% year-over-year, accounting for 2 percentage of total revenue. We have allocated our R&D resources to strengthen our end-to-end automation digital and intelligent capacities, including ongoing exploration of our cutting-edge science applications, AI algorithms and online technologies in diverse logistics scenarios. For example, we are constantly scaling up the regular operation of online delivery vehicles to drive further cost savings and efficiency improvement in warehousing, planning, transportation, delivery, customer service and other areas. Our general and administrative expenses were RMB 930 million, up 17.1% year-over-year, accounting for 1.8% of total revenue, representing year-over-year increase of 0.01 percentage point. In terms of profit, please also consider our non-IFRS measures, which we believe may better reflect our operations. Both non-IFRS profit and non-IFRS EBITDA exclude items that we believe are not indicative of our core operating performance to help investors and other users of the financial information better understand and evaluate our core operating results. And this is how we are going to help investors and other users of financial information, understand -- better understand and evaluate our core operating results. In the second quarter of 2025, our non-IFRS profit was RMB 2.59 billion, up 5.4% year-over-year. Non-IFRS profit margin was 5%. Non-IFRS EBITDA for the second quarter was RMB 5.72 billion, up 1.5% year-over-year with a non-IFRS EBITDA margin of 11.1%. We also continue to monitor our cash reserves and cash flow to maintain a healthy balance sheet and sufficient capital to support business development and meet our operational needs. In the second quarter, excluding the lease-related payments, we recorded a free cash flow of RMB 2.49 billion, an increase of RMB 0.8 billion year-over-year. Our capital expenditure was RMB 1.09 billion for the second quarter, primarily for investments in the equipment aimed at improving operational efficiency going forward. While maintaining stable profitability, we will continue to make prudent and effective investments in areas such as automation equipment, self-owned vehicles based on our business development pace and needs, laying a foundation for high-quality and sustainable growth. Before we wrap up, I would like to express my heartfelt thanks to our shareholders for their enduring support and trust in JD Logistics. Looking ahead, we will remain committed to balanced improvements with stable profitability and high-quality growth. We'll continue to enrich our ISC solutions further enhance delivery timeliness and customer experience and strengthen industry barriers to promote healthy and sustainable business growth. Meanwhile, we will sustain our investments in technology to improve the efficiency of the entire logistic process. By combining operational model innovation with refined management, we aim to achieve long-term structural cost reductions and create greater value for our shareholders. Thank you. That concludes my prepared remarks. We can now begin the Q&A session.

Thank you, Mr. Wu Hao. This concludes our prepared remarks. We would like to now open the call to your questions. Operator, please start the Q&A session when ready. Thank you.

[Operator Instructions] Now we are going to have Ronald from Goldman Sachs to offer the question.

I'm so happy to have the questions. Now we are seeing the faster growth in the company, and we're also having the contribution from the riders. So I want to ask a question about the growth momentum, the growth triggers, the growth areas and your next half year's expectations. And you also mentioned some top collaborators in the second half of this year. Do you have any specific plan on the collaborations with stakeholders as well as profitability expectations?

Thank you, Ronald, for the question. We have seen a faster growth momentum due to the retail as well as the contribution from the JD Group. We are making right strategic decisions, and we are also having new breakthroughs. That's why we are growing strongly, not due to a single reason, but due to different reasons. We are seeing the faster growth. From last year, we have seen the positive outcome from our collaborators, and we are also seeing the growth driven by the riders, and this is a great improvement. This is not relying upon a single category. In the second half of 2025, if we are not considering the riders contribution and business orders, considering about the retail side, we could see the good trend. For the food delivery services and the riders contribution. We don't have specific data for your reference because we are still seeing the food delivery system, the food delivery business is still beginning and expanding. We will continue to watch and provide you data if there's any. And you also asked question about the international business. Investment into the international business are having 2 directions. The international overseas supply chain will continue to expand. There are some news, and we gradually will implement. The business in Asia Pacific, Europe and the Middle East, they are expanding. The supply chain are in the process of completing infrastructure. The revenue growth will be seen, and we are seeing the good expectation and outcomes were aligned. And we will also create a network of overseas food delivery and riders network in Saudi Arabia. We have the Joy Express. It is a great breakthrough. From day 1 to the present, we are seeing the good growth momentum in line with our targets. In the future -- in the short future, Saudi Arabia will remain as our key markets in giving good customer satisfaction and growth potential. At the end of Q3 and Q4, in some of the European markets, we will also have a similar deployment. It is expected that we will also offer better user experience to the European customers. The supply chain customers in Europe has been growing for some time. We have some collaborators. They are helping us to prepare everything. And the customers are very happy to see that we have our plan in Europe as well. They want to use our full chain. Thank you for the question. I want to say a few words to add up through years of preparation and overseas deployment, the overseas warehousing are growing. And we're also collecting more customers and the team experiences. And we're also providing them better services, and this is our strategy. We have been very consistent and committed by far in terms of the growth momentum, the growth rate and the business capacities and customer satisfaction, yes, we are seeing everything is fully expected as we planned before. So we will continue to work this journey, and we will continue our strategies. In this year, the overseas warehouse floor area will be doubled, further improving our capacities and operational efficiency, serving our customers. We're so happy to see that over the last few years, our team is well trained. They are broadening their horizons. They are very much adaptive, and we have very good management, a lot of improvement. And that is how and why we could have a good harvest in the national market.