Shenwan Hongyuan has released a research report stating that JD Industrials (07618), as a leading domestic digital and intelligent industrial supply chain service provider, possesses advanced infrastructure, establishes industry standards, benefits from economies of scale through its light-asset expansion model, and is expanding overseas alongside existing clients, indicating broad long-term growth potential. China's industrial manufacturing sector and industrial goods procurement market are the largest globally, with demand-side efficiency requirements, policy standardization, and technological and infrastructural improvements all catalyzing the penetration of digital and intelligent solutions. The firm initiated coverage with a "Buy" rating.
Shenwan Hongyuan's key views are as follows: JD Industrials is a leading industrial supply chain technology and service provider in China. The company began its MRO procurement service business in 2017, building end-to-end digital and intelligent supply chain infrastructure to provide one-stop industrial supply chain solutions. Based on 2024 transaction volume, the company has become the largest player in China's MRO procurement service market, serving approximately 11,100 key enterprise customers, offering about 81.1 million SKUs covering 80 product categories, sourced from roughly 158,000 suppliers.
The company's primary revenue comes from industrial goods (MRO) sales, showing steady growth. In 2024, the company reported revenue of RMB 20.398 billion and an adjusted net profit of RMB 909 million. From 2021 to 2024, the compound annual growth rates (CAGR) for revenue and adjusted net profit reached 25.4% and 21.9%, respectively. In 2024, revenue from merchandise sales accounted for 94% of the total, while revenue from platform transactions, advertising, and other services contributed 6%.
The company's management team is highly experienced and possesses combined capabilities in internet technology and digital/intelligent supply chains. CEO Song Chunzheng previously incubated JD's enterprise business and has continuously driven the digital and intelligent transformation of industrial supply chains.
China's industrial supply chain market is vast, yet the development of digital and intelligent solutions is still in its early stages. In 2024, the size of China's industrial supply chain market reached RMB 11.4 trillion, making it the largest market globally; however, the penetration rate of digital and intelligent solutions was only 6.2%, significantly lower than the 15% seen in the United States. The scale of China's MRO procurement market in 2024 was RMB 3.7 trillion, with a CAGR of 6.1% from 2019 to 2024; the digital and intelligent MRO market reached RMB 400 billion, with a CAGR of 21.7% from 2019 to 2024, resulting in a penetration rate of 9.5% (compared to over 15% in the U.S.).
The industrial goods procurement market is highly fragmented, and digitalization and intelligence are expected to accelerate market concentration. Based on 2024 transaction volume, JD Industrials held a 4.1% market share in China's industrial supply chain technology and service market, while the second-largest player held only 1.5%; the combined market share of the top five players (CR5) was 7.5%. JD Industrials' market share in the MRO procurement market was merely 0.8%, with the second-ranked player at 0.3% and a CR5 of 1.5%. Establishing digital and intelligent procurement infrastructure requires significant technological investment, and increasing penetration rates will raise industry barriers, favoring market consolidation.
Reviewing leading U.S. MRO industry players like Grainger and Fastenal reveals that the revenue growth of these top two companies has consistently outperformed the value-added of U.S. manufacturing over the long term (from 2005 to 2024, the CAGRs for U.S. manufacturing value-added, Grainger's revenue, and Fastenal's revenue were 2.8%, 6.1%, and 8.8%, respectively). This demonstrates the long-term competitive advantages of leading players in the MRO procurement industry, where early supply chain development and the establishment of comprehensive fulfillment networks create barriers, further strengthened through scale expansion.
JD Industrials' "Taipu" solution achieves digital and intelligent transformation across the entire supply chain. The company is a leading domestic enterprise that has digitalized and intelligently transformed the entire industrial goods supply chain, encompassing products, procurement, fulfillment, and operations. Leveraging the technological and capability积累 from JD's consumer-side supply chain, its full supply chain digitalization establishes SKU and process standards, creating extremely high customer switching costs. By accumulating customers and scale, it continues to enhance its centralized procurement and digital/intelligent service capabilities, forming a positive flywheel effect.
The company operates a light-asset model, with high turnover driving ROE and significant long-term scale effects. In 2024, JD Industrials' inventory turnover ratio reached 24 times, significantly outperforming comparable domestic and international companies. This is achieved through digital and intelligent management of the entire industrial supply chain, where most orders are shipped directly by suppliers to the demand side, reducing inventory for self-operated categories and substantially improving turnover efficiency. Through the construction of digital and intelligent infrastructure, marginal investments gradually decrease, and the expense ratio (sales + management + R&D + fulfillment) continues to decline; in 2024, per capita sales revenue contribution reached RMB 25 million.
R&D investment remains leading-edge, with the launch of the industry-specific JoyIndustrial large language model. Continued strengthening of digital and intelligent infrastructure is expected to persistently enhance turnover rates.
For earnings forecasts, the firm projects adjusted net profits for 2025-2027 of RMB 1.096 billion, RMB 1.735 billion, and RMB 2.301 billion, representing year-on-year growth of +20.5%, +58.4%, and +32.6%, respectively, corresponding to P/E ratios of 30x, 19x, and 14x. Using the average valuation of comparable companies at 24x P/E as the target, and based on the 2026 adjusted net profit of RMB 1.735 billion, the calculated target market capitalization is RMB 41.2 billion, implying a 24% upside from the current level, justifying the initial "Buy" rating.
Risk warnings include pressure from the external environment and risks associated with difficulty in improving gross margins; intensifying industry competition and risks of merchandise sales revenue falling short of expectations; and risks related to the digital and intelligent transformation of the industrial procurement industry progressing slower than anticipated.
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