Yamato: JD Logistics (02618) acquisition of local instant delivery business has minor impact on profitability, reiterates "buy" rating.

Daiwa Securities has released a research report stating that JD Logistics (02618) has announced the acquisition of 100% equity of its fully owned subsidiaries Dajiang and Dasheng, which are engaged in local instant delivery services, from JD-SW (09618) for a total consideration of $270 million. The transaction valuation is approximately 13.1 times the industry average trailing twelve-month price-to-earnings ratio, taking into account liquidity discounts and control premium adjustments. Daiwa expressed no surprise at the acquisition transaction and reiterated its "buy" rating on JD Logistics, believing that the development of instant delivery business can drive a revaluation of the valuation. Management expects that after the completion of the transaction, JD Logistics' revenue growth rate in the fourth quarter of this year will reach a mid-double-digit percentage increase year-on-year. In addition, the upper limit of related party transactions between JD Logistics and JD in the next two years has been significantly increased to 110 billion and 210 billion RMB respectively. Daiwa believes that the impact of the acquisition on profitability is minor, as the related assets generated a profit of 75.17 million RMB in the first half of this year, equivalent to less than 3% of JD Logistics' profit during the same period, but net profit margin is expected to be diluted.