Event: JD Health released his 2021 semi-annual performance report on August 25, 2021. 2021H1 achieved operating income of 13.638 billion yuan (YoY+ 55%), gross profit of 3.307 billion yuan (YoY+49%), non-IFRS net profit of 667 million yuan (YoY+ 80%), annual active users reached 109 million yuan (YoY+ 50%), and added 19 million people in half a year.

Core ideas:

1. Growth under the high base is solid, and online medical demand continues to be strong: 2021H1 JD Health achieved operating income of 13.638 billion yuan (YoY + 55%), sales of pharmaceutical and health products of 11.76 billion yuan (YoY + 53%), and services (marketing, advertising and other services) revenue of 1.88 billion yuan (YoY + 73%). Under the background of the high base affected by the epidemic in 2020, JD Health still achieved steady growth in performance, mainly due to the strong growth of online medical demand and the rapid expansion of the scale of users. The company is still iterating to optimize products and services, committed to improving the user experience, and future growth is expected. The 8.2 per cent rate of 2021H1 management expenses (YoY + 7.27pct) increased significantly, mainly due to an increase in share-based payments.

two。 The rapid growth of users and the acceleration of the promotion of the Internet medical platform: the number of annual active users of 2021H1 JD Health reached 109 million (YoY + 50%), exceeding 100 million for the first time, an increase of 36 million compared with 2020H1; the average daily number of online visits exceeded 160000, an increase of more than 60% over 2020. The promotion speed of the Internet medical platform continues unabated, and the scarce medical resources are distributed to low-line users through the Internet. The market and user groups have considerable prospects for expansion and have great potential for growth.

3. Policy firm development direction, long-term positive: emerging industries to strengthen supervision, gradually standardize is a normal trend. Government supervision pays attention to the healthy and orderly development of "Internet + Medical" new business type, which shows that Internet medical care meets the needs of the society, the development direction is correct, and there is room for the growth of Internet medical care in the future. Ensuring the safe use of drugs is a necessary condition for the healthy development of the industry, and reasonable supervision is conducive to the accelerated growth of industry leaders such as JD Health. Although the detailed rules for the online sale of prescription drugs have solicited the opinions of enterprises in the industry for many times, most of the changes are small details of the process, which has little impact on the overall open trend of online sale of prescription drugs.

4. Online and offline combination, focus on format optimization: JD Health continues to promote the combination of online platform and offline hospitals, pharmacies and enterprises, by enabling Internet hospitals, pharmacies, and helping pharmaceutical companies to accurately match users to continuously promote the upgrading of user consultation experience. With the access of more offline institutions, the Internet medical platform is expected to further solve the problem of scarcity of medical resources, achieve the optimal allocation of medical resources, and promote the ecological optimization of the whole medical industry.

Our point of view:

1. Analysis of main financial indicators: the increase in income is mainly due to the increase in the number of active users and the repurchase of users, and the penetration of online drug purchases is increasing.

(1) Sub-business income: 2021H1 achieved 11.76 billion yuan (YoY + 53%) in sales of pharmaceutical and health products and 1.88 billion yuan (YoY + 73%) in services (marketing, advertising and other services). Product sales accounted for 86% of the total income, which is still the main driver of revenue growth.

(2) expenses: 2021H1 company's performance expense rate is 10.0% (YoY-0.39pct), sales and marketing expense rate is 7.2% (YoY + 0.97pct), R & D expense rate is 3.0% (YoY-0.22pct), and management expense rate is 8.2% (YoY + 7.27pct).

(3) profit margin: the non-IFRS net profit of 2021H1 is 667 million yuan (YoY+80%) and the non-IFRS net interest rate is 4.9% (YoY+ 0.67pct).

2. Business data analysis: supply chain optimization drives the increase of user scale and repurchase rate, which further promotes the increase of sales income of pharmaceutical and health products. The company has made great efforts to lay out the online consultation business, and the average daily number of online consultation has increased significantly.

(1) the number of annual active users: the number of annual active users of 2021H1 reached 109 million (YoY + 50%), an increase of 55 million over mid-2019 and 36 million compared with 2020H1.

(2) ARPU: as of June 2021, the company's annual APRU has reached 107.9 yuan (YoY-39%).

(3) the average daily number of online consultation: the daily average number of online consultation of 2021H1 company is more than 160000.

3. Profit forecast: we continue to be optimistic about the long-term development of the company and the growth of its follow-up performance. It is estimated that the operating income of FY2021-2023 will be 303.7 PS, 440.5 soybean, 59.46 billion yuan, EPS 0.31, 0.52, 0.89, 12-month target price of HK $114, corresponding to 10x PS, and will be upgraded to a "highly recommended" rating.

Risk hints: macroeconomic growth is declining, market competition is intensified, industry growth is not as expected, policy risks, realization rate and gross profit margin are lower than expected, new business expansion is lower than expected, business over-diversification, lack of coordination, insufficient operating funds, profits fall short of expectations, and so on.