In light of the changing competitive landscape, we lowered our 2023-24E revenue forecast. We are still optimistic about the company's supply chain advantages and profit margin improvements, maintain a “buy” rating, and adjust the target price for Hong Kong/US stocks to HK$205/$53.
The company's revenue growth has slowed, and profit margin improvements have been better than expected. The company's 4Q22 revenue was 295.4 billion yuan, up 7.1% year on year, in line with market expectations; gross margin increased 0.6 percentage points to 14.1% year on year; adjusted net profit was 7.6 billion yuan, higher than market expectations of 5.5 billion yuan, compared to 3.6 billion yuan for the same period last year; adjusted net interest rate improved 1.3 percentage points to 2.6%.
Retail revenue growth is slowing, and logistics business growth is accelerating. 4Q22 Product revenue increased 1.2% year over year, including digital home appliances increased 0.5% year on year and daily use department stores increased 2.3% year on year; GMV for the full year of 2022 increased 5.6% year on year to 3.48 trillion yuan; service revenue increased 40.3% year on year, platform and advertising business increased 10.6% year on year, and logistics and other services increased 75.1% year on year. By business sector, 4Q22, JD's retail business revenue was 258.9 billion yuan, up 3.6% year on year, weaker than market expectations; JD Logistics revenue was 43 billion yuan, up 41% year on year, better than market expectations by 4%, and annual operating profit was 5.3 billion yuan, achieving the break-even target. We expect the retail business to show a gradual recovery trend as consumption picks up.
The 10 billion subsidy establishes a low daily price mentality. The company recently launched a 10 billion subsidy program to build users' mentality about JD's low daily prices, relieve pressure on the supply chain during the promotion period, and improve operational efficiency. It invested 1 billion yuan in the first month. We take a cautious wait-and-see attitude on the $10 billion subsidy, and suggest focusing on indicators such as future user return, new additions, and ARPU.
Maintain the buy rating and adjust the target price to HK$205/$53. Taking into account changes in the competitive landscape, we lowered 2023E/2024E revenue by 7%/8%, respectively. Based on the SOTP valuation model, we lowered the target price to HK$205/$53, corresponding to the 21x/16x price-earnings ratio for 2023E/2024E. We are still optimistic about the company's supply chain advantages and profit margin improvements, and maintain our “buy” rating.