JDH's 1H23 total revenue increased by 34% YoY to RMB27.1bn, -2% below consensus/ BOCIe. 12-month annual active customer (AAC) further rose to 168.6m as of end June. IFRS/ Non-IFRS NPM expanded to historical high at 5.8%/ 9.0% on GPM rebound, improved opex efficiency and interest income. We expect softer near- to mid-term revenue on post-Covid normalisation, weak macro on core direct sales businesses and their new initiatives' monetisations which are yet to bear fruits. But we believe their committed strategic priorities, investment plans and L-T vision remain intact. Maintain BUY but cut our DCF TP to HK$65.0.
Key Factors for Rating
Intact strategies despite N-T pressure on post-Covid normalisation. We expect softer near- to mid-term revenue mainly on swifter and larger-than- expected Post-covid normalisation and weak macro. However, we deem Co will remain dedicated on their L-T visions by consistently executing their operational strategies and investment plans. We see user growth, supply chain management and improved efficiency are their 3 most important priorities in the near- to mid-term. We believe Co. will continue to i) enrich products/ services offerings; ii) offer high quality products/ services with competitive prices and supportive policies; iii) accelerate omni-channel/ O2O initiatives; iv) conduct branding campaigns especially in low-tier cities and offline consumption scenarios; v) make effective channel investments; and vi) deepen partnerships for user growth and brand awareness. Furthermore, Co. will keep optimise organizational structure for improved efficiency. Thus, we cut our near- to mid-term 2023/24/25E total revenue by -12%/-19%/-21% to factor in more profound post-Covid normalisation by scaling back our ARPU forecasts but maintaining our AAC forecasts. We largely keep our 2023-25E GPM forecasts unchanged while raising our 2023-25E bottom line estimations mainly to reflect our latest opex and non-operational item estimations, especially on interest income.
1H23 results: Topline miss but beat margin. Total revenue of RMB27.1bn(up 34% YoY) was -2% below consensus/ BOCIe. Product and service revenues were RMB23.2bn and RMB3.9bn, up by 34% and 44% YoY respectively. 12- month AAC further increased to 168.6m as of end June. GPM rose 1.1ppts YoY to 22.9%, beating consensus mainly on structural product mix shift and improved supply chain efficiency. IFRS/ Non-IFRS NPM reach historical high at 5.8%/ 9.0% on GPM rebound, improved opex efficiency and interest income (vs. 1.1%/ 6.0% in 1H22).
Key Risks for Rating
Downside risks: i) regulations; ii) Covid-normalisation; iii) destructive investments; iv) less support from JD Group; and v) fierce competition.