Event: Recently, JD Health (06618.HK) released its 2023 interim results. The company achieved revenue of 27.11 billion yuan in the first half of 2023, up 34% year on year over 20.03 billion yuan in the same period last year; by business, in the first half of 2023, the company's proprietary goods revenue was 23.17 billion yuan, up 32.5% year on year; service revenue was 3.94 billion yuan, up 43.7% year on year.
The company's gross margin increased by 1.1 pct to 22.9%, mainly due to changes in the product portfolio; profit for the period was 1.56 billion yuan, a sharp increase of 600.6% year on year. After adjustment, non-IFRS net profit reached 2.44 billion yuan, up 101.2% year on year over 1.21 billion yuan in the same period in '22.
Operating data: As of June 30, 2023, the number of annual active users for the past 12 months was 169 million, a net increase of 37.3 million from 131 million on June 30, 2022. The average number of online consultations per day exceeded 440,000 in the first half of 2023.
Comment:
Sales of proprietary products continue to grow. In the first half of 2023, the company's self-operated business revenue reached 23.2 billion yuan, an increase of 32.5% over the previous year. We believe that in the context of increasing consumer health awareness, as the company continues to dig deeper into user needs, it is expected that the cross-penetration of users across categories will be further enhanced through accurate digital marketing and rich product supply. As of June 2023, JD Health's annual active users in the past 12 months reached 169 million, a net year-on-year increase of 37.3 million over the same period in 2022. There is still plenty of room for penetration compared to Group users.
Platforms, advertising, and other services contribute to increased performance. In the first half of 2023, the company's platform, advertising and other service revenue was 3.9 billion yuan, an increase of 43.7% over the previous year. The main increase came from the increase in digital marketing service fees brought about by the increase in the number of advertisers and the increase in commissions brought about by the increase in sales volume of third-party merchants. At the same time, the company continues to lay out integrated online and offline medical services, with an average of more than 440,000 online consultations per day. We believe that as the company continues to expand in psychological counseling and health management for elderly users, this business segment is expected to continue to contribute to increased performance.
The omni-channel business layout is accelerating, focusing on the local instant retail service experience. As of June 30, 2023, JD Health has provided users with omni-channel coverage services in more than 400 cities in China, with more than 1,200 cooperative brands, more than 100,000 stores, and a cooperative coverage rate of over 60% of stores in third-tier cities and below. At the same time, the company focuses on the local instant retail service experience and fully completes the operation and integration of the medical and health products category business of the JD Home Platform. We believe that through the synergy between the company's online platform business and its own business, it is expected to further strengthen the brand mentality of consumer platforms for medical treatment and drug purchases.
Gross margin stopped falling and rebounded, and the overall cost ratio was clearly optimized. In the first half of 2023, the company achieved gross profit of 6.2 billion yuan, an increase of 40.5% over the previous year. The gross margin increased by 1.1 pct to 22.9% from 21.8% in the first half of 2022 (21.2% in 2022), mainly due to changes in the product portfolio. During this period, the company's performance fee rate was 9.5%, optimized 0.1 pct year on year; sales expense rate was 4.4%, optimized 0.2 pct year on year; general and administrative expenses rate was 3.2%, optimized 1.7 pct year on year; and R&D fee rate was 2.3%, optimized 0.1 pct year on year. We believe that in the future, as the scale of the business expands further, there may still be room for improvement in JD Health's operational efficiency.
Investment advice:
Considering the company's semi-annual performance report and the high base brought about by the rise in demand for online drug purchases in the second half of '22, we adjusted the company's revenue forecast for 2023/2024 to 550/67.1 billion yuan (previous value: 607/80.9 billion yuan) to maintain the “buy” rating. In the long run, we are optimistic that the company will continue to strengthen as a self-operated pharmaceutical e-commerce, continue to penetrate active users, and guarantee industry-leading omni-channel supply chain capabilities.
Risk warning: 1. Macroeconomic uncertainty; 2. Internet healthcare policies have been tightened; 3. Prescription drug sales fell short of expectations; 4. Industry competition intensifies