Introduction to this report:
The performance exceeded expectations, and the results of reducing costs and increasing efficiency were remarkable. The JD Group's continuous improvement of the user experience is expected to drive a continuous increase in the number of active users and the frequency of purchases.
Summary:
Profit forecast and investment suggestions: We continue to be optimistic about the company's long-term development and subsequent performance growth. We expect FY2024E/FY2025E/FY2026E revenue to be 11,671/12,369/12,151.3 billion yuan (RMB, same below), up 8%/6%/1% year on year; FY2024E/FY2025E/FY2026E adjusted net profit is 459/584/59.6 billion yuan respectively, up 4%/5%/5% year on year.
We gave a target price of 159 HKD, maintaining the “Overweight” rating.
Driven by the growth of electrified products, Q4 still achieved higher than expected revenue growth under a high base. In Q4 2023, JD achieved revenue of 306.1 billion yuan, up 4% year on year, higher than the forecast of 299 billion yuan. It was mainly driven by a 6% year-on-year increase in revenue from live products and a 4% year-on-year decrease in revenue from platforms and advertising services. This was mainly due to a decline in commission revenue due to JD's increased subsidies to third party merchants in the 3P business. The results of reducing costs and increasing efficiency are remarkable, and operating profits are greatly affected by asset impairment. Increased subsidies led to an increase in the sales expense ratio by 0.2 pct to 4.3%, but the management fee ratio dropped sharply by 0.
4 pct to 0.8%, and fulfillment costs also slightly improved by 0.1 pct to 5.6%, verifying that JD has greatly improved logistics efficiency under the unfavorable conditions of lowering the free shipping threshold. Operating profit of $2 billion was achieved for the quarter due to one-time accrual of goodwill and asset impairment of $5.2 billion in Q4.
Cooperation with the Spring Festival Gala had remarkable results in seizing traffic entry, seeking to acquire Currys to find additional volume. Guided by the marketing goal of “finding new traffic,” the JD app distributed 3 billion yuan red envelopes and 100 million physical gifts during the Spring Festival Gala. During the Spring Festival Gala, users interacted with JD more than 55.2 billion times, and the number of orders on the JD Cheap Shipping Channel exceeded one million orders within 1 hour of the launch of the Spring Festival Gala. Stimulated by short-term traffic, we expect the number of active users and frequency of purchases to continue to grow in Q1, driving up GMV. Under the guarantee of the supply chain's ability to go overseas, JD is considering acquiring British electronics retailer Currys while increasing the European market. Ochama will add 19 new countries to provide home delivery services, which is expected to expand overseas markets.
Catalysts: The company's business decline exceeded expectations; supply chain capacity continued to be strengthened; valuation repair.
Risk warning: Low price competition in the industry has led to loss of profits; consumer spending capacity recovery falls short of expectations; overseas market expansion falls short of expectations.