The core analysis of this report analyzes the ways and possibilities for JD to break the current situation where JD's “provincial” shortcomings expand and “fast” advantages shrink, putting pressure on stocks, and at the same time slowing revenue growth due to reduced high-line incremental space.
We believe that in terms of stock defense, JD's low price strategy is indeed effective on the “provincial” level, but the focus should be on making up for shortcomings and not fighting with friends and merchants; on the “fast” dimension, more attention should be paid to the Dada Group to withstand immediate retail shocks, consolidate timeliness advantages, and expand a new growth curve. In terms of incremental attacks, we believe that JD's increased emphasis on low prices and decline is irreproachable, but it should also firmly consolidate and enhance the two core advantages of “fast” and “good”, widen further gaps with friends and merchants, and achieve differentiated and sustainable growth. We are optimistic about JD's solid barriers and long-term growth resilience, and maintain a “highly recommended” investment rating.
Sorting out JD's plight: the “provincial” shortcoming is expanding, the “fast” advantage is shrinking, the stock market is under pressure, and the incremental market is limited. JD takes self-operation as its core business model, “fast” and “good” as its core advantages, and middle and high tier users as the core basic market. Under the current trend of rational consumption, consumers have moved the importance of price factors forward, and the shortcomings of JD's “province” have been amplified; at the same time, the faster execution of contracts on platforms such as Meituan Flash Sale has led to a reduction in JD's “fast” advantage, causing part of the stock loss; on the other hand, the growth of users in the JD High Line market is close to the ceiling, and the decline has no obvious advantage over competition, making it difficult to make substantial contributions. The company is facing difficulties in growing.
Stock defense: The low price strategy focuses on making up for shortcomings rather than surpassing friends and merchants. The immediate retail business should be more careful when it comes to both offense and offense. Facing the expansion of the “provincial” shortfall, JD has achieved certain results by optimizing cooperation mechanisms with brands, introducing low price pallets, and promoting fair competition in 1P3P prices. However, considering its own commercial genes and competition among friends and merchants, we believe that the core of JD's strategic adjustment should be to supplement the price shortfall rather than surpass friendly businesses. In the long run, as brand product prices on various platforms gradually approach, JD still has obvious advantages in quality, logistics, and after-sales, and has the ability to maintain the market. Facing the shrinking “fast” advantage, we believe that JD should pay more attention to the instant retail business. Dada Group has both offense and defense. On the one hand, it can withstand the impact of platforms such as Meituan Flash Shopping and maintain its “fast” advantage, and at the same time expand a new growth curve.
Incremental attack: Sinking is not good for falling in love with war; improving quality and service is the long-term path. We believe that new customer acquisition in the sinking market can indeed be one of the driving forces for JD's future growth, but under its own business and brand genes, it is difficult for JD to establish a differentiated advantage over friends and merchants in the sinking market and the 3P circuit. JD should grasp the “fast” and “good” stability and competitiveness under the self-operated moat, and focus on quality and service to enhance the user's shopping experience and frequency of consumption.
Recently, JD has continued to upgrade in terms of service and quality. At the service level, JD optimizes the user experience by reducing postage and improving after-sales service; at the quality level, by developing its own brand and semi-hosting with a solid supply chain, it is expected to provide development impetus for the company's long-term sustainable growth.
Investment advice: Currently, the growth rate of the e-commerce industry is slowing down and competition is becoming more intense. We believe that JD is putting more emphasis on low prices and slowing down, but it should also firmly consolidate and enhance its “fast” and “good” core advantages, focus on quality and service, enhance the shopping experience and consumption frequency of core users, and achieve differentiated and high-quality growth. On this basis, we have also seen that JD has begun to increase repurchases and dividends, strengthening shareholder returns and demonstrating confidence in the company's development. We are optimistic about JD's solid barriers and long-term growth resilience. We will give the company 10 times PE in 2024, target price of HK$121.22, and maintain a “highly recommended” investment rating.
Risk warning: macroeconomic risks, increased risk of industry competition, risk of business adjustments falling short of expectations, risk of Dada Group fraud affecting the operation and development of JD's instant retail business.