Incident: On March 6, 2024, Beijing time, JD Group (9618.SW) released its report for the fourth quarter and full year of 2023. In the fourth quarter of 2023, the company achieved revenue of 306.1 billion yuan, up 3.6% year on year, exceeding Bloomberg's agreed expectations; of these, product revenue was 246.5 billion yuan, up 3.7% year on year; service revenue was 59.6 billion yuan, up 3.0% year on year. On the cost side, the R&D/ Sales/ Management/ Fulfillment Expense Ratio for the fourth quarter of 2023 was 1.42%/4.28%/0.78%/5.65%, respectively, and 1.48%/4.06%/1.23%/5.71% for the same period in '22, with changes of -0.06/+0.23/-0.46/ -0.06pct respectively. Profit side performance exceeded expectations: non-GAAP net profit for the fourth quarter of 2023 was 8.4 billion yuan, up 9.9% year on year; net profit margin was 2.7%, optimized by 0.1 pct year on year.
In terms of operating data, the company focuses on price competitiveness and platform ecosystem construction. In the fourth quarter of 2023, JD Double 11's turnover, order volume, and number of users all reached record highs. At the same time, the number of active users accelerated in the fourth quarter, and the average shopping frequency of users continued to rise.
JD Retail: Revenue is basically the same as the same period last year, and platform ecosystem construction is progressing steadily.
In the fourth quarter of 2023, JD's retail revenue reached 267.6 billion yuan, a year-on-year increase of 3.4%, exceeding market expectations. Among them, revenue from the electronics and household appliances category was 15.4 billion yuan, an increase of 6.1% over the same period last year. The growth rate was higher than that of the same industry, and the core advantage was further consolidated; revenue from the household goods category was 96.1 billion yuan, an increase of 0.2% year on year, achieving positive growth for the first time in 2023. Under measures to strongly support the operations of small and medium-sized businesses, such as commission-free and fee reduction, the company's service revenue in the fourth quarter reached 59.6 billion yuan, an increase of 3.0% over the previous year, mainly driven by logistics and other services; annual service revenue reached 213.4 billion yuan, an increase of 17.8% over the previous year. Overall, under measures such as price cuts and subsidies, JD's retail revenue has remained steady, and the core electrified categories have helped the business grow. The company's “Chunxiao Plan” was launched in early 2023, focusing on building an open ecosystem and enriching consumer product choices. By the end of 2023, the number of JD's three-party merchants was close to one million, and the number of product SKUs of the three-party merchants had nearly doubled compared to the beginning of the year. We believe that as the downturn strategy progresses, the increase in the abundance of products in various price bands will help gain market share. On March 13, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. On the same day, JD 3C Digital officially announced three major initiatives. Among them, the “trade-in” special support program will integrate 3 billion yuan to increase subsidies. It is expected that in the next three years, trade-in or leverage new product sales will exceed 100 billion yuan. Driven by core categories, JD's retail revenue is expected to return to a healthy growth channel.
JD Logistics: Revenue and net profit reached new highs, and the trend of high-quality growth was consolidated.
In the fourth quarter of 2023, JD Logistics's revenue reached 47.2 billion yuan, up 9.7% year on year, lower than market expectations. In 2023, we achieved revenue of 166.6 billion yuan, an increase of 21.3% year over year; annual adjusted (non-IFRS) net profit reached 2.76 billion yuan, an increase of 218.8% year over year.
Among them, revenue from integrated supply chain customers increased 5.2% year on year to 81.5 billion yuan, while revenue from other customers increased 42.0% year over year to 85.2 billion yuan.
By the end of 2023, the number of external integrated supply chain customers reached about 75,000, and ARPC increased 15.2% year over year to 420,000 yuan. We believe that as integration with the Debon network progresses, the revenue scale of the express shipping business continues to expand, and it is expected that costs will be further reduced due to scale effects.
At the same time, the company is further building a global supply chain network with overseas warehouses as the core. By the end of 2023, the company had nearly 90 bonded warehouses, direct mail warehouses and overseas warehouses, with a total management area of nearly 900,000 square meters.
Drivers: Proposed acquisition of Currys to seek overseas markets and increase shareholder dividends and repurchases.
On February 19, 2024, the company issued a statement stating that it is considering a takeover offer to Currys (CURY.UK), which may include a cash purchase offer for all of Currys' issued share capital. We believe that on the basis of improving the overall ability of the supply chain to go overseas, the company plans to acquire leading retailers of British electronics products to further expand the European market. At the same time, Ochama has expanded door-to-door delivery services to 24 European countries, and the roll-out of integrated supply chain logistics services is expected to gradually open up overseas markets. Furthermore, on March 6, the company announced that the board of directors has approved an annual cash dividend of about 1.2 billion US dollars, with a dividend rate of about 3.0% (corresponding market value of about 41 billion US dollars at the close of March 11); at the same time, it plans to repurchase shares worth no more than 3 billion US dollars within the next 36 months. We believe that as the repurchase plan progresses in an orderly manner, the company may face a revaluation of the valuation.
Investment advice: We believe that as overall consumption stabilizes, moderates and improves throughout the year 24, the company's growth in all categories is expected to return to a healthy growth rate, the company's core charged categories are expected to continue to gain market share, and the supermarket category is expected to return to healthy growth. We expect JD's revenue for 2024-2026 to be 11,542/13,189/14,59.9 billion yuan (11,847/13,09.2 billion yuan, respectively), up 6.4%/14.3%/10.7% year-on-year; adjusted net profit attributable to shareholders (non-GAAP) for 2024-2026 will be 389/31.7 billion yuan (389.445 billion yuan, 24-25 years ago, respectively). In the long run, IP and 3P overall coordination collaborates with the price competitiveness strategy promoted by the company, and continues to advance customer acquisition. We continue to be optimistic about the development potential of the company's core supply chain and logistics capabilities over a long period of time. We will give 10x PE in 2024, with a target price of HK$135.
Risk warning: Policy supervision risks; increased competition in the e-commerce industry; organizational restructuring progress falls short of expectations; overseas listing regulatory policy risks; performance forecasts may differ from actual values. Please refer to the company announcement.