Core views

On March 20, 2023, JD Health announced its 2023 annual results. In 2023, the company achieved revenue of 53.53 billion yuan, a year-on-year increase of 14.54%, and non-IFRS net profit of 4.135 billion yuan, an increase of 58.06% over the previous year. In 2023, the number of active users of the company reached 172 million, an increase of 11.47% over the previous year, driving a steady increase in revenue. Among them, 3P grew faster than 1P, which led to a recovery in profit margins. As the opening of online medical insurance is expected to continue to advance in the future, the company is expected to usher in steady development as a leading player in the pharmaceutical e-commerce circuit.

occurrences

On March 20, 2023, JD Health announced its 2023 annual results. In 2023, the company achieved revenue of 53.53 billion yuan, a year-on-year increase of 14.54%, and non-IFRS net profit of 4.135 billion yuan, an increase of 58.06% over the previous year.

Brief review

The number of annual active users grew steadily, and the number of merchants from the three parties increased dramatically. In 2023, JD Health's annual active users reached 172 million, an increase of 11.47% year-on-year, and a net increase of 17.7 million over 2022. In 2023, the company increased its support for third-party merchants to help merchants grow rapidly through active user groups and digital operation systems. By the end of 2023, the number of JD Health third-party merchants exceeded 50,000, an increase of more than 100% over the previous year. In 2023, the company further consolidated the medical and health supply chain infrastructure, and continued to expand the nationwide warehouse network and full-temperature distribution service range. Relying on 24 domestic drug warehouses and over 100 medical equipment and nutritional health product warehouses, the company has achieved same-day delivery to 225 cities and next-day delivery to 386 cities across the country.

Revenue has maintained steady growth, with 3P growing faster than 1P. In 2023, the company achieved operating revenue of 53.53 billion yuan, an increase of 14.54% over the previous year. Among them, product revenue from sales of pharmaceuticals and health products was 45.653 billion yuan, an increase of 13.1% year on year. Despite the weak e-commerce market, JD Health 1P grew significantly faster than JD's own electrified category and FMCG category. Revenue from online platforms, digital marketing, and other services increased 23.67% year-on-year from 6.369 billion yuan in 2022 to 7.887 billion yuan in 2023. The growth rate was higher than 1P, mainly due to the increase in digital marketing service fees due to the increase in the number of advertisements on the platform and the increase in commission fees due to increased sales of online third-party merchants. The impact of the pandemic on POP merchants in the previous two years was more obvious than the impact on self-employment. JD Health's 3P and 1P GMV accounts for a long time, but we believe that the downward trend in 3P share is expected to ease in the future, and the downward trend corresponding to the company's gross margin is also expected to be reversed.

Gross margin rebounded, and net margin improved markedly. Driven by the increase in 3P's revenue share, the company's gross margin increased by 1 pct to 22.17% year on year in 2023, and the company's gross profit reached 11.865 billion yuan, an increase of 1,974 billion yuan over 2022. As 3P sellers continue to improve in the future, gross margin is expected to continue to improve.

In terms of period expenses, in 2023, the company's management expenses rate decreased by 0.87 pct year on year, and the sales expenses ratio and R&D expenses ratio increased by 0.26 pct and 0.01 pct year on year.

Benefiting from the improved cost ratio and increased gross margin during the period, the company's profit margin improved dramatically. In 2023, the company achieved adjusted net profit of 4.135 billion yuan, an increase of 58.06% over the previous year, corresponding to 7.73% net profit, compared to 5.60% in 2022.

Technological innovation promotes the implementation of inclusive healthcare, and large models help reduce costs, increase efficiency, and upgrade experiences. Relying on its deep technical accumulation, JD Health actively empowers the digital transformation of the industry and continuously drives the implementation of inclusive healthcare with technology. In 2023, JD Health released the medical model “Beijing Medicine Thousand Questions”. This is the first major medical model in the industry that connects objects and services and integrates knowledge and data. It integrates a large amount of clinical practice guidelines, medical literature, and expert knowledge. In 2023, based on technological innovations such as large models, JD Health will launch a series of solutions for online practitioners, including cloud clinics, post-diagnosis follow-up, joint expert consultations, clinical research, doctors' IP brand incubation, and “smart doctor assistant” tools to continuously optimize doctors' online diagnosis and treatment efficiency, quality, and practice safety.

Profit forecast and valuation: We forecast JD Health's 2024-2025 revenue of 61,624 billion yuan and 74.079 billion yuan, respectively, and non-IFRS net profit of 4.192 billion yuan and 5.554 billion yuan, respectively, with corresponding net interest rates of 6.80% and 7.50%, respectively. JD Health was given 25 times PE in 2024, corresponding to a target price of HK$36.22, giving it a “buy” rating.

Risk warning: Low expectations for progress in online health insurance development; other policy risks targeting Internet medical care; JD Health's overall gross margin is low; JD Health's overall gross margin is expected to increase; JD Group user penetration rate is low; JD Health's self-operated category structure improvement falls short of expectations, self-operated gross margin increases low expectations; JD Health's gross margin has not improved significantly compared to the gross margin of traditional offline pharmacy companies; JD Health's overall gross margin is expected to increase lower expectations; JD Health's overall gross margin is expected to increase lower expectations; JD Health's overall gross margin is expected to increase and lower cost efficiency It fell short of expectations, Low expectations for higher profit margins; the impact of the near-field e-commerce model on the pharmaceutical e-commerce circuit on the far-field e-commerce model comes from competition between Meituan and Hungry Medicine; uncertainty about the development of Sino-US relations; depreciation of the RMB exchange rate beyond expectations; and other overseas risk factors affecting the overall Internet performance of Hong Kong stocks.