Net profit was higher than expected; increased support from new merchants may put pressure on profit growth in 2024
JD Health 2H23's total revenue was 26.42 billion yuan, -0.3% year over year, lower than Visible Alpha (VA)'s agreed 1.5%; non-IFRS net profit of 1.70 billion yuan, corresponding to a non-IFRS net interest rate of 6.4%, up 1.1 pp year on year, higher than VA's agreed 5.3% forecast. The main reason for interest income increased 57.3% year over year to 1.01 billion yuan. We lowered our 2024-2025 non-IFRS net profit forecast by 12.5/ 12.1% to $42.0/5.13 billion, respectively, and introduced a new 2026 value of $6.04 billion. Under the influence of increased support from new merchants and a high base of interest income, we expect the company's profit growth or slowdown in 2024. The DCF-based valuation target price is HK$50.90 (previous value: HK$66.5; WACC: 9.2%, G: 2.5%, unchanged), corresponding 35.7/29.2/24.8 times 2024/2025/2026 non-IFRS PE, “buy”.
Product revenue: Revenue is still resilient under a high base. In 2024, it is expected to return to an endogenous growth trajectory 2H23. Sales revenue of JD Healthcare and health products fell 1.7% year on year to 22.45 billion yuan, mainly due to high base pressure brought about by high demand related to the 2H22 pandemic. The company continues to expand its three-tier warehouse network and full-temperature supply chain service coverage across the country. Management said it has achieved same-day delivery to 225 cities and next-day delivery to 386 cities. By the end of December 2023, the number of annual active users of JD Health reached 172 million, a net increase of about 18 million over the previous year. Looking ahead to 2024, we expect the company to gradually return to a healthy endogenous growth trajectory after a high base effect in the first quarter. We expect the company to further expand the range and richness of online product supply and promote a healthy increase in the number of purchasers and average spending amount. We expect the company's total revenue to increase 17.1% year-on-year to $62.69 billion in 2024.
Service revenue: Service capacity continues to be optimized, and the expansion of tripartite merchants is expected to drive future revenue growth of 2H23. Sales revenue from the JD Health Platform, advertising and other services increased 8.5% year on year to 3.94 billion yuan. The year-on-year growth rate once again surpassed product revenue after 1H23, mainly due to continued growth in advertising revenue and the steady expansion of commission size supported by increased turnover. The company is actively building an online and offline integrated service system. In 2023, the Jingdong Health Examination Center and Suyu Hospital, which was built in conjunction with local government departments, opened a number of self-operated community pharmacies in Beijing to provide users with an efficient and convenient drug purchase experience.
By the end of December, there were more than 50,000 third-party merchants on the JD Health Online Platform (1H23:36,000).
We expect service revenue to increase 15.3% year-on-year to 9.61 billion yuan in 2024, driven by GMV growth brought about by the continuous expansion of the three-party merchant ecosystem.
The “Beijing Medicine Thousand Questions” model continues to help the industry reduce costs and increase efficiency and upgrade user experience
In 2023, the company released the big model “Beijing Medicine Thousand Questions” for the healthcare industry. The management shared that its first dermatology internet hospital launched in 2023 had an auxiliary diagnosis accuracy rate of over 95% based on the big model. In early 2024, the company also released an intelligent doctor assistant for the doctor community. The company uses “Beijing Medical 1000 Research” as the technical foundation to promote comprehensive AI deployment of products and technology to help the industry reduce costs and increase efficiency and upgrade the user experience.
Risk warning: Internet medical policy support falls short of expectations; the increase in the rate of online medical care falls short of expectations.