JD Group announced its 2023 4Q23 results announcement on March 6. 4Q23 achieved revenue of 306.1 billion yuan, up 3.6% year on year; non-GAAP net profit reached 8.4 billion yuan, up 9.9% year on year.
Dividend payment and share repurchase: The company's board of directors has approved an annual cash dividend, with a total dividend of about US$1.2 billion, exceeding US$1 billion in 2023; at the same time, it has approved a new share repurchase plan to repurchase shares worth no more than US$3 billion within 36 months until the end of March 2027.
Brief review:
The company's 4Q23 revenue increased 3.6% year over year. Household appliances 3C increased 6.1% year over year, and FMCG increased 0.2% year over year.
4Q23 service revenue increased 3.0% year over year to $59.6 billion, of which logistics and other services increased 8.1% year over year, and platforms and advertising decreased 4.0% year over year. We believe that the company's internal reforms have paid off. Look at the structure:
(1) 1P business: Revenue from the household goods category stopped declining for three consecutive quarters and achieved 0.2% growth. Revenue from the electronics and household appliances category increased by 6.1%, continuing to be higher than the same level in the same industry.
(2) 3P business: The number of merchants increased by three digits year-on-year throughout the year, while the number of 3P orders and 3P active users continued to increase year-on-year.
(3) The 4Q23 company's revenue increased 3.6% year on year under real low prices, real subsidies, and real investment, and retail OPM increased 2.6% by 0.4 pct year on year. The results of internal reforms were remarkable.
1. Financial analysis
4Q23 revenue of 306.1 billion yuan increased 3.6% year over year, non-GAAP net profit of 8.4 billion yuan increased 9.9% year over year; full year of 2023 revenue of 108.47 billion yuan increased 3.7% year over year, and non-GAAP net profit of 35.2 billion yuan increased 24.8% year over year.
(1) Users & Merchants: In 2023, JD's “Double 11" sales volume, order volume, and number of users reached a record high, and the total number of people who watched the live broadcast exceeded 380 million; activities such as “9 yuan 9 free shipping”, “JD 10 billion subsidy”, and “JD flash sale” have created more sales growth markets for brands and merchants.
(2) Direct sales: 4Q23 direct sales revenue was 246.5 billion yuan, up 3.7% year on year. Among them, household appliances 3C increased 6.1% year on year, and FMCG increased 0.2% year on year.
(3) Services: 4Q23 service revenue was 59.6 billion yuan, up 3.0% year on year, accounting for 19.5% of total revenue; of these, platform and advertising of 23.63 billion yuan decreased 4.0% year on year, and logistics and other revenue of 35.95 billion yuan increased 8.1% year on year.
The gross margin increased slightly, and the performance cost ratio decreased slightly. 4Q23 gross profit margin was 14.21%, up 0.16 pct year on year; performance fee ratio was 5.65%, down 0.07 pct year on year.
Operational efficiency has been improved, and cost control is good. The 4Q23 marketing expense ratio was 4.3%, up 0.2 pct year on year, mainly due to the increase in spending on promotion activities; the R&D expense ratio was 1.4%, a decrease of 0.1 pct year on year; and the administrative expenses ratio was 0.8%, a decrease of 0.4 pct year on year, mainly due to a decrease in equity incentive expenses.
Non-GAAP operating margin remained flat year over year, and non-GAAP net profit increased 9.9% year over year. 4q23non-GAAP operating profit of 7.793 billion, profit margin 2.5%, the same as the previous year. In the division, JD Retail 4Q had an operating profit margin of 2.6%, a decrease compared with 3% in 4Q22; the new business lost 795 million yuan with Dada 4Q, but the operating margin loss decreased 6.6% year on year; JD Logistics 4Q made a profit of 1.33 billion yuan and a profit margin of 2.8%, an increase of 0.7 pct year on year. Net profit for 4Q23 was 7.94 billion yuan, non-GAAP net profit was 8.4 billion yuan, up 9.9% year on year, and non-GAAP net profit was 2.7%, up 0.1 pct year on year.
Cash flow situation: Net operating cash flow for 4Q23 was $19.613 billion. Excluding effects such as JD Baijiao in operating cash flow, 4Q23 free cash flow was $13.299 billion; cash, cash equivalents and restricted cash at the end of the period was $79.398 billion, down 6.72% year on year.
2. Profit forecasting and valuation
2.1 Based on the above analysis, non-GAAP net profit is expected to increase by 5%, 11%, and 10%, respectively, from 2024-2026. Based on the above analysis, we make the following main assumptions about the company's financial forecasts.
(1) Retail revenue is expected to increase by 5.46%, 6.93%, and 4.80% year-on-year in 2024-2026, with Home Appliance 3C increasing 4.59%, 5.00%, and 4.00% year-on-year respectively, and Daily-use Department Stores growing 6.88%, 10.00%, and 6.00% year-on-year respectively;
(2) Service revenue is expected to increase by 11.51%, 9.36%, and 9.53% year-on-year in 2024-2026, of which commission and promotion revenue will increase 9.38%, 10.23%, and 7.56%, respectively, and logistics and other service revenue will increase by 12.91%, 8.81%, and 10.80%, respectively;
(3) The gross margin for 2024-2026 is expected to be 15.05%, 15.03%, and 15.37%, respectively, with a performance fee ratio of 5.95%, a marketing expense ratio of 3.76%, and a technology and content cost ratio of 1.51%.
Overall, the company's total revenue for 2024-2026 is 11568 billion yuan, 12428 billion yuan, 1314.7 billion yuan, and growth rates of 7%, 7%, and 6%, respectively; non-GAAP net profit is 368, 408, 44.7 billion yuan, respectively, and 5%, 11%, and 10% respectively.
2.2 Segment valuation is based on a reasonable value range of HK$125-160 for H shares. Considering the business structure, we give the company a partial valuation. The valuation method is as follows:
(1) For the 2024 retail business 8-12xPE, corresponding to US$285-42.7 billion; (2) for its subsidiary companies such as JD Industrial Products, the corresponding equity valuation was calculated by referring to the latest round of post-investment valuation and shareholding ratio; JD Logistics and JD Health took the 2024/03/27 market value for equity valuation.
In summary, the company was given an overall reasonable market value range of US$506-64.8 billion and HK$3963-507.7 billion in 2024, corresponding to the reasonable value range of HK$125-160 per share for H shares, giving it a “superior to the market” rating.
Risk warning: industry competition is intensifying; new business falls short of expectations; infrastructure economies of scale are not significant.