The macroeconomy is growing steadily, and revenue is expected to increase year-on-year in 24Q1

Looking at the macro environment, retail sales of consumer goods recovered well in 24Q1, recovering to 123% in the same period in '19.

According to data from the National Bureau of Statistics, from January to March 2024, total retail sales of social consumer goods were 120,32.7 billion yuan, up 4.7% year on year, and overall consumption showed a steady growth trend; judging from online consumption, the country's online retail sales reached 338.2 billion yuan, up 12.4% year on year; online retail sales of physical goods increased 11.6% year on year, higher than the overall zero total growth rate of society. By category, JD's three categories of household appliances and audiovisual equipment, communication equipment, and daily necessities achieved retail sales of 2053/1767/195.1 billion yuan respectively, or 5.8%/13.2%/0.7% over the same period last year. According to data from the National Bureau of Statistics, from January to March 2024, the country invested 2208.2 billion yuan in real estate development, down 9.5% from the previous year (calculated on a comparable scale). Overall, the real estate market is expected to narrow as the impact of last year's high base weakens. We expect that JD Group's 24Q1 revenue will rise 6.8% year on year to 259.4 billion yuan, and revenue will remain higher than social zero growth. The main factors are 1) Overall, terminal consumption is recovering smoothly, and the real estate market is expected to rise steadily; 2) By category, core categories such as JD 3C home appliances are expected to continue to rise in the real estate market restoration process, and the Japanese and 100 categories are expected to enter a healthy growth channel under the prosperity of the 3P ecosystem; we believe that with the company's strong supply chain capabilities and internal efficiency optimization, the future will gradually improve consumer demand or demand release, Drive the company's performance to improve.

The impact of the business adjustment is expected to end in 24Q1. The net profit is expected to increase year-on-year in 24Q1. Judging from the company's business, the impact of the company's organizational structure adjustment is expected to clear up in the first quarter of 2024. The POP ecosystem construction is progressing steadily, and the company will invest maximum effort to activate the transformation of new and old merchants. At the beginning of 2023, JD attracted a large number of new merchants to join by launching the “Chunxiao Plan”. As of March 2024, the number of active stores of JD's tripartite merchants exceeded one million. On April 18, at the JD 618 Merchant Ecological Partnership Conference, JD Group CEO Xu Ran said that JD will invest maximum resources to upgrade in the three core areas of traffic ecology, AI technology, and service capabilities. Through a series of support measures, it will achieve the goal of more than 150,000 small and medium-sized merchants to increase sales by more than 50% year-on-year in JD 618, while increasing the number of merchants with sales over one million. We believe that with the continued recovery of the Chinese consumer market, the increase in the platform's low price supply abundance may lay the foundation for the subsequent attack on the sinking market and the activation of old users. We expect the 24Q1 company's non-GAAP net profit to reach 7.44 billion yuan, an increase of 2.9% year on year, and the non-GAAP net profit margin decline slightly year on year, mainly due to:

1) Increase marketing expenses as an exclusive interactive cooperation platform for the 2024 Spring Festival Gala. 2) Since the beginning of 2024, JD has increased salary incentives and welfare guarantees for employees in procurement, customer service, etc., leading to an increase in human resources expenses. Over the long term, user acquisition (increase in number of users) and conversion retention (single-user GMV) are expected to continue to contribute to the performance elasticity of JD's retail business.

24Q1 accumulated repurchases of approximately US$2.1 billion. The company may have experienced a revaluation. By the first quarter of 2024, the company had repurchased a total of 87.5 million Class A common shares (equivalent to 43.8 million American depository shares), totaling US$1.2 billion. The total number of shares repurchased by the company in the first quarter of 2024 was approximately 2.8% of the total number of common shares issued abroad as of December 31, 2023. According to the company's previous share repurchase plan, which expired on March 17, 2024, the company had repurchased a total of approximately US$2.1 billion as of March 17, 2024. According to the company's new share repurchase plan (valid until March 18, 2027), as of March 31, 2024, the company has repurchased a total of approximately US$500 million, with the remaining amount being US$2.5 billion. We believe that as the repurchase plan progresses in an orderly manner, the company may face a revaluation of the valuation.

Investment suggestions: The impact of short-term corporate business adjustments is declining, POP merchant ecosystem construction is progressing steadily, and consumer demand for core categories is expected to be gradually released. We expect JD's revenue to be 11,916/13,189/14,599 billion yuan (previous values were 11,542/13,189/1,459.9 billion yuan, respectively), up 9.9%/10.7% year-on-year; adjust net profit (non-GAAP) attributable to shareholders for 2024-2026 to 389/ 336.34.2 billion yuan (previous values were 389/33.30/31.7 billion yuan, respectively). In the long run, the overall coordination of 1P and 3P is coordinated with the low price mentality strategy promoted by the company. 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, and continue to advance customer acquisition. At the same time, the application of the AI big model is expected to continue to reduce costs and increase efficiency. We are giving 9.8x PE in 2024, with a target price of HK$130, maintaining a “buy” rating.

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.