Event: On May 16, 2024, Beijing time, JD Group (9618.SW) released the first quarter results report of 2024. In the first quarter of 2024, the company achieved revenue of 260 billion yuan, an increase of 7.0% over the previous year, exceeding Bloomberg's unanimous expectations; of these, product revenue was 208.5 billion yuan, up 6.6% year on year; service revenue was 51.5 billion yuan, up 8.8% year on year. On the cost side, the R&D/sales/management/fulfillment fee rates for the first quarter of 2024 were 1.55%/3.56%/0.76%/6.46%, respectively, and 1.72%/3.29%/1.03%/6.33% for the same period in '23, changing -0.17/0.26/-0.27/+0.14pct, respectively. Profit side performance exceeded expectations: non-GAAP net profit for the first quarter of 2024 was 8.9 billion yuan, up 17.2% year on year; net profit margin was 2.7%, optimized by 0.1 pct year on year. The company increased shareholder returns, and repurchases progressed steadily: from the beginning of the year to May 15, 2024, the company repurchased a total of 98.3 million shares, totaling US$1.3 billion. The total number of shares repurchased was about 3.1% of the common shares in circulation as of December 31, 2023. As of May 15, 2024, the remaining amount of the company's new share repurchase plan was US$2.3 billion. In terms of operational data, the company focuses on user experience. In the first quarter of 2024, JD achieved a significant increase in all user indicators. The number of quarterly active users increased by double digits over the same period last year, and the average shopping frequency of users and NPS (net user recommendation value) increased at an accelerated pace.

JD retail: The core categories recovered above the industry average. In the first quarter of 2024, the merchant ecosystem continued to be optimized. In the first quarter of 2024, JD's retail revenue reached 226.8 billion yuan, up 6.8% year on year, exceeding market expectations; operating profit reached 9.325 billion yuan, a decrease of 5.27% year on year, and the performance was better than market expectations. By category, 1) The revenue of the electronic products and household appliances category was 123.2 billion yuan, an increase of 5.3% over the previous year. In the first quarter, JD and partners in the 3C digital, home appliances, and automobile categories jointly invested 6.5 billion yuan to increase trade-in services, while working with 20 provinces and cities to implement trade-in subsidies one after another. We believe that as the trade-in policy releases stock demand, the company's electrified category is expected to continue to gain market share. 2) The daily necessities category revenue was 85.3 billion yuan, up 8.6% year on year, higher than the industry average, and the category structure was more balanced. At the same time, the company continuously optimizes the operating efficiency and cost of the merchant ecosystem. In the first quarter of 2024, the number of third-party stores surpassed millions to further enrich product supply, and JD's “Chunxiao Plan” was upgraded to help merchants save 50% of operating costs and improve product price competitiveness.

We believe that with the end of business adjustments, the supermarket business returns to steady growth, which is expected to drive the continued improvement of JD retail. On the operational side, 1) The construction of the company's content ecosystem is progressing steadily. On April 16, 2024, JD introduced the AI digital representative of Mr. Liu Qiangdong, the founder and chairman, to join the JD supermarket, home appliance live broadcast room, and the number of viewers exceeded 20 million in one hour. 2) User experience builds the core competitiveness of tripartite merchants. In the first quarter, on the basis of achieving 90% free shipping for third party products, the company popularized the remaining third party products with up to 59 free shipping. Currently, JD supports the “free on-site return and exchange” service for 75% of third-party products. We believe that the improvement of ecological construction is expected to further reduce customer acquisition costs, improve user experience or drive an increase in order volume and number of active users, thus achieving a positive cycle of performance.

JD Logistics: Revenue and operating margins exceeded market expectations, helping Chinese brands go overseas. In the first quarter of 2024, JD Logistics's revenue reached 42.1 billion yuan, an increase of 14.73% over the previous year, higher than market expectations; operating profit was 224 million yuan, higher than market expectations of -50 million yuan. In the first quarter, JD Logistics provided integrated supply chain services covering warehousing and distribution for Mingchuang Premium stores in Australia and Malaysia. In the future, the two sides will further explore opportunities for global cooperation. At the same time, the European omni-channel retail brand ochama operates more than 750 self-pickup points, providing consumers with more flexible delivery methods. We believe that with the improvement of the company's global supply chain network, the number of external integrated supply chain customers may increase steadily with one-stop service to help Chinese brands go overseas.

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. At the same time, considering the intensification of competition in the e-commerce industry and the orderly release of the 3P ecosystem construction results, we expect JD's revenue in 2024-2026 to be 11,775/13,189/ 14,599 billion yuan (previous values were 11,916/ 13,189/14,599 billion yuan, respectively), up 8.6%/12.0%/10.7% year on year; adjusted net profit (non-GAAP) attributable to shareholders (non-GAAP) for 2024-2026 to be 339/365/37.9 billion yuan, respectively (previous values were 389/389/ $336/342 billion). 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, and maintain a “buy” rating.

Risk warning: policy supervision risks; increased competition in the e-commerce industry; risk of overseas listing supervision policies; performance forecasts or differences from actual values; please refer to the company announcement.