JDH reported a mixed set of 1H24 results. 5% YoY total revenue missed consensus by 3% while reaching historical record high at 9.3%. Non- IFRS NPM beat consensus by 2.1ppts. We expect Co. to continue emphasising on share gain of key product categories, prioritising profitability over revenue and investing in multiple key areas in ROI- oriented manner amid macro challenges in 2H24. Maintain BUY on Co.'s edges and committed executions but cut our DCF TP to HK$30.0 mainly reflecting lower topline forecasts on macro and the lack of nationwide industry catalysts.
Key Factors for Rating
L-T vision holds. We see Co. dedicates to i) focus on share gain of key categories leveraging their supply chain, procurement, traffic and user edges; ii) prioritise high quality bottom line growth over topline amid macro challenges; and iii) continue strengthening ROI-oriented investments in multiple fields such as brand, users, merchants, products, services, omni-channel, technology especially acceleration of healthcare LLM, etc. in 2H24. We see improved user base and mindshare with gradual favourable policies but we do not assume large revenue incremental in the near to medium-term. Thus, we lower our 2024-2026E total revenue estimations by 7-15% by cutting our ARPU estimations on key product sales while maintaining our AAC forecasts largely unchanged. Our increased 2024-2026E bottom line forecasts despite lower finance income estimates mainly reflect our uplifted GPM estimations on structural revenue mix benefits and enhanced supply chain and procurement management with unchanged opex assumptions on committed investments.
1H24 profit beat on improved GPM and strong finance income. Total
revenue grew 5% YoY to RMB28.3bn, 3% missed consensus. Product revenue only delivered 3% YoY entering post-covid era but with increasing active users and purchase frequency, while service revenue log 12% YoY mainly contributed by ad fees from more advertisers. 12M AAC further increased to 181m and the number of 3P merchants doubled YoY to reach 80K as of Jun 2024. Outperformed GPM was 23.6%, mainly benefitted by improved supply chain and procurement management within each categories despite increased revenue contribution of lower GPM pharmaceutical products. Despite increased 10.4% fulfillment expenses as % of revenue (vs. 9.5% in 1H23 and 10.3% in 2H23) on user friendly free shipping policies, adj. NPM reach historical record high of 9.3% due to strong finance income.
Key Risks for Rating
Downside risks: i) regulations; ii) Covid-normalisation; iii) destructive investments; iv) less support from JD Group; and v) fierce competition.