Under moderate consumer sentiment, it will still take time to recover the revenue growth rate

Considering moderate consumer sentiment, JD Health's revenue accelerated or slower than our previous expectations. We lowered JD Health's 2024/2025/2026 revenue forecast to 57.5/62.2/66.2 billion yuan (previous value: 57.8/62.6/66.7 billion yuan). At the same time, considering interest income in the interest rate cut environment or lower than our previous expectations, we adjusted the company's 2024/2025/2026 non-IFRS net profit forecast to 4.25/4.8/5.22 billion yuan (previous value: 4.43/5.02/5.71 billion yuan). We adjusted the valuation method to a relative valuation, giving the company a 20x target non-IFRS PE valuation in 2025, which is a premium over the comparable company's average PE value of 14.0 in 2025. The main consideration is that the company continues to gain market share in the pharmaceutical market due to its relatively high circulation efficiency, and the target price was adjusted to HK$33.0 (previous value: HK$41.3).

Moderate revenue growth is expected for 2H24

We expect the total revenue of the 3Q24 company to increase by 12.0% year on year to 12.98 billion yuan, which is a decrease of 14.6% compared to the same increase in 2Q24. Looking ahead to 4Q24, due to the phased increase in demand for medication brought about by influenza A in the same period last year, JD Health's revenue growth may further moderate. We expect 2H24 JD Health's total revenue to increase 10.2% year on year, and adjusted net profit of 1.67 billion yuan, a slight decrease of 1.7% year over year, mainly due to increased expenses such as execution costs and marketing expenses. Looking ahead to the long term, we are still optimistic that e-commerce channels will become one of the efficient pharmaceutical distribution channels due to their high price transparency and high circulation rate. This is also expected to support leading platforms such as JD Health to continue to improve their profit margin levels in the medium to long term through the expansion of economies of scale.

Focus on the healing process of consumer sentiment and the pace of releasing favorable policies. We believe that the upward driving force for JD Health's future valuation mainly comes from: 1) the restoration of consumer sentiment drives an increase in residents' medical expenses, and JD Health benefits from a recovery in industry demand and shows a trend of improving fundamentals; 2) More policy support or regional business expansion will help JD Health's revenue growth, such as the entry of more regional health insurance O2O. According to the Beijing Health Insurance official account, as of September 24, the number of pharmacies covered by online medical insurance payments in Beijing has reached about 490, an increase of about 140 compared to the number of 350 previously disclosed in the company's 1H24 financial report. In addition, according to a report on the Shenzhen Special Administrative Region Communications website on October 14, about 1,300 designated retail pharmacies in 9 cities including Foshan, Shaoguan, Dongguan, Shanwei, Zhongshan, Shantou, Jiangmen, Zhuhai, and Huizhou in Guangdong Province have launched an online medical insurance payment function, and some cities in Yunnan and Sichuan provinces have also launched this function.

Risk warning: The customer unit price has decreased; the increase in the online medical care rate has fallen short of expectations.