Core views

We expect JD Group revenue to increase 5% year on year to 260.1 billion yuan in 2024Q3, JD retail revenue up 5.1% year on year to 222.9 billion yuan, and JD Group's non-GAAP net profit of 11.3 billion yuan, corresponding net interest rate of 4.34%, compared to 4.29% for the same period of the previous year.

This quarter was affected by the restoration of a clean base for the charged category and the implementation of the trade-in policy. The revenue growth rate of the charged category recovered, and the Nippon 100 category continued to maintain a higher growth rate, which together led to a recovery in retail and group revenue growth. On the profit side, the overall profit margin remained steady in the third quarter. The group's profit margin may still increase year over year. Retail and group profit margins in the fourth quarter may be under pressure, depending on the size of Double 11 investment.

Brief review

2024Q3 outlook: JD's 2024Q3 revenue is expected to increase 5% year-on-year to 260.1 billion yuan, non-GAAP net profit is 11.3 billion yuan, and the corresponding net interest rate is 4.34%, compared to 4.29% for the same period of the previous year.

The trade-in policy boosted revenue growth in the third quarter. JD Group's revenue is expected to increase 5% year on year, and JD's retail revenue is expected to increase 5.1% year on year. GMV is expected to grow faster than JD's retail revenue growth rate, or close to 7.5%, and 3P growth is higher than 1P.

Looking at the structure, with the restoration of a clean base for the charged category and the implementation of the trade-in policy, the revenue growth rate of the charged category recovered in the third quarter, and the growth rate in September was significantly better than in July and August.

The trade-in policy has boosted the recovery of the electrified category. Judging from the National Day and recent data, it is expected that the mid-term boom will continue in the fourth quarter, especially during the peak season of the Double 11 electrified category. The growth rate of the Nippon 100 category in the third quarter is still expected to be higher than that of charging, achieving high single-digit growth. Among them, supermarkets are expected to continue the high growth momentum of the previous two quarters or achieve double-digit growth.

Profit side performance is expected to be steady in the third quarter, and may be under pressure in the fourth quarter. Driven by 3P's faster growth than 1P (3P share increase), free shipping threshold adjustments to gradually restore clean base, and increased profitability in the logistics sector, JD Group's non-GAAP net interest rate is expected to rise to 4.34% year-on-year in the third quarter, compared to 4.29% in the same period of the previous year, and remained steady overall. Looking ahead to the fourth quarter, considering the phased increase in industry competition during the Double 11 peak season, the impact was partly offset by an increase in the 3P share and a further return to normal in the free shipping threshold. It is expected that retail and group profit margins in the fourth quarter may be under year-on-year pressure. The details will still depend on the level of investment in Double 11. The growth rate of Double 11 is expected to be no lower than the 618 growth rate.

Profit forecast and valuation: The company's revenue for 2024 and 2025 is estimated to be RMB 1134.5 billion and RMB 1201.9 billion, respectively, and non-GAAP net profit of RMB 42.255 billion and RMB 44.453 billion, respectively. Maintaining a “buy” rating, the target price was given at HK$189.15, corresponding to 13 times the Group's PE in 2024.

Risk warning: low shareholder return expectations; weak macroeconomic and social zero growth; market share fell beyond expectations; demand for trade-in overdraft, and subsequent endogenous demand fell short of expectations; 10 billion subsidy investment exceeded expectations, driving users in the sinking market, putting pressure on the main e-commerce business profit margins; limited room for future cost reduction and efficiency, pressure on new business margins; industry regulatory risks; low expectations for the securitization process of subsidiary assets; potential risks from subsidiaries such as Dada; uncertain development of the relationship between China and the US Performance; RMB exchange rate exceeded expectations Depreciation; risk of stock delisting; other overseas risk factors affecting the overall performance of CCIC.