Bank of China International reports that as the number of retirees in China increases, the National Basic Medical Insurance Fund is beginning to be pressured. With more funds shifting towards social medical insurance funds, consumers are becoming resistant to purchasing pharmaceuticals and non-essential over-the-counter drugs using personal medical insurance. Price-sensitive consumers are turning to online medical platforms, leading to a sharp increase in pharmaceutical sales for JD Health (06618.HK).

The bank expects JD Health's third-quarter revenue to increase by 22% year-on-year, compared to a 14.6% year-on-year increase in the second quarter, benefiting from consumers shifting from offline to online purchases and promotions in the second half of the year. The bank has also lowered the company's sales forecast for this year by 1.8%, reflecting a reduction in consumer spending on non-essential items such as beauty and other medical equipment, leading to a decrease in average income per user. The bank has also lowered its non-International Financial Reporting Standards (IFRS) profit forecast for the company this year by 11.3%, reflecting the increasing contribution of drug sales affecting the gross margin.

Bank of China International has lowered the target price for JD Health from 37.3 yuan to 37 yuan, predicting a P/S ratio of 1.8 times, about 1 standard deviation lower than the three-year average. The target PE ratio is forecasted to be 19.5 times by 2025, in line with the predicted 19.1% increase in earnings per share next year, with a rating of 'outperform the market'.