Performance summary: JD announced 24Q3 results, achieving revenue of 260.4 billion yuan and +5.1% yoy, which is basically in line with Bloomberg's agreed expectations of 259.7 billion yuan, operating profit of 12 billion yuan, +29.5%, exceeding market expectations of 11 billion yuan, non-GAAP net profit of 13.2 billion yuan, +23.9% yoy, and exceeding market expectations of 11.4 billion yuan. Overall, JD's revenue side for this quarter was basically in line with expectations, and profits exceeded market expectations, mainly due to JD's retail supply chain efficiency improvements and JD logistics cost control.

Comment:

The electrified category benefited from a correction in revenue from state subsidies, and the activity of users and merchants increased and improved the ecosystem. By business perspective, JD Retail 24Q3 achieved revenue of 225 billion yuan (estimated 224.3 billion yuan), +6.1% yoy, JD Logistics revenue of 44.4 billion yuan (expected 44.9 billion yuan), +6.6% yoy, new business revenue of 5 billion yuan (expected 4.7 billion yuan), and -25.7% yoy. By product perspective, 3C Home Appliance revenue is 122.6 billion yuan (estimated 121.6 billion yuan), +2.7% yoy, Nippon 100 product revenue 82.1 billion yuan (expected 82.7 billion yuan), +8.0% yoy, 3P advertising revenue 20.8 billion yuan (estimated 21.2 billion yuan), +6.3% yoy, logistics services revenue 35 billion yuan (estimated 35.5 billion yuan), +6.5% yoy. In the third quarter, due to the elimination of the high base effect, increased demand for household appliances in hot weather, and the launch of the trade-in policy at the end of August, the growth rate of the JD electrified category corrected. The revenue growth rate of the Japanese 100 category exceeded the industry average for three consecutive quarters, and revenue from supermarkets and clothing categories increased by double digits over the same period last year.

Furthermore, the number of active users and user shopping frequency of JD maintained double-digit growth for three consecutive quarters this quarter. Third-party merchant transaction users increased by more than 20% yoy, and order volume increased by more than 30% yoy.

Profits have increased significantly, and operating efficiency has improved. JD 24Q3 achieved NON-GAAP net profit of 13.2 billion yuan, +23.9% yoy, exceeding market expectations of 11.4 billion yuan. Profit growth was due to JD's effective management of costs and expenses and continuous optimization of supply chain efficiency. Among them, JD Retail 24Q3 operating profit reached 11.6 billion yuan, and the operating profit margin was 5.2% (market forecast 4.9%), reflecting the results of JD's continuous optimization of supply chain management. In addition, JD Logistics's operating profit for the quarter reached 2.1 billion yuan, with an operating profit margin of 4.7%, and the supermarket expected 1.3 billion yuan. The main reason was that JD Logistics continued to optimize network layout, algorithm-based vehicle scheduling capabilities, and product structure to reduce costs and increase efficiency, leading to an improvement in profit levels.

In addition, JD's 24Q3 gross margin was as high as 17.3%, and the NON-GAAP net margin was as high as 5.1%. We believe this is mainly due to the continuous improvement in 1P's procurement bargaining capacity and the increase in the share of high-margin daily use department stores.

Trade-in dividends continue to show, and Double Eleven combined with national supplements performed well. On August 26, '24, the Ministry of Commerce launched consumer purchase subsidies for 8 types of home appliances. Currently, the national 20-room trade-in policy has been launched in JD. According to the Ministry of Commerce's National Appliance Trade-In Data Platform, as of 24:00 on November 8, 20.257 million consumers had purchased 30.458 million units of 8 categories of household appliances, driving sales of 137.79 billion yuan. JD has a clear mentality in the electrified category. It is expected that the increase in the number of provinces covered by national subsidies will drive further release in 24Q4 and 2025. At the same time, double 11 is combined with national subsidies. It is expected that JD will perform well during the promotion period. JD revealed that during the Double 11 period, the number of shopping users increased by more than 20% yoy, and the number of live streaming orders purchased by JD increased 3.8 times over the same period last year. The turnover of more than 17,000 brands increased more than fivefold year on year, and the turnover of more than 30,000 small and medium-sized merchants increased more than 2 times year over year. Furthermore, according to third-party Yiguan data, JD's full-cycle GMV grew by 7.0%, and it is expected that JD GMV will achieve high single-digit growth in 24Q4.

Profit forecast: We expect the company's 2024/2025/2026 revenue to be 1135.7/1201.9/1270.7 billion yuan, and NON-GAAP net profit to mother of 44.6/48.9/52.4 billion yuan, respectively. Referring to comparable companies in the industry, JD's retail operating profit in 2024 was given 12x PE. Based on the current market value of JD Logistics and Dada and the market value held by JD, the corresponding target price was HK$170 per share. For the first time, coverage was given a “recommended” rating.

Risk warning: Macro consumption is weak, industry competition is intensifying, and investment in new businesses has exceeded expectations.