Introduction to this report:

Under the trade-in policy, revenue growth picked up, and net profit grew more than expected. JD's logistics cost control continues, the cost rate has dropped significantly, and the profit release is astonishing.

Key points of investment:

Profit forecast and investment suggestions: We slightly adjusted FY2024E/FY2025E/FY2026E operating income to be $1128.2/1183.2/1243 billion yuan (previous value was $1120.9/1177.1/1237.7 billion yuan); FY2024E/FY2025E/FY2026E adjusted net profit of $44.8/48/51.7 billion yuan respectively (previous value was 40.3/42.4/46.8 billion yuan) ). According to the SOTP valuation method, the target price of Hong Kong stocks (9618.HK) was raised to 176 HKD (previous value was 166 HKD) to maintain the “gain” rating.

Revenue growth picked up, and profits exceeded expectations. FY24Q3 JD Group's revenue was +5.1% YoY to 260.4 billion yuan, a significant recovery from Q2's zero year-on-year increase. By type, product revenue/service revenue was +5%/+6%, respectively; by business, JD Retail/JD Logistics were +6.1%/+6.6% year-on-year, respectively. The gross profit margin was 17.3%, a significant increase of 0.7 pct over the previous year. Judging that the share of general products with high gross profit mainly in the self-retail product structure increased, and the cost ratio of the logistics sector decreased significantly. Non-GAAP net profit was +29.3% YoY to 13.2 billion yuan, higher than the forecast of 11.4 billion yuan.

JD Retail: Revenue picked up under the trade-in policy, and profits steadily exceeded expectations. FY24Q3 JD's retail revenue was +6.1% year-on-year to 225 billion yuan. The number of active users and user shopping frequency maintained double-digit year-on-year growth in the quarter. Revenue from electrified products/household goods was +3%/+8%, respectively, mainly benefiting from the recent trade-in policy. The electrified category recovered from a 4.6% year-on-year decline in the previous quarter to positive growth; revenue from platforms and advertising services was +6.3% year-on-year, and the 3P seller ecosystem continues to be cultivated, and is expected to become a subsequent growth engine.

JD Logistics: The profit release was astonishing and far higher than market expectations. FY24Q3 JD Logistics's revenue was +6.6% year-on-year to 44.4 billion yuan, and the operating profit margin increased sharply to 4.7%, achieving operating profit of 2.09 billion yuan, higher than market expectations of 1.26 billion yuan. Mainly due to continued cost control, 24Q3 costs were only +2.2% year over year, and labor costs such as employees and external costs increased by low digits year over year.

Risk warning: Consumption power recovery falls short of expectations; industry competition increases risk; industry regulation is getting stricter.