Trade-in drove the recovery of core categories of digital home appliances. “Double Eleven” shopping users increased 20% year over year: the company's 3Q24 revenue was RMB 260.4 billion, up 5.1% year on year, which is basically in line with market expectations. Product revenue increased 4.8% year on year. Among them, the core category of digital home appliances increased 2.7% year on year and resumed positive growth, mainly benefiting from favorable trade-in policies across the country. Moreover, the year-on-year growth rate increased month by month in the third quarter, and the benefits will continue in the fourth quarter; revenue from daily necessities department stores increased 8.0% year on year. Among them, revenue from supermarkets, clothing, sports and outdoor or fashion categories all achieved double-digit year-on-year growth, becoming the main growth driver. The number of quarterly active users increased by double digits year-on-year for four consecutive quarters, maintaining healthy growth, and there is still room for improvement. During the Double Eleven period, the number of JD shopping users increased by more than 20% year on year, and the number of live streaming orders from JD increased 3.8 times year on year, with strong growth. We expect the company's revenue to increase 5.7% year on year in the fourth quarter.

Profit in the fourth quarter may have remained stable, and there is still room for improvement in the medium to long term: gross margin for the third quarter was 17.3%, up 1.7 pp year on year, up 1.5 pp from month to month, and reached a new high; adjusted net profit increased 24% year over year to 13.2 billion yuan, higher than market expectations. The adjusted net interest rate was 5.1%, up 0.8 pp year on year.

Among them, JD's retail operating profit margin improved by 2.6 pp to 5.2% year on year; JD Logistics's operating profit margin increased 4.0 pp to 4.7% year on year, and declined slightly from month to month. Considering the company's investment in marketing in the fourth quarter, we believe that profits may remain stable overall, and profits will grow by double digits throughout the year. We are optimistic that there is still room for further improvement in profit margins in the medium to long term. It is expected that the company's long-term goal of high single-digit profit margins will be achieved, mainly due to the continuous promotion of economies of scale, continuous optimization of the product portfolio, and the increase in 3P contributions.

Upgraded to “Buy” rating and target price of HK$162/$42: We slightly raised the company's 2024E/2025E revenue forecast by 0.4% and 0.3%, and raised the target price to HK$162/42, corresponding to FY24E 10x P/E. Considering that the company's core categories benefit from favorable trade-in policies and that medium- to long-term profit margins still have room for improvement, it was upgraded to a “buy” rating. The total repurchases of the company in the third quarter were about 0.39 billion US dollars, with a cumulative total of 3.6 billion US dollars (about 8.1% of shares) in the first three quarters.

Investment risks: Consumption recovery progress; industry competition or intensification; profit margins falling short of expectations due to increased investment.