JD Group announced its 2024 3Q24 results announcement. 3Q24 achieved revenue of 260.4 billion yuan, up 5.1% year on year; non-GAAP net profit reached 13.2 billion yuan, up 23.9% year on year.

Share repurchases: From June 30, 2024 to September 30, 2024, the company repurchased a total of 31 million Class A common shares, totaling $0.39 billion; this is approximately 1.1% of the common shares in circulation until September 30, 2024. The company has made full use of the authorized repurchase amount under the $3 billion share repurchase plan announced in March 2024, and adopted and announced a new share repurchase plan in August 2024, which will take effect in September 2024. Under the new share repurchase plan, the company can repurchase shares worth up to 5 billion dollars over the next 36 months until the end of August 2027.

Brief review:

The company's 3Q24 revenue increased 5.1% year over year. Household appliances 3C increased 2.7% year over year, and FMCG increased 8.0% year over year.

3Q24 service revenue increased 6.5% year over year to 55.8 billion yuan. Among them, logistics and other services increased 6.5% year over year, and platform and advertising increased 6.3% year over year. Disassemble the highlights of performance:

(1) Both gross margin and non-GAAP net margin achieved healthy growth: Thanks to the company's continuous refinement of supply chain capabilities and improved scale effects and operational efficiency, the 3Q24 gross profit margin was 17.3%, an increase of 1.7 pct over the previous year. Non-GAAP net profit margin was 5.1%, up 0.8 pct year over year.

(2) Revenue from core advantage categories such as category and 3C home appliances increased year-on-year; revenue growth in the daily necessities category exceeded the industry average for three consecutive quarters; revenue growth in supermarkets and clothing categories increased by double digits year on year.

(3) The 3P ecosystem continues to improve: 3Q24, third-party merchant transaction users increased by more than 20% year on year, and order volume increased by more than 30% year on year; the “Chunxiao Plan” launched 15 new initiatives, including the “Three Star Rule Upgrade”.

1. Financial analysis

3Q24 revenue was 260.4 billion yuan, up 5.1% year on year, and non-GAAP net profit was 13.2 billion yuan, up 23.9% year over year.

(1) Users & Merchants: The number of active users and user shopping frequency maintained year-on-year double-digit growth for three consecutive quarters in the 3Q24 quarter; merchant orders grew rapidly; in the third quarter, users traded by third party merchants increased by more than 20% year over year, and order volume increased by more than 30% year over year.

(2) Direct sales: 3Q24 direct sales revenue was 204.6 billion yuan, which remained stable. Among them, 3C home appliances increased 2.7% year on year, and FMCG increased 8.0% year on year.

(3) Services: 3Q24 service revenue was 55.8 billion yuan, up 6.5% year on year; of these, platform and advertising revenue of 20.76 billion yuan increased 6.3% year on year, and logistics and other revenue of 35.01 billion yuan increased 6.5% year on year.

The gross margin has increased, and the cost ratio is well controlled. 3Q24 gross profit margin was 17.3%, up 1.7 pct year on year; 3Q24 marketing expense ratio was 3.8%, up 0.6 pct year on year, mainly due to increased spending on promotion activities; R&D expenses ratio was 1.7%, up 0.2 pct year on year; administrative expenses ratio was 0.9%, down 0.1 pct year on year.

In the division, JD Retail's 3Q24 operating margin remained flat at 5.2% year on year; JD Logistics's operating profit margin of 4.7% increased by 4.0 pct year on year.

Non-GAAP net profit increased 23.9% year over year. 3q24non-GAAP operating profit was 13.1 billion yuan, profit margin 5.0% (up 0.5 pct year on year); non-GAAP net profit was 13.2 billion yuan, up 23.9% year on year, and non-GAAP net profit margin was 5.1% (up 0.8 pct year over year).

Cash flow situation: Net cash flow from 3Q24 operating activities was -6.2 billion yuan, free cash flow was -13.809 billion yuan; cash, cash equivalents and restricted cash at the end of the period was 104.954 billion yuan, a decrease of 15.27% over the previous year.

2. Update profit forecasts and valuations

We expect the company's 2024-2026 non-GAAP net profit of 45.1, 46.6, and 50.4 billion yuan, respectively (the original forecast was 41, 43.5, and 46.6 billion yuan); considering the business structure, we give the company a segmented valuation. The valuation method is as follows:

(1) Give the retail business 14xPE in 2025 (originally 12x in 2024); (2) calculate the corresponding equity valuation by referring to the latest round of post-investment valuations and shareholding ratios for its subsidiaries; JD Logistics and JD Health take 2024/11/26 market value for equity valuation; and give a 20% discount.

In summary, given the company's overall reasonable market value of HK$620.1 billion in 2025, corresponding to the target price of H shares of HK$195 per share (+28%), maintaining the “superior to market” rating.

Risk warning: Competition in the industry is intensifying; infrastructure economies of scale are not significant.