Incidents:

The company recently released its fiscal year 2023 performance report: during the reporting period, it achieved operating income of $53.53 billion (+14.5%), including 45.65 billion yuan (+13.1%), service of 7.88 billion yuan (+23.6%); gross profit of 11.87 billion yuan (+19.95%), gross profit margin 22.2% (+1.0pct); annual adjusted net profit of 4.14 billion yuan (+58.1%); net profit to mother increased significantly, to 2.14 billion yuan (+463.5%). Separated, 2023H2's revenue was 26.42 billion yuan (-0.3%), including self-operating income of 22.45 billion yuan (-1.9%), service revenue of 3.93 billion yuan (+8.5%), gross profit of 5.66 billion yuan (+3.4%), adjusted net profit of 1.70 billion yuan (+20.9%), and net profit of 580 million yuan (+269.5%).

Comment:

Cost reduction and efficiency continue to advance, the number of users is growing steadily, and the company's profitability is expected to continue to increase. Under a high base, 23H2's revenue accounted for 49.46% of the year, a slight decrease of 1.09 pcts from the same period in '22; 23Q4's revenue accounted for 27.71% of the year, down 7.24 pcts from the same period in '22. There is a lot of room for user growth: the number of annual active users of the company has further grown to 172 million (+11.67%), but the penetration rate is only 25%. In the long run, the growth potential of health consumption will be further unleashed, and there is great potential for growth; in breakdown, the ARPU value of the company's customers in 2023 was 311 yuan/person (+2.57%). The company's supply chain capacity is continuously optimized, and the cost control effect is still showing, and profitability is expected to continue to improve: during the reporting period, the management expense ratio decreased slightly by 0.87 pcts to 3.73%; the R&D expenses rate decreased slightly by 0.36 pcts to 1.98%; the sales expenses rate remained stable at 4.96%; the fulfillment fee ratio remained stable at 9.98%; and the gross margin of the 2023H2 company increased from 20.66% in the same period last year to 21.36%. As a result, the company's net profit margin increased by 3.19 pcts to 4.0%, and the adjusted net profit margin increased by 2.13 pcts to 7.7%. Considering that the company's warehousing and distribution capacity has reached a high level and fulfillment costs will be diluted as the scale of operations expands, the company's profitability is expected to continue to increase.

Establish an online and offline integrated service system, and promote the accessibility of high-quality medical services through 3P business. During the reporting period, product sales (1P) revenue was 45.77 billion (+13.1%), accounting for 85.42% (-1.3%) of the company's total revenue; online pharmaceutical retail platforms, digital marketing and other services (3P and others) increased significantly, achieving revenue of 7.9 billion yuan (+23.7%). Affected by COVID-19, 1P and 3P and other revenue growth rates were roughly equivalent to 32.5% and 43.7% respectively during the 2023H1 period. The growth rates of both declined during the 2023H2 period, which were -1.7% and 8.1%, respectively. There is plenty of room for merchant entry and user growth. In 2023, the number of third-party merchants on the company's platform exceeded 50,000 (+150%) and maintained medium to high speed growth; the average number of daily user consultations reached 450,000 (+50.00%). JD Health has launched a series of solutions for online practitioners, including cloud clinics, post-diagnosis follow-up, joint expert consultations, clinical research, and doctors' IP brand incubation, to continuously catalyze doctors' online diagnosis and treatment efficiency and experience. JD Health has also established an Internet hospital quality control system and formulated standardized diagnosis and treatment routes to ensure the quality of diagnosis and treatment services and the safety of doctors practicing online. Up to now, the JD Health Internet Medical Quality Management Committee has issued a total of 223 standardized diagnosis and treatment routes and 12 medical quality and safety management systems. On the offline side, the Beijing branch and Suqian branch of the Jingdong Health Examination Center were officially put into operation. JD Health also launched online medical insurance payment functions for nearly 700 pharmacies in Shanghai, continuously providing users with diverse and high-quality comprehensive health management services.

Develop new quality productivity based on AI. In 2023, JD Health released the large-scale medical model “Beijing Medicine Thousand Questions”. The accuracy rate of AI auxiliary diagnosis based on the big model was over 95%, improving medical treatment, improving the efficiency and accuracy of medical diagnosis, and providing users with a faster and more accurate medical and health service experience. In addition, JD Health is using “Beijing Medical 1000” as the technical base to continue to accelerate the full AI deployment of products and solutions, helping the industry reduce costs and increase efficiency and upgrade the user experience. In the field of digital therapy, JD Health has applied for more than 30 invention patents, covering various fields such as skin, sleep, psychosomatics, and diabetes. Two of these products have been granted national Class II medical device certificates. In terms of AI prescriptions, JD Health has set up an AI prescription pre-review system for Haidian District in Beijing, which reviews more than 20,000 prescriptions per day. We believe that based on next-generation information technology methods such as big models, the company continues to iterate and upgrade digital and intelligent solutions, and open applications to the outside world, empowering participants such as doctors, corporate customers, medical institutions, government departments, etc., which is expected to achieve the effect of reducing costs and increasing efficiency, and promote innovative exploration of “artificial intelligence+” healthcare.

The company is a leading enterprise in the pharmaceutical Internet industry. As the company's retail pharmacy business gradually matures, the online platform business is growing strongly. The company is expected to have revenue of 628.74/761.40/90,134 billion yuan in 2024-2026, net profit of 2,200/26.98/37.32 billion yuan, and earnings per share of 0.69/0.85/1.17 yuan/share, maintaining the company's “buy” rating.

Risk warning: corporate profits fall short of expectations, increased competition in the industry, policy supervision risks.