2Q22 expects revenue-side growth to slow, maintaining investment discipline and solid performance on the profit side. In terms of revenue, the company's business was disturbed by the epidemic, macro consumption and other factors in the quarter. We expect the company's overall revenue to be 263.9 billion, an increase of 4.0% (same as the original forecast of 4.2%). On the profit side, the performance is expected to be robust, which we believe is mainly due to 1) reduced investment in new business, 2) good mental construction of the brand during the epidemic, overall emphasis on ROI marketing investment to maintain discipline, and 3) strong resilience in the advertising business. We expect the company to achieve an adjusted homing net profit of 4.9 billion (original 4.7 billion) and corresponding profit margin of 1.9% (original 1.8%) in this quarter.

Overall revenue: 618 solid performance leading the industry market, advertising revenue is resilient. 1) Industry market: according to the National Bureau of Statistics, the total amount of online retail sales of physical goods decreased by 11.1% 6.7% in May, respectively, compared with the same period last year. The recovery of online consumption in May is better than that of Social Zero, mainly due to the advance of the final payment time of the first round of 618 advance order to 8 pm on May 31 this year (the amount of 618 payment in 21 years is recorded in June). According to star map data, total sales of integrated e-commerce platforms increased by 0.7% over the same period last year during the 618 period in 22 years. 2) 618 has a steady performance and strong follow-up stability: the company has continued steady growth this year, with a cumulative order amount of more than 379.3 billion, an increase of 10.3%, which is better than that of the e-commerce platform as a whole. In addition, due to macro factors to curb advanced consumption, the siphon effect of 618 is expected to weaken this year, and the company's follow-up growth is stable. 3) Advertising revenue is more resilient: as a head e-commerce platform, the company accounts for a relatively high proportion of effective advertising, and merchants and brands prefer this type of advertising in the period of depressed consumption, so it has higher stability. Taken together, we expect 2Q22 to achieve merchandise revenue of 228.1 billion, an increase of 3.8% (formerly 4.3%) and service revenue of 35.7 billion, an increase of 4.8% (original 3.2%).

1P electrified: the industry demand is weak, and the company is expected to continue to gain market share. 1) the overall performance of the industry is weak:

According to the disclosure of the National Bureau of Statistics, of the total social zero in May in April 22, household appliances and audio-visual equipment above the quota were down 8.1% and 10.6% respectively, and communications equipment were down 21.8% and 7.7% respectively. The overall growth rate of the industry lags behind that of retail sales of social zero and physical goods, and demand is relatively weak. 2) the performance of the company's main categories is different: although the industry demand is weak, we believe that the company continues to gain market share, and the two major categories of 2Q home appliances and computer digital are expected to perform relatively well. Mobile phone categories have problems such as tight supply and changing season cycle, and their performance is relatively weak. Taken together, we expect 2Q22's live goods revenue to be 138.1 billion, up 1.0% (originally 2.0%).

1P Daily hundred: Dashang Super continues to grow healthily, and the online permeability of high-frequency rigid supplies continues to increase. 1) the category has a certain required attribute, and its performance remained stable during the epidemic: according to the National Bureau of Statistics, of the total social zero in May in May in 22 years, the grain and oil food category above the quota increased by 10.0% and 12.3% respectively, the beverage category increased by 6.0% and 7.7% respectively, and the daily necessities category decreased by 10.2% and 6.7% respectively. The performance is better than the total social zero. 2) the online rate has room for continuous improvement: according to Euromonitor, the online penetration rate of furniture / household / snacks in 2021 is 15.2%, 28.6% and 14.7%, respectively. The online rate is still relatively low (for comparison, the online penetration rate of home appliances / consumer electronics is 53.0% and 49.5% respectively). Relying on the excellent performance ability, the company continues to promote the category migration, and the business category grows steadily and healthily. We expect 2Q22's daily commodity revenue to be 90 billion, an increase of 8.5% (previously 8.2%).

3P platform and services: implementation and demand-side impact delay recovery, but the construction of platform ecological strategy is still a strategic focus.

1) 3P business is affected by the epidemic as a whole, including: a) non-JD Logistics, Inc. integrated performance, which is more affected by epidemic control, b) 3P merchants are distributed in the long tail category, the typical category is clothing, and the macro demand is relatively weak. 2) the ecological construction of 3P is still a strategic focus: it has achieved remarkable results in actively promoting 3P investment in 2021, and the number of merchants has increased rapidly. in the past 22 years, new merchants are expected to continue to promote the growth of 3P business in the future. At the same time, the company still focuses on adhering to the platform ecological strategy and maintaining the efforts to attract investment. 3) Advertising revenue has sufficient resilience: the company's effective advertising accounts for a relatively high proportion, and merchants prefer this kind of advertising during the period of depressed consumption. in addition, the increase of online flow during the epidemic is also conducive to the stable growth of advertising revenue. Taken together, we expect 2Q22's platform and services revenue to be 19.5 billion, an increase of 2.7% (maintenance).

Omni-channel business: the group's strategic focus, multi-business lines, JD.com home and hourly shopping performance is excellent. 1) the overall performance is expected to be better than that of retail as a whole: the company's omni-channel business includes O2O JD.com to home, hourly shopping, offline 7fresh, five-star home appliances and other business lines, which is the focus of the group's strategic development at this stage. At present, the overall growth of omni-channel business is expected to be higher than retail as a whole. 2) JD.com 's excellent performance in arriving home and hourly shopping: during the period of 22-618, JD.com 's sales of arriving home + hourly shopping increased by 77%. During the June 18th period of this year, the sales of new retail (near-field e-commerce) reached 22.4 billion yuan, an increase of 25.8% over the same period last year, accounting for 3.2% of the total network sales, an increase of 0.1pct over the same period last year. Near-field e-commerce has achieved the further extension of e-commerce in the scene side, through more fine cutting consumption scene to meet the immediate needs of consumers, making the e-commerce scene more three-dimensional, has shown full potential for development. Based on the radiation of the supply chain capacity circle, the company began to launch near-field e-commerce, and the share of revenue in this sector is expected to continue to increase.

It is expected that the profitability of 2Q will be positively affected by the narrowing of loss-making business investment and the steady upward trend of retail-advertising profits.

We believe that the reasons for the continued improvement in profitability include three aspects: 1) the investment rhythm and scale of the loss-making business are adjusted, and the losses of JD Logistics, Inc. and the new business segment are expected to narrow; 2) during the epidemic, the brand JD.com has a good mental construction and a steady increase in natural flow, while adhering to high-quality growth, retail as a whole emphasizes that ROI input is disciplined and costs can be controlled. Combined with the above, Q1 Group is expected to achieve adjusted operating profit of 3.5 billion (original 3.3 billion), corresponding profit margin of 1.31% (original 1.25%), adjusted home net profit of 4.9 billion (original 4.7 billion), and corresponding profit margin of 1.86% (original 1.78%).

During the epidemic, we actively seize the potential energy of users' mental accumulation, strictly abide by the discipline of investment, make profits with upward space, continue to be optimistic about the long-term potential brought about by the improvement of the company's category richness and the tamping of supply chain capacity, and maintain the "buy" rating. The revenue of the adjusted company FY2022-2024 is estimated to be 107111774x1438.9 billion yuan (originally 1080812724max 1455.8 billion yuan), and the adjusted net profit to return to the mother is 203198.7 billion yuan (formerly 191qqmax 38.9 billion yuan). Segment valuation calculates the company's market capitalization of 815.2 billion yuan, corresponding to a value of HK $304.5 per share, maintaining a "buy" rating

Risk hint

The impact of the epidemic continues, the competition in the industry intensifies, the incubation of new business is less than expected, and the supervision of the industry is stricter.