3Q21 results expected to be in line

  • We had a pre-blackout call with JD to discuss its 3-4Q21F results outlook.
  • JD expects its 3-4Q21 topline growth to be 22-23% yoy, slightly below expectations, but the bottom line should be in line, due to better margins.
  • JD maintains regular communication with the authorities regarding industry regulations and will unconditionally follow all rules and regulations.

22–23% topline growth expected in 3–4Q21F

● In Jul–Aug 2021, China’s national social retail sales yoy growth was 8.5% and 2.5% yoy, respectively, and online retail sales yoy growth was 4.4% and 7.6% yoy, respectively, reflecting the weak consumption environment amid the pandemic rebound in various cities.

● Sales of discretionary consumer products, such as apparel and cosmetics, are expected to be affected more by weak consumer confidence, and some FMCG products, such as liquor, especially imported wine, will also be affected. But sales of consumer staples maintained strong growth momentum in 3Q21F. Management said JD Supermarket is close to breaking even.

● Despite these unfavorable factors, JD expects that sales growth of its 3C products will be better than the industry average and that it will continue to gain market share, leveraging its close relationship with suppliers and the strong consumer mindset.

● The shortage of mobile chips has harmed the 3C product supply chain, and it’s possible that the production volume of the new iPhone 13s will be cut because of the chip shortage, making it a bit difficult to secure inventory of 3C products.

● The electricity limitation issue will be more negative for small and medium-sized merchants than large brands, as large brands have better negotiation power and usually have backup plans for such emergencies.

Bottom line expected to be in line with expectations

● We expect JD’s 3Q21F margins to be slightly better than expectations, since the growth of the 3P business, which has higher margins, will continue to surpass the growth of the 1P business, driving up the overall margin.

● However, JD’s investment in the Jingxi business group, including Jingxi and Jingxi Pinpin, in 3Q21F is expected to be larger than that in 2Q21, which will be negative for 3Q21 margins.

● The major policy risk lies in data security regulations, as there are currently no detailed guidelines from the authorities. JD maintains regular communication with the authorities regarding industry regulations, and it will unconditionally follow all rules and regulations. JD already self-inspected its systems to ensure adherence to the strictest standards they can think of and addressed all possible issues they discovered.

Update on Jingxi business group

● As a result of the market consolidation situation, with some smaller players leaving the community group purchase market, in 3Q21F, Jingxi Pinpin changed its strategy to focus on only 10 provinces to drive its supply chain deeper into counties and villages and increase order density.

● Order volume is expected to be slightly affected by the strategy change in 3Q21, but healthy growth is still expected.

● By focusing on designated areas, Jingxi Pinpin is expected to have a better unit economy, and order volume is expected to pick up in 4Q21F.

● Currently, most of the FMCG products provided by Jingxi Pinpin are still 1P products, but management expects its 1P/3P product mix to be similar to that of the JD main app in the future.

● Management reiterated its goal of adding 100m new users by the end of the year, with a meaningful number of new users coming from the Jingxi business group.