JD.COM (JD US / 9618 HK) 

Recommendation :  BUY 

Fair Value           :  USD 111.00 (JD US) / HKD 432.00 (9618 HK)

LIMITED FUNDAMENTAL IMPACT FROM TENCENT’S DISTRIBUTION IN SPECIE.  S

•    Special interim dividend of JD shares by Tencent

•    Not heavily dependent on the BCA for traffic; considering increasing buyback program

•    Maintain FV of USD111(JD US) / HKD432 (9618 HK)

On 23 Dec, Tencent announced a special interim dividend in the form of a distribution in specie of ~457m Class A ordinary shares of JD.com. Tencent owns indirectly ~17.0% of JD.com’s shares, with this stake dropping to ~2.3% following the distribution. Tencent and JD.com will continue to maintain their mutually beneficial business relationship, including via their ongoing strategic partnership agreement. We note that JD still has >USD1b that can be utilised in its USD2b share repurchase program, though the next trading window will only be post 4Q results. We understand that there are plans to increase and accelerate the repurchase program, subject to board approval. Despite some near-term consumption headwinds, management expects JD to continue to outperform the industry in 4Q and achieve low 20% top-line YoY growth for the group with stable margin (with potential for upside). In our view, the divestment by Tencent could dampen investor sentiment on JD.com in the near-term. However, we do not believe that this would significantly impact JD’s fundamentals, and the motivation for the distribution is likely down to JD’s mature stage of development and ability to self-finance its future initiatives, as well as potential benefits for Tencent from a regulatory perspective. We still remain constructive on the medium-term outlook for the group, and maintain our FV and estimates for now.

Research Team