4Q21F results are likely to be in line

■ JD hosted a pre-blackout call with analysts for a 4Q21F update.
■ We expect JD’s 4Q21F results to be in line with our expectations, with total revenue up 23.4% yoy and non-GAAP net profit of Rmb268m.
■ JD achieved strong GMV of Rmb349.1bn in this year’s Nov 11 online shopping festival, up 28.6% yoy. But management said Dec revenue growth was weak, due to sluggish macro, pre-purchases in Nov, and Covid cases in some areas.
■ JD announced that it would invest Rmb1.5bn to sponsor CCTV’s Spring Festival Evening Party, which should help JD improve its brand image and acquire new users.
■ Reiterate Add with an unchanged DCF-based TP of HK$423.

4Q21F results are likely to be in line

We now expect JD’s 4Q21F results to be in line with our expectations, with total revenue up 23.4% yoy. Management said the JD Retail’s revenue growth was slightly below average, while new business continued to deliver strong revenue growth in 4Q21F. Domestic consumption was weak in Dec, and Covid cases temporarily interrupted supply chains in some areas, such as Xian. Management said the investment scale for new business will be larger in 4Q21F than in 3Q21 and 2Q21. Although the new business-related losses will also be bigger in 4Q21F, the loss ratio has continued to narrow, indicating margin improvement. We now expect JD to achieve non-GAAP net profit of Rmb268m in 4Q21F, indicating full year non-GAAP NPM of 1.46%. Management expects domestic consumption growth to continue to be challenging in 1Q22F.

3P business continued to grow strongly

Management said 3P revenue continued to grow faster than the 1P business in 4Q21F, which should help JD’s GPM expansion. To attract more 3P merchants, JD changed its traffic allocation algorithm and developed more tools to help 3P merchants. But the revenue contribution shifted to FMCG products, which may slightly impact GPM, since the GPM of the FMCG category is still relatively low. The FMCG category delivered resilient growth in 4Q21 and has become the second-largest category for JD after the home appliances category. Although there were some supply chain issues, 3C and home appliances maintained solid growth momentum in 4Q21F.

Sole sponsor for CCTV’s Spring Festival Evening Party

JD announced that it would invest Rmb1.5bn to sponsor CCTV’s Spring Festival Evening Party, which should help the Company enhance its brand image and acquire new users, especially in lower-tier cities. Management said that according to its internal study, the ROE of the CCTV sponsorship should be better than that of their previous sponsorships for other activities, but that the sponsorship will impact JD’s margins slightly in 1Q22F. Some of JD’s suppliers will also participate in the sponsorship and share the Rmb1.5bn investment, so JD’s actual investment should be smaller than Rmb1.5bn. Previously, Tiktok, Kuaishou, Baidu and Taobao sponsored the Evening Party, with total investment of Rmb1.2bn, Rmb1bn, Rmb900m and Rmb600m, respectively. JD will continue its logistics services during the Chinese New Year period to support revenue growth.

Reiterate Add with an unchanged DCF-based TP of HK$423

We reiterate our Add rating for JD, since we believe JD will benefit from more 3P merchants joining its platform and further penetration into lower-tier cities through its Jinxi platform. We don’t expect Tencent’s recent shareholding reduction in JD.com to affect the strategic cooperation between JD.com and Tencent. Management said that its current relationship and cooperation with Tencent will not change.