1H22F to be impacted by the pandemic
? We held a pre-blackout conference call with JD regarding its 1Q22F performance and
2Q22F outlook.
? Given the current Omicron situation, we expect JD’s 1Q22F top-line growth to be 16%
yoy. We now expect the pandemic situation in Shanghai to be controlled in late Apr/early
May and JD’s sales growth to recover in 3Q21.
? Reiterate Add with a new DCF-based TP of HK$318. JD is our top pick for the ecommerce sector.
1Q22F top line to be affected by city lockdowns
Because of the large-scale Omicron rebound starting in Mar, major cities in China, such as
Shenzhen and Shanghai, successively experienced city-wide lockdowns. Currently,
Shenzhen’s lockdown is mostly over, but Shanghai is still largely locked down. Cities in
other provinces, such as Jiangsu and Hebei, are also under small-scale lockdowns.
Currently, in Shanghai, over 100 JD warehouses and distribution stations are still locked
down, and each vehicle needs a special license to transport goods. Last weekend, JD and
some other online platforms started to receive permits to deliver daily necessities, such as
groceries and household products. But these are only one-time permits, and each permit
is valid for only one vehicle, limiting logistics capacity. Currently, JD is actively applying for
multi-trip permits to expand its logistics capacity. However, different communities may have
different limitations, such as whether delivery drivers are allowed to enter the community
or not, and some drivers are locked in their communities and cannot get to work. On the
bright side, Shanghai has mapped out three pandemic control areas in the past few days,
reflecting some relaxation of the lockdown in a few low-risk areas. The government policy
indicating the shortening of the quarantine period from 14 days to 10 days is also a positive
massage of relaxing pandemic control measures. Given the current situation, we expect
JD’s 1Q22F top-line growth to be 16% yoy, and we expect the 2Q22F to continue to be
impacted. We expect the government to release more stimulus policies to achieve its 5.5%
GDP growth target in FY22F and expect JD to see a growth recovery in 2H22F.
Net margin expected to narrow yoy in 1Q22F but improve in 2H22F
JD was the solo sponsor of the interactive section of CCTV’s CNY Gala, and cooperated
with brand merchants to offer Rmb1.5bn in coupons for brand building and nurturing the
consumer mindset. JD’s 1Q22F DAU growth was robust. In 1H22F, JD will focus on
improving its ARPU and may step up marketing investment in 2H22F if the macro-economy
improves. In 1Q22F, JD optimized its new businesses, especially Jingxi Pinpin, by
concentrating on key cities and focusing on improving order density, efficiency and unit
economy. JD has found that economy of scale from the nationwide perspective is not
realistic for the local retail model and that local retail will not replace B2C e-commerce.
Fixed costs related to business optimization will be booked in 1Q22F, affecting its margins.
Investment in new businesses in FY22F will be less than that in FY21, and the losses of
new businesses will narrow this year as the new businesses in some provinces are already
profitable. The fulfillment issue amid the pandemic lockdown has hurt margins, so we
expect the 1Q22F net margin to be 1%, down 1% pt yoy and margins to improve in 2H22F.
Reiterate Add with a new DCF-based TP of HK$318
We cut our FY22–24F non-GAAP EPS by 21.2%, 7.9% and 4.5%, respectively, due to the
pandemic impact. We reiterate our Add rating for JD, since we believe it will benefit from
more 3P merchants joining its platform and further penetration into lower-tier cities through
its Jingxi platform. The key risks include 1) a weaker macro environment, which would
affect domestic consumption, and 2) supply chain shortages.