Keeping lean and trim for the challenges ahead
• Solid 1QFY22 results, with bottom-line coming in significantly above expectations
• Near-term outlook uncertain due to macro and consumption headwinds, though encouraging signs from 6.18 shopping festival preparatory activities and judicious cost management to tide through the
challenges
• FV of USD80 (from USD82) / HKD314 (from HKD319)
Strong results despite headwinds – JD.com (JD) delivered a good set of 1QFY22 results. Total revenue grew 18% YoY to RMB239.7b, which was ahead of consensus by ~1%. Growth deceleration was observed in electronics and home appliances (+14% YoY), down sequentially from the 22% YoY growth clocked in 4QFY21. The growth rate in general merchandise revenue was broadly stable sequentially. Encouragingly, the operating loss from new businesses narrowed from RMB3.2b in 4QFY21 to RMB2.4b this quarter, which we believe can be attributed to cost optimization efforts bearing fruit. Non-GAAP net profit came in at RMB4.0b, which significantly outpaced consensus at RMB2.6b. This implies a non-GAAP NPM of 1.7%, or ~30bps lower YoY but still ~60bps higher than consensus. Trailing 12 months (TTM) annual active customer accounts growth decelerated to 16% YoY on the back of a quarterly net add of 11m, though this was likely to be anticipated by the market.
FV of USD80 (JD US) HKD314 (9618 HK) – JD is not immune to the ongoing macro headwinds despite its best efforts. We note that a good majority of brands and merchants lowered their budgets at the beginning of 2022 given the economic situation while consumption sentiment remains soft. JD’s warehouses and delivery stations in certain key regions have also encountered fulfillment challenges. While the order cancellation rate has become better in May, it still remains high on a YoY basis. In general, while e-commerce had previously benefited from the offline-to-online shift arising from Covid-19, the recent lockdowns have affected both offline and online retail sales. On the bright side, we note that brands and merchants are now more proactive in engaging and preparing for JD’s upcoming 6.18 shopping festival in comparison to other years. At the same time, we understand that management has been observing strict cost and expense control measures, focusing on cash flow management and will further optimize resources in new businesses. In terms of the outlook, management noted that JD’s April growth rate was impacted by supply chain disruptions as well as its larger exposure to higher-tier cities. We understand that management is cautious on May-June growth and sees potential for single-digit growth for the 6.18 sales festival. All considered, we understand that management is expecting flattish to singledigit 2QFY22 group revenue growth YoY and will strive to deliver stable group margins on a YoY basis. Although the situation for 2QFY22 is likely to be challenging, we could see more government support in boosting consumption, while JD’s unique 1P + 3P retail business should help it achieve more resilient growth viz-a-viz peers. Following adjustments, our FV eases slightly from USD82 to USD80 (JD US) / HKD319 to HKD314 (9618 HK).
ESG Updates
While a surge in online sales due to the COVID-19 induced lockdown in China may increase the company’s exposure to privacy-related risks in the event of data theft, its extensive privacy safeguards could help mitigate the risks. JD’s labour management practices continue to trail those of industry peers, though minor improvements. Its governance performance also lags that of leading industry peers. In terms of JD’s product carbon footprint, the company have an above-industry risk exposure level and a below-industry risk management level. 94% of revenues are generated from carbon intensive products. BUY. (Research Team)