2Q22 top line likely to be in line, with a better margin
- JD disclosed Jun 18 online shopping festival sales growth of about 10% yoy; we expect the sales growth rate to be 10% to low teens for June and July, recovering from flattish to low-single digits in 2Q22.
- With strict cost control measures and prudent investments in new businesses to offset margin pressure amid the Omicron pandemic, we expect 2Q22 non-GAAP NPM to be stable yoy. Management reiterated its flat or slightly improved non-GAAP net margin target for the year.
- Reiterate Add with a new DCF-based TP of HK$339 since we expect JD to benefit from more 3P merchants joining its platform and to deliver better than industry average revenue growth to gain market share.
We expect 2Q22 sales to be in line with our expectations
We expect JD’s sales growth in Apr to be in line with the online social retail sales growth disclosed by the National Bureau of Statistics (NBS) of about -1% yoy. In May, excluding the kick-off event in the Jun 18 online shopping festival at 8pm of May 31, the qoq recovery of JD’s sales was minimal, but the kick-off event was a big driver of May sales, according to management. For the Jun 18 online shopping festival, JD disclosed its sales growth of about 10% yoy; we expect the growth rate to be about the same for the month. Management also mentioned that the growth momentum has continued MTD in Jul, with a growth rate of 10% to low-teens. We expect the sales growth in 2Q22 to be in line with our expectation at about 3% yoy. Management said during an update call that consumption coupons had some stimulus effect in certain cities, but not nationwide.
We expect stable 2Q22 OPM yoy
JD cooperated with the local governments in the lockdown areas to provide daily necessities to residences, which we expect to hurt its 2Q22 margins, as some inter-district logistics expenses were incurred, and special protection for employees was implemented. Management also expects the drop in sales contribution of 3P business and product mix changes to drag down margins. Management said electronics and FMCG products maintained solid growth in 2Q22, while apparel sales were negatively impacted by weak demand. However, in 2Q22, JD continued to implement strict cost control measures to
focus on spending ROI, and to slow down and be more prudent in its investment in new businesses. JD will continue to focus on its core business and strategy in the next few quarters to ensure a stable margin and healthy cash flow. Management reiterated its flat or slightly improved non-GAAP net margin target for the year. We expect the loss of JD logistics to narrow and the investment in new businesses to slow down, as JD is restructuring its underperforming new businesses, such as Jingxi Pinpin.
JD extended its cooperation with Tencent
JD recently renewed its cooperation with Tencent for the next three years. Tencent will continue to provide JD with 1st and 2nd level entry points, and in return, JD will issue US$220m in shares to Tencent.
Reiterate Add with a new DCF-based TP of HK$339
We raised our FY22–24F non-GAAP EPS by 9.6%, 3.7% and 2.4%, respectively, as JD has strong ability to control spending and maintain stable margins. We reiterate our Add rating for JD and raised our DCF-based TP to HK$339 (risk-free rate: 4.0%, beta: 1.24, WACC: 13.4%) since we expect it to benefit from more 3P merchants joining its platform and to deliver better than industry average revenue growth to gain market share. The key risks include 1) a weaker macro environment, which would affect domestic consumption, and 2) supply chain shortages, which would affect JD’s topline growth.