3Q22F results expected to be in line
- We had a conference call with JD to discuss its 3Q22F results outlook.
- JD maintains both top- and bottom-line guidance for 3Q22F: i.e. c.10% yoy top-line growth and NPM improvement by 0.6ppt yoy, in line with our expectations.
- We expect the company to continue to improve its NPM in 4Q22F because of effective cost-saving strategies and streamlining its loss-making investments.
- JD will focus on improving user frequency and ARPU, rather than increasing MAU, per management.
- Management remains conservative about 4Q22F top-line growth, given the weak operating environment and Covid resurgence under strict pandemic control policy.
c.10% top-line growth expected in 3Q22F
China’s national retail sales grew by 2.7% and 5.4% yoy in Jul and Aug 2022, respectively, while online retail sales grew by 10.1% and 12.8% yoy, respectively, indicating the online channel is taking market share from the offline channel amid the weak consumption environment. We now expect JD’s top-line growth to be c.10% in 3Q22F, including the consolidation of Deppon Holdco. The new business adjustments for Jingxi Pinpin slightly affected JD’s 3Q22F top-line grow th. Management expects sales of JD Retail to grow by 6–10% in 3Q22F. JD Retail recorded high-single-digit sales growth for Jul, and sales growth in Aug and Sep was better than that in Jul. Sales growth in Sep was driven partly by the launch of new mobile phone series. Overall category sales growth momentum in 3Q22F was similar to that in 2Q22, with sales growth of home appliances and FMCG products better than that of other categories. But the sales growth of home appliances in 3Q22F was slightly lower than management expectations, dragged down by Covid distortions. The growth of discretionary categories, such as apparel and footwear, continued to be weak. GMV growth of 3P business in 3Q22 was slightly ahead of that of 1P business, and management expects the trend to continue in 4Q22F under the stable operating environment.
Non-GAAP net profit margin expected to be in line
We expect JD’s 3Q22F non-GAAP net profit margin to expand by 0.6ppt yoy, driven by effective cost-saving strategies. JD is continuing to focus on improving the quality of its core business rather than user growth. It has added over 200 million new users in the past two years and will focus on retaining these users. It had a net addition of about 10 million new users in 2Q22 and more than 10 million in 3Q22. It had over 30 million PLUS members as at mid-Jul, and management expects the growth in the number of PLUS members in 3Q22F to continue at the same rate.
Management remains conservative on the 4Q22F outlook
Management expects top-line growth in 4Q22F to be similar to that in 3Q22F, given the current weak macro situation and Covid resurgence. Management expects sales momentum for the upcoming 11/11 online festival to be similar to that for this year’s 6/18 festival (i.e. c.10% yoy revenue growth). The overall concerns relate mainly to the macro situation and the Covid impact.
Maintain Add with a DCF-based TP of HK$345
We maintain Add rating, since we believe JD still has large room to develop its omni channel and intra-city retail business and improve its margins. A positive catalyst would be stronger margins driven by better category mix. key risks include 1) weaker revenue growth due to the sluggish economy, and 2) margin pressure due to severe competition from other e-com or social media platforms. Our TP is derived from DCF valuation with 13.4% WACC and a 3% terminal growth rate.