Expect in-line JD retail revenue growth of 1% in 4Q23
- Expect JD retail revenue to grow 1% y-o-y in 4Q23, in line with market expectations
- JD’s GMV will resume high-single-digit growth in FY24 after the completion of business adjustment
- Expect non-GAAP earnings to grow 18%/13%/11% for FY23F/FY24F/FY25F, driven by ongoing category expansion
- Maintain BUY with unchanged TP at HK$181/ US$46
4Q23 results preview
We expect JD retail revenue to grow 1% y-o-y in 4Q23, largely in line with market expectations. Total revenue is expected to increase by 2% y-o-y in 4Q23. The strategic adjustment for the FMCG segment (e.g. reducing loss-making SKUs) has impacted revenue growth, and the transition was completed in 4Q23. We expect GMV in FY24 will grow faster than overall retail sales which is currently expected to be high-single-digit.
We forecast JD Retail’s operating margin to be 2.7% in 4Q23, a slightly decease from 3% in 4Q22, due to increased merchant supports and user subsidies during the Double 11. Consequently, we expect non-GAAP net margin to narrow by 0.3ppt y-o-y to 2.3% in 4Q23, largely in line with market expectations.
JD will launch marketing campaigns to acquire users, and sponsor China’s upcoming CCTV New Year’s Gala, aiming at enhancing user engagement in lower-tier cities. JD will share marketing expenses with merchants and suppliers, hence the net impact on the operating margin should be limited.
Overall retail sales remained sluggish at 7% y-o-y in Dec 2023 (vs. 10% in Nov 2023), according to NBS. Home appliance-related categories recorded 0.1% y-o-y decline in Dec 2023. However, communication equipment – including mobile phones – delivered 11% y-o-y growth in Dec 2023. Looking forward, we expect JD retail growth momentum will steadily pick up along with demand recovery in electronics-related products and continued category expansion.
Earnings revision and recommendation
We kept our non-GAAP earnings forecast unchanged for FY23/FY24/FY25, respectively. We expect revenue growth to improve to 6% y-o-y in FY24, from 3% in FY23, after the completion of strategic adjustment for the FMCG segment. We expect non-GAAP net profit to grow by 18% y-o-y to Rmb33.4bn in FY23 and 13% y-o-y to Rmb37.8bn in FY24, as well as 11% y-o-y to Rmb42.1bn in FY25, translating into 3.1%, 3.3%, and 3.6% non-GAAP net margins, respectively. The stock is trading at 8x adjusted FY24 PE, 2x SD below the historical average. We maintain BUY on JD.com with an SOTP valuation of HK$181/US$46, based on (1) core retail business valuation: 8x PE on FY24F core profit (HK$106 and (2) fair value of other investees (HK$75).
