20171026-招商证券_香港_-Positive_on_3Q17_and_LT_margin_expansion_trajectory_4页_921kb

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JD.com (JD US) Company Report Summary - October 26, 2017

Core Content Overview

This report provides an analysis of JD.com (JD US) focusing on its financial performance, market position, and future outlook in the context of the Technology, Media & Telecom sector. The report highlights JD.com's positive trajectory for long-term growth and margin expansion, while also acknowledging challenges from increased competition and investment in the short term.

Key Financial Highlights

Revenue Growth

FY15 to FY17E: Revenue is expected to grow significantly, with a YoY growth rate of 58% in FY15, 43% in FY16, and 38% in FY17E.
FY18E to FY19E: Revenue growth is projected to slow down, with a YoY growth rate of 25% in FY18E and 17% in FY19E.

Non-GAAP Net Profit

FY15 to FY17E: Non-GAAP net profit shows a dramatic increase, with a 371% growth in FY17E.
FY18E to FY19E: Expected to grow by 81% and 50% respectively, indicating a stabilization in profitability trends.

Non-GAAP EPADS (Earnings Per American Depositary Share)

FY15 to FY17E: Non-GAAP EPADS improved from negative values to positive in FY17E, and is projected to rise to US$1.19 in FY19E.

Valuation Metrics

P/S (Price-to-Sales): Declines from 1.83 in FY15 to 0.81 in FY19E, showing a trend of improving valuation.
EV/EBITDA: Drops from 128 in FY16 to 24 in FY19E, suggesting better valuation efficiency.

Market Position and Competitive Landscape

E-Commerce Market Share

3C Category: JD.com remains the leader with a 40–50% market share.
Apparel Category: Tmall dominates with 80.7% market share in 2Q17, followed by JD.com at 8.7% and VIPS at 7.1%.
F&B and Home Furnishing: These categories are identified as key growth drivers for JD.com.

Competition

Intensified competition in online apparel, with over 50 brands leaving JD.com since August 2017.
Alibaba is expected to increase spending during Double 11 to gain share in FMCG and electronics, and to invest in infrastructure and user experience.

Strategic Response to Competition

JD's Strategy: Focus on growing overseas offline brands, collaborating closely with suppliers to offer differentiated products, and enhancing targeting and customized marketing.
Cooperation with Tencent: Currently limited to advertising, with minimal sharing of social behavior data.

Key Financial Ratios

Non-GAAP Gross Margin: Increases from 13.1% in FY15 to 14.9% in FY19E.
Non-GAAP EBITDA Margin: Improves from -1.8% in FY15 to 3.1% in FY19E.
Non-GAAP Net Profit Margin: Increases from -0.3% in FY15 to 2.6% in FY19E.
ROE (Return on Equity): Improves from -27% in FY15 to 11% in FY19E.
ROA (Return on Assets): Increases from -12% in FY15 to 3% in FY19E.

Investment Ratings

Industry Rating: OVERWEIGHT, indicating the sector is expected to outperform the market over the next 12 months.
Company Rating: BUY, suggesting the stock is expected to generate a 10%+ return over the next 12 months.

Shareholding Structure

Tencent: 18.2%
Liu Qiangdong: 17.6%
Hillhouse Capital Management: 5.6%

Key Data

52-week range (US$): 23.38–48.99
Market Cap (US$ bn): 55.0
Avg. Daily Volume (mn): 10.08
FY18E Non-GAAP EPADS (US$): 0.84

Price Performance

JD US: 5.3% (1m), 46.8% (6m), 74.8% (12m)
CCMP (China Internet Index): 0.4% (1m), 8.9% (6m), 20.5% (12m)

Outlook and Recommendations

3Q17 Earnings: Positive outlook, with earnings expected around mid-November.
Q4 Pressure: Increased investments and competition may put pressure on Q4 earnings.
Margin Expansion: The report maintains a positive view on long-term margin expansion, which is expected to continue annually despite quarterly fluctuations.
KPI Prioritization: JD.com still prioritizes GMV growth, followed by profitability and cash flow.

Analyst and Regulatory Information

Analyst Disclosure: The analysts certify that the views expressed reflect their personal opinions and that no compensation is tied to the recommendations.
Regulatory Disclosure: The report includes important disclosures regarding the availability and use of the document, emphasizing that it is for informational purposes only and not investment advice.

Conclusion

The report concludes that JD.com remains a strong investment with a clear path to long-term growth and margin expansion, despite facing increased competition and investment pressures in the short term. The BUY rating is maintained based on its structural growth potential and improving financial metrics.

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