20221027-招银国际-Stabilizing_amidst_testing_times_26页_2mb

JD.com (JD US) Summary

Core Content

JD.com (JD) is a leading supply chain-based technology and service provider in China, leveraging its strong logistics and fulfillment capabilities to establish a competitive edge. The company has solidified its position in key categories such as electronics, home appliances, and FMCG, while maintaining lower exposure to discretionary apparel categories. JD's long-term growth is supported by category expansion, lower-tier city penetration, and omni-channel retail development.

Main Points

1. Steady Growth and Margin Expansion

• JD is on track to achieve mid-to-high single-digit non-GAAP net profit margins by 2024E, driven by economies of scale, controlled sales promotions, and increased revenue from high-margin marketplace business.
• Forecasted non-GAAP net profit margin expansion: 1.8% in 2021 to 2.3/2.5/3.1% in 2022/2023/2024E.
• Non-GAAP net income CAGR is expected to be 35.1% over 2021-2024E.
• Revenue CAGR is forecasted at 13.1% over the same period, with net services revenue expected to grow at 25.0% CAGR.

2. Market Share Growth

• JD's market share in China e-commerce retail sales has increased from 19.1% in 2020 to 21.2% in 2021, and is projected to reach 22.4% in 2022.
• The company's strong consumer mindshare in core categories (3C, home appliances, FMCG) has aided its market share gain.
• JD's logistics and fulfillment capabilities, especially the 211 program, have supported its competitive advantage and customer satisfaction.

3. Category Expansion and Lower-Tier City Penetration

• JD is expanding into underpenetrated categories such as FMCG and fresh groceries, which could drive GMV growth over the next 3–5 years.
• The company is also expanding into lower-tier cities, with penetration rates significantly lower than Pinduoduo's, indicating potential for growth.
• Forecasted AAC growth to 701mn by 2024E, with a steady expansion trend expected.

4. Financial Performance

• Total revenue for JD reached RMB951.6bn in 2021, with a CAGR of 29.8% from 2016 to 2021.
• Net product revenue CAGR was 27.9%, and net services revenue CAGR was 46.2%.
• JD's net product revenue accounted for 84.5% of total revenue in 2022E, while net services revenue represented 15.5%.

5. Market Position and Strategic Collaborations

• JD has established a strong presence in the on-demand retail market through its collaboration with Dada.
• JD holds 52% of Dada's issued shares and has consolidated its financial statements since February 2022.
• The partnership with Dada is expected to provide JD with long-term business development opportunities in the local on-demand retail and delivery sector.

Key Information

Revenue and Growth Forecasts (2021-2024E)

• Total Revenue CAGR: 13.1%
• Net Product Revenue CAGR: 10.8%
• Marketplace & Advertising Revenue CAGR: 21.4%
• Logistics & Other Services Revenue CAGR: 28.8%
• Net Services Revenue CAGR: 25.0%

Margin Trends

• GAAP OPM (Operating Profit Margin): Expected to improve from 0.4% in 2021 to 1.5/2.2/3.0% in 2022/2023/2024E.
• Non-GAAP NPM: Expected to expand from 1.8% in 2021 to 2.3/2.5/3.1% in 2022/2023/2024E.

Valuation

• DCF-based Target Price: USD78.5 per ADS
• Valuation Multiple: 28.1x 2023E PE
• Current Price: USD37.77
• Upside Potential: 107.8%

Shareholding and Performance

• Shareholding Structure:
  • Richard Qiangdong Liu: 13.8%
  • Max Smart Limited: 13.3%
• Share Performance (12-mth): Not provided in the text, but available in the source.
• Stock Data:
  • Market Cap: USD60,326.3mn
  • Avg 3 mths t/o: USD54.9mn
  • 52w High/Low: USD91.55/USD36.66

E-commerce Recovery

• Online physical goods GMV growth in 1H22 was 5.6%, recovering from a 12.0% growth in 2021.
• Overall online retail sales of physical goods accounted for 25.7% of total retail sales in 9M22, up from 23.6% in 9M21.
• JD's online retail sales of physical goods are expected to grow at a CAGR of 6.9% in 2022E, driven by improved macro conditions and easier comps.

Investment Thesis

• Strong Logistics & Fulfillment Capability: Provides a competitive edge in key categories and supports user growth and retention.
• Category Expansion & Lower-Tier City Penetration: Key drivers for long-term growth, with potential for continued GMV growth.
• Steady Margin Expansion: Helps cushion macro and industry disruptions, with a clear path to achieving long-term margin targets.
• Competitive Position in E-commerce: JD is well-positioned to maintain and expand its market share amid a competitive landscape.

Conclusion

JD.com is well-positioned for long-term growth, supported by its strong logistics and supply chain infrastructure, category expansion, and lower-tier city penetration. The company is expected to maintain a steady margin expansion, aided by improved operating efficiency and increased contribution from high-margin services. With a DCF-based target price of USD78.5 and a strong market position, JD is recommended as a BUY.