We maintain our Market perform recommendation on JD (A3/A-/NR) post its 3Q24 results; the company’s topline growth and margin improved but FOCF turned negative due to higher inventory investment; net cash shrunk while gross debt metrics were flat compared to 2Q24. We expect JD’s credit profile to marginally improve in FY25, which we view as largely priced in. The better debt metrics may be driven by its Home Appliance Trade-In Alliance program which supports topline growth and a continued expansion of the higher-margin 3P sales may result in better EBITDA margin; we expect JD to cover its increased shareholder rewards with FOCF. JD’s $ bonds trade inside A- rated Asian corporates, which we view as fair given its large scale and net cash position. We continue to prefer BABA and TENCNT.

While Chinese regulators have adopted a friendlier stance towards tech companies, any regulatory clampdowns may still adversely affect the business of JD (e.g. antitrust rules, data security & personal data protection laws).

Intensifying competition amongst Chinese eCommerce platforms with the entrance of new live-streaming/short-form video platforms and group buying discount platforms may result in slower topline growth and weaker EBITDA margin for JD as its increase its user/merchant incentives and promotional activities to defend its market share.

There are regulatory risks involving the use of variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs). Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.