Fundamental ViewAS OF 05 Jun 2023
We maintain our Market perform recommendation on JD. JD’s 1Q23 revenues were up 1.4% YoY and beat expectations thanks to continued strength of its net services revenues. JD’s EBITDA margins also improved but it incurred a net operating cash outflow in 1Q23 due to higher working capital investments.
We expect JD’s topline growth to gradually recover and achieve mid-to-high single digit growth for FY23. We expect JD’s EBITDA margin to edge lower in FY23 compared to FY22 due to the subsidy program and upcoming large promotional events in 2Q23 (6.18), offset in part by its continued improvement in fulfillment efficiency and economies of scale. We expect JD to continue to generate strong operating cash flow in FY23, and marginally reduce its total debt and Total debt/EBITDA.
Business DescriptionAS OF 06 Jun 2023
- JD is one of China's leading e-commerce and retail infrastructure service providers.
- JD has a large fulfillment infrastructure which includes over 1,500 warehouses with an aggregate gross floor area of approximately over 31 mn square meters, as of 31 March 2023.
- JD has 4 operating segments, namely JD Retail, JD Logistics, Dada and New businesses. Dada began reporting as a standalone segment with effect from 28 February 2022.
- New businesses mainly include JD Property, Jingxi business group, CNLP, overseas businesses and technology initiatives
- JD had a market capitalization of RMB 396.5 bn as of 5 June 2023.
Risk & CatalystsAS OF 05 Jun 2023
Chinese tech companies have been facing increasing scrutiny by the Chinese government. Any regulatory clampdowns may adversely affect the business of JD (e.g. antitrust rules, data security & personal data protection laws).
A prolonged economic slowdown in China would weigh on consumption and JD’s business outlook.
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.
JD may be subject to lawsuits for items listed on its marketplaces, which may be pirated, counterfeit or illegal. JD cooperates with 3rd party logistics cos to help deliver products to buyers. Failure to provide reliable delivery services or unexpected logistics bottleneck may materially affect the business.
Key MetricsAS OF 05 Jun 2023
|RMB mn||FY19||FY20||FY21||FY22||LTM 1Q23|
|Debt to Book Cap||15.7%||12.5%||12.2%||19.2%||19.4%|
CreditSights ViewAS OF 12 May 2023
We maintain our Market perform recommendation on JD. Within A-rated China tech, we continue to prefer Alibaba and Tencent for similar/higher yields despite being rated 2-3 notches higher. For total return investors, we continue to like JD Apr-26, which yields higher than JD Jan-30 due to the inverted US Treasury curve. We expect JD’s revenue growth to improve to 15% YoY for FY23 (FY22: 10% YoY). We expect revenue growth of JD Logistics, Dada Nexus and new business lines to decelerate from the high bases in FY22 but remain strong. We expect JD’s EBITDA margin to decline marginally to 3.7% from 3.9% in FY22 as the company engages in more promotional activities. We expect JD’s cash flow generation to improve and the company to maintain a net cash position in FY23.
Recommendation Reviewed: May 12, 2023
Recommendation Changed: November 21, 2022