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Fundamental View

AS OF 08 Dec 2022

  • We expect JD’s credit profile to be stable over the next 6-12 months. We expect JD’s topline growth to be supported by continued recovery in China’s e-commerce sector over the coming quarters.

  • We expect JD to continue to protect its (albeit still thin) margins with cost control measures and enhanced operating efficiency.

  • We expect China’s consumer spending on discretionary items to gradually improve as COVID restrictions ease, though they may not fully recover until the country completely exits from the zero-COVID policy (likely in 2H23, according to our China macro team).

Business Description

AS OF 08 Dec 2022
  • 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 30 mn square meters, as of 30 September 2022.
  • 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.

Risk & Catalysts

AS OF 08 Dec 2022
  • 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 may materially affect the business.

Key Metrics

AS OF 08 Dec 2022
RMB mn LTM 3Q22 FY21 FY20 FY19 FY18
Debt to Book Cap 20.3% 12.2% 12.5% 15.7% 15.8%
Debt/Total Equity 25.5% 13.8% 14.2% 18.7% 18.8%
Debt/Total Assets 11.9% 6.9% 7.5% 7.2% 6.9%
Gross Leverage 3.5x 4.0x 1.7x 1.7x 7.2x
Interest Coverage 10.5x 7.0x 16.2x 15.1x 2.3x
EBITDA Margin 1.9% 0.9% 2.4% 1.9% 0.4%
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CreditSights View

AS OF 08 Dec 2022

We upgrade JD to Market perform from Underperform on the back of the better-than-expected 3Q22 results. Since our downgrade, JD’s $-bonds have tightened 3 bp, while comparable bonds of Alibaba have tightened by 24 bp on average; JD’s $-bond complex has on average also underperformed the ADIG. Its 2Q22 results were uninspiring with muted topline growth and continued margin pressure, as we expected. However, we are turning more constructive on JD’s credit profile post the better-than-expected 3Q22 results, and we do not expect JD’s $-bond complex to continue to underperform the ADIG. 

Recommendation Reviewed: December 08, 2022

Recommendation Changed: November 21, 2022

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