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Fundamental View
AS OF 10 Sep 2024We maintain our Market perform recommendation on JD (A3/A-/NR) post its largely in-line 2Q24 revenue. Growth decelerated due to falling electronics and home appliance sales; gross and EBITDA margin improved on reduced procurement cost and better operational efficiencies; FOCF improved and net cash expanded. We expect JD’s credit profile to marginally improve in 2H24. However, we think that the positive catalyst has largely been priced in given that JD’s $ bonds trades inside Asia A- rated corporates; we see better value in Alibaba and Tencent. Moody’s upgraded JD to A3 on 5 Sep, as we had expected.
Business Description
AS OF 10 Sep 2024- JD is one of China's leading e-commerce and retail infrastructure service providers.
- JD has a large fulfillment infrastructure which includes over 1,600 warehouses operated by the company, and 2,000 cloud warehouses operated by third-party warehouse owner-operators under JD Logistics Open Warehouse Platform. Its warehouse network had an aggregate gross floor area of approximately over 32 mn square meters, as of 31 December 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 304.6 bn as of 10 September 2024.
Risk & Catalysts
AS OF 10 Sep 2024While 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.
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 Metric
AS OF 10 Sep 2024RMB mn | FY20 | FY21 | FY22 | FY23 | LTM 2Q24 |
---|---|---|---|---|---|
Debt to Book Cap | 12.5% | 12.2% | 19.2% | 18.8% | 23.0% |
Debt/Total Equity | 14.2% | 13.8% | 23.7% | 23.1% | 29.9% |
Debt/Total Assets | 7.5% | 6.9% | 10.9% | 10.9% | 13.2% |
Gross Leverage | 1.4x | 1.8x | 1.9x | 1.5x | 1.7x |
Interest Coverage | 20.1x | 16.1x | 16.3x | 15.5x | 16.9x |
EBITDA Margin | 3.0% | 2.0% | 3.3% | 4.1% | 4.5% |
CreditSight View Comment
AS OF 16 Aug 2024We maintain our Market perform recommendation on JD (Baa1/A-/NR) post its largely in-line 2Q24 revenue. Growth decelerated due to falling electronics and home appliance sales; gross and EBITDA margin improved on reduced procurement cost and better operational efficiencies; FOCF improved and net cash expanded. We expect JD’s credit profile to to marginally improve in 2H24, and we expect a positive rating action from Moody’s over the next 6-12 months. However, we think that the positive catalyst has largely been priced in given that JD’s $ bonds trades inside Asia A- rated corporates; we see better value in Alibaba and Tencent.
Recommendation Reviewed: August 16, 2024
Recommendation Changed: November 21, 2022