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Fundamental View
AS OF 22 Apr 2024We maintain our Market perform recommendation on JD (Baa1/A-/NR) post its 4Q23 results; topline growth and EBITDA margin was better than expected, and cash flow generation improved; however the company’s net cash position shrank due to higher investments in wealth management products; we see continued pressure on growth and margin in FY24 and FY25 due to intensifying e-Commerce competition; but we expect JD to maintain stable cash flow, total leverage metrics and a net cash position. Among A-rated China tech companies, we continue to prefer Alibaba (A1/A+/A+; O/P) and Tencent (A1/A+/A+; O/P) over JD, as we think JD trades tight. We see limited further positive for JD to tighten spreads from the current historic low levels. We prefer JD 2030.
Business Description
AS OF 22 Apr 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 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 282.8 bn as of 22 April 2024.
Risk & Catalysts
AS OF 22 Apr 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 margins 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 Metrics
AS OF 22 Apr 2024RMB mn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
Debt to Book Cap | 15.7% | 12.5% | 12.2% | 19.2% | 18.8% |
Debt/Total Equity | 18.7% | 14.2% | 13.8% | 23.7% | 23.1% |
Debt/Total Assets | 7.2% | 7.5% | 6.9% | 10.9% | 10.9% |
Gross Leverage | 1.2x | 1.4x | 1.8x | 1.9x | 1.5x |
Interest Coverage | 21.3x | 20.1x | 16.1x | 16.3x | 15.5x |
EBITDA Margin | 2.7% | 3.0% | 2.0% | 3.3% | 4.1% |
CreditSights View
AS OF 07 Mar 2024We maintain our Market perform recommendation on JD (Baa1/A-/NR) post its 4Q23 results; topline growth and EBITDA margin was better than expected, and cash flow generation improved; however the company’s net cash position shrank due to higher investments in wealth management products; we see continued pressure on growth and margin in FY24 and FY25 due to intensifying e-Commerce competition; but we expect JD to maintain stable cash flow, total leverage metrics and a net cash position. Among A-rated China tech companies, we continue to prefer Alibaba (A1/A+/A+; Outperform) and Tencent (A1/A+/A+; Outperform) over JD, as we think JD trades tight. We see limited further positive for JD to tighten spreads from the current historic low levels. We prefer JD 2030.
Recommendation Reviewed: March 07, 2024
Recommendation Changed: November 21, 2022