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Fundamental View
AS OF 21 Mar 2023We 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 post China reopening as it takes time to restore demand for large-ticket discretionary purchases.
Business Description
AS OF 21 Mar 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 30 mn square meters, as of 31 December 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 21 Mar 2023Chinese 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 Metrics
AS OF 21 Mar 2023
CreditSights View
AS OF 12 May 2023We 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
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