JD.com：3Q22 earnings beat on margin; continued focus on quality growth

21November2022AsiaPacific|ChinaEquityResearch AsianDaily JD.com(JD.OQ) 3Q22earningsbeatonmargin;continuedfocusonqualitygrowth MaintainOUTPERFORM PreviousRating:OUTPERFORM Targetprice(US$):87.00 Previoustargetprice(US$):87.00 ▪3Q22revenuewasinlineatRmb243.5bn(+11.4%YoY).Non-GAAPOPandmarginbothreachedhistoricalhighsofRmb10bnand 4.1%,respectively,witheffectivecostsavingacrosssegments. ▪Keyfocus:(1)near-termtrend(-ve):Mgtexpects4Qtodecelerate.Weexpect4Qrev+8%YoY.(2)Longer-termoutlook(+ve):Mgt seestheworstislikelybehind,butthepaceofimprovementisstilluncertain.(3)Margin(+ve):FY22marginjumpisdrivenmorebycostcuttingwhichisquickanddirect.Mgtstillseesalotofroomforefficiencygainsnextyearalthoughataslowerpace. ▪Sameasitspeers,JDfacesmacropressure.WhatweviewasimpressiveisdespiteJD'salreadyefficientoperation,itcanstill squeezemeaningfulmarginimprovement.Ifrecoverynextyearisstrongerthanexpected,JDshouldseefastertoplineearningsgrowththanpeers(usergrowth,categoriesexpansionandlowertiercitypenetration)andmargin(orderdensity,supplierpricingandrampinguphighmargin3P),inourview. ▪Welift2022EPSby7%onearningbeatandkeep2023-23EPSlargelyunchanged.MaintainOUTPERFORM. Figure1:3Q22resulttable Source:Companydata,CreditSuisseestimates,theBLOOMBERGPROFESSIONAL™service 3Qresultbeatonmargin.RevinlineatRmb243.5bn,+11.4%YoY.AnnualActiveCustomer(AAC)+6.5%YoYto588mn.Bysegment: (1)JDR(+7%YoY)wasinline.Electronicsandhomeappliancesales(+7.6%YoY)cameinstrongwithspikingaircondemand.3CweaknesswaspartlyoffsetbynewphoneproductlaunchinSep.Generalmerchandise(+3.5%YoY)slowedmeaningfullyduetoweaknesscausedbyCOVID,weakerdiscretionaryitems(cosmeticandbeverage),strategicadjustmenttoreducinglowmarginJXbusiness.Marketplaceandadrevenue(+13%YoY)outperformedasmerchantsinvestedadditionaladbudgettoboostsales.Theincreaseinnumberofnewmerchantsontheplatformaswellastheasthetrafficsupportto3Pmerchantsalsohelped.(2)Logisticsandother(+73%YoY) Price(18-Nov-22,US$)Mktcap(US$mn)Numberofshares(mn) 56.07 87,197 1,555 Est.pot.%chg.toTPBlueskyscenario(US$)Greyskyscenario(US$) 55.2140.040.0 Freefloat(%) 93.7 Performance 1M 3M12M 52-wkrange(US$) 87.26-36.66 Absolute(%) 36.0 2.5(34.8) ADTO-6M(US$mn) 147.2 Relative(%) 26.4 12.61.5 Year 12/21A 12/22E 12/23E 12/24E Revenue(Rmbmn) 951,592 1,047,884 1,190,309 1,327,093 EBITDA(Rmbmn) 8,333.7 23,759.5 33,854.7 44,302.0 EBIT(Rmbmn) 4,140.9 18,199.5 28,026.7 38,234.3 Netprofit(Rmbmn) 17,207.1 24,973.1 33,152.3 44,467.3 EPS(CSadj.)(Rmb) 10.75 15.52 20.51 27.37 Chg.fromprev.EPS(%) n.a. 7.2 (0.9) (0.7) ConsensusEPS(Rmb) n.a. 14.77 19.76 25.4 EPSgrowth(%) 1.8 44.4 32.1 33.5 P/E(x) 37.1 25.7 19.5 14.6 Dividendyield(%) 0.0 0.0 0.0 0.0 EV/EBITDA(x) 67.6 25.2 17.5 13.2 P/B(x) 2.59 2.46 2.22 1.95 ROE(%) 7.3 9.8 12.0 14.3 Netdebt/equity(%) (23.1) (8.7) (9.9) (10.3) Source:Companydata,Refinitiv,CreditSuisseestimates onconsolidationofDeppon,excludingwhichgrowthwouldbe36%.Externalcustomersreached70%ofJDLrevenue.JDLcontinuestogainsharefrompeers.Non-GAAPOPMreachedanhistoricalhighof4.1%helpedbyallsegments:(1)JDRetailnon-GAAPOPMat5.16%(CSe:4.7%),helpedbycontinuedefficiencyenhancementandlowerS&M;managementre-iteratedmid-to-highsingledigitLTmargin;(2)JDLRmb253mnprofitvsCSeofRmb200mnlossasscalebuilds;(3)newinitiativeslossesatRmb953mnvs.CSeRmb1.2bnafterscalingdownunprofitableCGPbusiness.Adj.netprofitbeatatRmb10bn(CSeRmb7.1bn)or4.1%adj.NPM. Keyfocus:(1)near-termtrend(-ve):Macroisstillchallengingandmanagementexpects4Qtoseedeceleratingmomentum.Generally,theyseehigherthanusualordercancellation(duetoCOVIDimpact),morerationalspendingfromconsumersandweakerdemandindiscretionaryproducts.Whiletheshoppingfestivalseessoliddemand,theyseeweaknessbeforeandaftertheeventasconsumersturnmorepricesensitive.Weexpect4Qrev+8%.(2)longer-termoutlook(+ve):PostthegovernmentamendmentinCOVIDcontrolpolicy,managementseestheworstislikelybehind,butthepaceofimprovementisstilluncertainandislikelytotaketimeforconsumerconfidencetorebuild.(3)Margin(+ve):Profitimprovementthisyearisdrivenmorebycostcuttingwhichisquickeranddirect.Nextyearonwards,moreeffortsonefficiencyimprovementexpectedasdemandcontinuestograduallyrecover.Managementstillseesalotofroomforefficiencygain.That'ssaid,thepaceofmarginimprovementwouldbemoregradual.Weconservativelymodelled1.9%non-GAAPnetmarginfor4Qonmorepromotionintotheshoppingfestivalandimprovementinto2.8%inFY23(FY22:2.4%). Valuationmetrics Company Ticker Rating (prev.) Price Local Targetprice(prev.) TP chg(%) Up/dn toTP(%) Year T EPSChg(%) EPS EPSgrth(%) P/E(x) DY (%)T+1 P/B(x)T+1 Scenario T+1 T+2 T+1 T+2 T+1 T+2 T+1 T+2 Bluesky Greysky JD JD.OQ O 56.07 87.0 0.0 55.2 12/21 7.2 (0.9) 15.52 20.51 44.4 32.1 25.7 19.5 0.0 2.5 140.0 40.0 JD(H) 9618.HK O 218.0 339.0 0.0 55.5 12/21 7.2 (0.9) 7.76 10.25 44.4 32.1 25.6 19.4 0.0 2.4 542.5 155.0 Source:Refinitiv,CreditSuisseestimates ResearchAnalysts KennethFong/85221016395kenneth.kc.fong@credit-suisse.com AshleyXu/85221017153ashley.xu@credit-suisse.com SophiaTan/85221017735sophia.tan@credit-suisse.com DISCLOSUREAPPENDIX