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JD.com (JD US) - Solid execution amid competition; margin uptrend intact

作者: Richard KO,Hebe ZHOU
时间: 2017年11月14日
重要性: 一般报告
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摘要: Report title:JD.com (JD US) - Solid execution amid competition; margin uptrend intact
Analyst:Richard KO,Hebe ZHOU
Report type:Company
Date:20171114
[Summary]

■ 3Q17 sales inline; Q4 rev guide +35-39% YoY, in-line with street
■ Earnings beat on street’s low expectations, as we have said in our preview note that we were “positive on Q3 earnings, but we expect pressure in Q4 given increased investments & competition”
■ Reiterate BUY and TP lifted to US$58, based on DCF
3Q17 top-line in-line; earnings beat on low expectations
3Q17 revenue grew 39% YoY to RMB83.7bn, in-line with consensus at 39%, and at high-end of company’s guidance of 36-40% YoY. Driven by strong 1P business, gross GMV grew 32% YoY to RMB302.5bn while sequential deceleration was due to seasonality with limited promotion. 1P sales grew 38% YoY, led by home appliances, F&B, cosmetics, baby products and jewelry etc. Non-GAAP GM jumped 1.3pp YoY and 1.9pp QoQ to 15.3%, 0.5pp higher than consensus, driven by 1) lower procurement cost from scale and 2) enhanced user engagement. Non-GAAP net income surged 359% YoY to RMB2.2bn, 76%/162% higher than CMS/consensus, thanks to operating leverage and better margins.
Re-invest Q4 margin dollars; keep full-yr margin guide
On 4Q17 guidance, net revenue is expected to be RMB107bn-110bn, or 35-39% YoY, in-line with consensus. JD has not changed its 2017E net margin guidance at 0.5-1.5%, amid intensified competition from Alibaba (BABA US; BUY). However, we continue to believe JD’s Q4 margin will be under pressure, likely to be in 0-0.5% range, given 9M17 non-GAAP OPM and net margin have achieved 1.4% and 1.8% respectively, giving it the flexibility to re-invest margin dollars to grow share and boost GMV. Apparel GMV has been stagnant in the past quarters after some 100 apparel partners have left JD due to pressure from Alibaba, and we expect headwind to last for another 2-3 quarters. On excess return (or margin dollars), company will spend 50% in technology and 30-40% in boosting GMV while management is confident in delivering sustainable margin expansion on an annual basis.
Maintain positive view on JD’s growth trajectory; BUY
We remain positive on JD’s LT prospect and margin expansion trajectory, non-GAAP net margin to expand to 1.5%/2.2% in 2018/2019. We maintain BUY rating, and lifted TP from US$55 to US$58, based on DCF valuation, implying 1.3x FY18E P/S. JD is trading at 0.94x FY18E P/S vs Amazon (AMZN US) of 2.4x and VIPshop (VIPS US) of 0.4x. We expect BABA/JD’s increased promotional activities to impose pressure on VIPS.

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