JD is a major player in the new economy of China. As the largest online direct sales company, JD is positioned to benefit from the rise of ecommerce and the longer term shift in the Chinese economy from investment-led to consumption-driven.

Company description

JD.com is the largest online direct sales company in terms of transaction volumes and second only to Alibaba in ecommerce in China. With self-owned logistics facilities in the major Tier 1 & 2 cities, JD prides itself on its commitment to delivering the best ecommerce experience with both product authenticity and fast delivery times.

Investment thesis

  • JD remains a key player in China’s new economy and is poised to benefit from the shift to a consumption driven economy. Profitability continues to improve as the company continues to enjoy operating leverage from its investments in logistics.

  • JD reported Q2 results with revenues of Rmb122bn (+31% YoY) that was in-line with guidance and consensus expectations. Similar to other key China internet players, cost for marketing, technology and content were up in the quarter which resulted in a non-GAAP net income of Rmb478mn, below consensus expectations of Rmb1bn (due to limited profitability, earnings are highly sensitive to small changes in cost items). Q2 Gross merchandise volume (GMV) was up +30% YoY, in line with our projections as annual active customers grew +21% YoY to 313.8mn. Looking ahead, management expects top-line growth of +27.5% for Q3, in-line with consensus expectations.

  • We expect GMV growth to be better than expected with increasing consumption in China.

  • Improvements in brand/user engagement could result higher than expected monetization rates. Further, better than expected operating leverage could drive earnings much faster.

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