9618.HK JD.US
JD first-quarter results marking a turnaround

The e-commerce giant’s latest results beat market expectations, earning new confidence as it seeks to regain its lost momentum 

Key Takeaways:

  • JD.com reported a profit of 7.1 billion yuan for the first quarter, up nearly 13% year-on-year 
  • Many investment banks upwardly revised their price targets and ratings for the stock after the release of the latest report

By Lau Chi Hang

On her one-year anniversary running the show at e-commerce giant JD.com Inc (9618.HK, JD.US), CEO Xu Ran gave investors a honeymoon gift in the form of strong first-quarter results, led by a 7% revenue rise to 260 billion yuan ($35.95 billion). She delivered even stronger profit growth of nearly 13% to 7.1 billion yuan, and non-GAAP profit growth of 17% to 8.9 billion yuan.

When Xu took over the CEO reins last May from former chief executive Xu Lei, no relation, observers expected to see some cost slashing. That’s because they presumed that Xu Ran, as JD.com’s former CFO, would try to work some of her financial management wizardry to improve the company’s profit profile. That expectation was born out by the company’s 2023 results, with its profit leaping 1.3 times to 24.4 billion yuan, even as its revenue grew by a much slower 3.7% year-on-year to 1.08 trillion yuan.

Crediting cost-cutting

As we attempt to dissect the impressive results, at least some think the credit should fall mainly to drastic cost-cutting in the face of lackluster revenue growth. Under Xu Ran’s leadership, R&D and administrative spending as a percent of total revenue both fell, while fulfillment expenses were unchanged. The company’s interest income rose and its equity investment losses narrowed, all of which combined to help bring about the big profit jump. 

The first-quarter results also surprised to the upside by showing stronger-than-expected revenue growth for JD.com’s various operations on top of more prudent spending. JD Retail’s revenue grew 6.8% year-on-year to 226.8 billion yuan and JD Logistics’(2618.HK) revenue rose by 14.6% to 42.14 billion yuan. The logistics business, in particular, moved from a loss of 1.12 billion yuan last year to an operating profit of 224 million yuan, one of the major contributors to the first-quarter profit. 

Aggregate revenue from the sale of goods – the company’s main breadwinner – jumped 6.6% year-on-year to 208.5 billion yuan. A breakdown from that category shows that revenue from electronics and home appliance sales increased 5.3% to 123.2 billion yuan, while general merchandise sales rose 8.6% to 85.3 billion yuan. Total services revenue grew 8.8% year-on-year to 51.5 billion yuan, including a marginal 1.2% rise for platform and advertising revenue to 19.3 billion yuan. Revenue from logistics and other services rose by 13.8% to 32.3 billion yuan. 

At the same time, the company’s operating profit margin increased from 2.6% in the first quarter of last year to 3% during the latest reporting period. It made the improvement even as it continues to spend tens of billions of yuan on subsidies in the face of relentless competition from the likes of PDD Holdings (PDD.US). But now JD has managed to increase not only its revenue but also its operating profit margin, marking an impressive feat. 

The company said that its various user-based indicators also saw major improvements in the first quarter. Its quarterly active user base grew by double digits year-on-year for a second consecutive quarter, and the number of purchases per user and users in lower-tier cities also increased substantially.

In the first quarter, JD Logistics provided integrated supply-chain logistics services to retail store operator Miniso (9896.HK; MNSO.US), including warehousing and delivery services for all of the latter’s Australian and Malaysian stores as Miniso steps up its global expansion. The two are ready to explore more collaboration opportunities globally. 

Opportunity in government-subsidized upgrades

In terms of company outlook, Xu Ran, who also goes by Sandy Xu, was full of confidence. “We are already seeing measurable results across the business,” she said. “In particular, in the first quarter, our focus on user experience helped to drive strong growth in the number of active users as well as user engagement. We are confident that we will further build on our momentum in the months ahead as JD’s commitment to providing the best combination of selection, speed, quality and price continues to attract Chinese consumers nationwide.”

Xu said on the earnings call that the Chinese consumer market was large and decentralized and thus, with greater efforts to improve platform efficiency and innovate on business models and approaches, the penetration rate of online shopping would continue to increase from the current level of about 30%. For example, she said, penetration rates for online grocery and home appliance shopping stand to grow a great deal over time. 

She pointed to home appliance upgrades as one area with growth potential, noting the last round of such nationwide upgrades happened a decade ago. She said China is now at the beginning of another upgrade period for big-ticket durable goods, as Beijing tries to encourage more consumption. She said the start of a new cycle could generate strong demand, with local governments boosting their subsidies during the implementation process. Hopefully, she said, such a large-scale initiative will contribute substantially to home appliance sales and increase the category’s share in JD.com’s total sales. 

Investment banks bullish 

JD continues to aggressively buy back its shares, following a similar recent trend for many U.S.-and Hong Kong-listed Chinese companies that believe their shares are undervalued. It announced a $3 billion buyback in March and had already completed $700 million of that by May 15. That gives it another $2.3 billion to spend before the deadline of March 2027. To help fund those purchases, JD.com separately announced last week it would issue $1.75 billion in new convertible senior notes.

JD’s shares rose 1.3% to HK$134.10 after the release of its first-quarter report, as many investment banks upgraded their target prices or ratings for the stock. CICC raised the target price for the company’s U.S.-listed shares by 28% to $41 per share, citing its lower procurement costs and increases in its share of the high-margin grocery business as part of its overall business mix. Nomura cited JD’s strong retail numbers and overall performance, as well as renewed momentum for its revenue growth, in raising its target price for the company’s Hong Kong stock by 29% to HK$165. Macquarie was the most bullish, upwardly revising its price target by 54% to HK$159, and raising its rating to “outperform.” 

JD currently trades at a price-to-earnings (P/E) ratio of 14 times, which still trails Alibaba’s (9988.HK, BABA.US) 17.5 times and is just half of PDD’s 28 times. That means the stock could hold some upside potential if its business performance continues to improve. 

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