Jingdong Group -SW(09618) steady revenue growth, profit margin climbing

Jingdong Group -SW (09618) Steady revenue growth, profit margin climb, open the quality growth cycle. It is estimated that the company's revenue in 2020-2022 will be 722.7 billion / 870.5 billion / 1035.8 billion yuan, with a year-on-year growth of 25.3%/20.4%/19.0%; non-GAAP net profit of 14.05 billion / 20.20 billion / 26.32 billion yuan. Split into retail e-commerce, logistics services and ecological sub-group valuation, with a target market value of HK $1,030.8 billion/US $133 billion. Cover Jingdong Group-SW for the first time, give a "buy" rating, target price 331 Hong Kong dollars; Jd.com (JD.O) maintained a "buy" rating and raised its price target to $85.50 /ADS.

Company profile: The first self-operated e-commerce, quality growth set sail again.

Since 2018, JD.com's internal adjustment in organizational, business and personnel dimensions has been basically completed, and its business has rebounded quarter by quarter: in 2019, JD.com's revenue was 576.9 billion yuan, yoy+24.9%; Cumulative Non-GAAP net profit/net profit margin 10.75 billion yuan /1.86% (VS2018 annual 3.46 billion yuan /0.75%), FCF19.5 billion yuan, back to the high point since 2017Q4.

E-commerce industry: the leading advantage is stable, and the low line is upgraded at the right time.

After three rounds of dividends of PC Internet (1999-2010), mobile Internet (2011-2015), high line upgrade & low line users (2015-2018), the popularization of e-commerce users is basically completed, and the upgrade of low line users & Pinduoduo/Taobao user spillover is the main incremental point of view of the industry: 2019Q4, the Top3 e-commerce strong Hengqiang, the total share of 92.4%. In 2020Q1, Jingdong's single quarter AAC net increase of 25.4 million to 387 million, e-commerce upgrade index (Jingdong AAC/ Ali AAC) rebounded to 53.4%, low line market user dividends in the industry spread.

Jingdong Retail: scale effect release, enter the profit improvement cycle.

1) Self-management: scale expansion and operation efficiency improvement have entered a benign improvement cycle. In 2019, JD's non-gaap net profit margin increased by 1.1pcts to 1.86%, and the number of days of inventory turnover decreased by 2.9 days year-on-year to 35.8 days.

2) Fulfillment: From 2014 to 2019, JD's fulfillment expense rate decreased from 7% to 6.4%, and average fulfillment/delivery cost decreased from 22.2 yuan /11.5 yuan to 16.7 yuan /8.1 yuan, greatly improving logistics efficiency;

3) 3P platform: Commission advertising revenue yoy+27.3% to 42.68 billion yuan in 2019, compared to Tmall, platform monetization rate still has upside space (JD 4.6%VS Tmall 4.8%-7.7% in 2019).

4) Jingxi: In June 2020, the monthly life of app/ mini program reached 12 million / 245 million people, and the independent operation and investment were controllable, helping JD's low-line market to pull new;

5) Service provider transformation: Join hands with Kuaishou to provide comprehensive supply chain service support and open the role transformation of Jingdong retail service providers.

Jingdong Innovation: Build Jingdong's second growth curve.

1) Logistics outsourcing: scale growth at the revenue end and loss reduction at the profit end. Jingdong Logistics is based on warehouse and builds full link service capability. In 2019, the revenue of logistics group reached yoy+30.5% to 60.9 billion yuan (about 54% of SF Express), of which the revenue of logistics outsourcing service reached 23.5 billion yuan;

2) Focusing on the incubation of retail ecology, Jingdong Logistics, Dada Group, Jingdong Health, Jingdong Industrial Products, etc., have successively raised funds independently to increase the connotation value of listed companies.

Risk factors:

Technological change changes the industry structure; Logistics socialization does not meet expectations; Competition intensifies in the lower market.

Investment advice: Steady revenue growth, profit margin climbing, open the quality growth cycle.

It is estimated that the company's revenue in 2020-2022 will be 722.7 billion / 870.5 billion / 1035.8 billion yuan, with a year-on-year growth of 25.3%/20.4%/19.0%; non-GAAP net profit of 14.05 billion / 20.20 billion / 26.32 billion yuan. Split into retail e-commerce, logistics services and ecological sub-group valuation, with a target market value of HK $1,030.8 billion/US $133 billion. Cover Jingdong Group-SW for the first time, give a "buy" rating, target price 331 Hong Kong dollars; Jd.com (JD.US) maintained a "buy" rating and raised its price target to $85.50 /ADS.