Research report: re-understanding Jingdong

3) Personnel adjustment: strict assessment, performance-oriented reset incentive mechanism. Top-down strict performance assessment and elimination of the bottom, and the incentive mechanism is adjusted to strong performance orientation.

From March to April 2019, with the resignation of Chief Technology Officer (CTO) Zhang Chen, Chief Legal officer (CLO) Long Yu, Chief Public Affairs officer (CPO) LAN Ye, and the transfer of Wang Xiaosong, president of DFMCG business group, and Hu Shengli, president of Fashion Life business Group, as a sign, Jingdong vice president and above senior executives intensive adjustment.

With Jingdong Logistics as the representative, adjust the original "base salary + commission" model to a more incentive business commission model (increase the commission), and adjust the proportion of employees' provident fund contributions within the scope permitted by the policy.

The internal adjustment came to an end, and Jingdong returned to the ranks of high growth. In Q3 2019, JD AAU (annual purchasing users) reached 334 million people, an increase of 9.6% (VS 2.9%/2.4% in 2019Q1/Q2); Single-quarter revenue of 134.8 billion yuan, an increase of 28.7% (VS 2019Q1/Q2 +20.9%/22.9%).

In the first three quarters, the cumulative Non-GAAP net profit was RMB9.94 billion and the net profit rate was 2.45% (VS the Non-GAAP net profit of RMB3.46 billion and the net profit rate was 0.75% for the whole year of 2018); Owned cash flow (TTM) reached 15.6 billion yuan, recovering to the highest level since 2017Q4; New full-time employees in a single quarter of about 21,000 to 200,000 people (Q4, 2018 - Q2, 2019 for three consecutive quarters of about 179,000 people), Jingdong fully restarted expansion.

We believe that Jingdong is a retail company with Internet attributes, and it is the marginal improvement cycle of the company's retail main business to realize large-scale profits and rapid expansion of innovative business.

1) Since its establishment, Jingdong has maintained strong retail attributes. 1P self-operated business is the company's foundation and traffic source, and 3P platform business is the company's cash tool.

In Q3 2019, Jingdong's 1P business revenue increased by 26.6% year-on-year to 118.85 billion yuan, accounting for 88.1% of total revenue; Platform advertising and commission revenue increased 28.8% year-on-year to RMB9.99 billion, accounting for 49.6% of the total consolidated gross profit.

2) The main retail industry has realized large-scale profits and entered the cycle of steady improvement of profit margins.

The retail business of Jingdong Mall is a representative of domestic brand quality online shopping, and the efficient shopping experience advantages brought by full-link self-support and asset-heavy logistics investment are still attractive to specific groups: the average number of old users registered in Jingdong in 2008 has reached 31.5 in 2018, and the number of paying members of Jingdong plus has exceeded 15 million.

In addition, the scale effect of the main retail business of Jingdong Mall is prominent, and the profit rate is steadily improving: In 2018, the non-GAAP operating profit of Jingdong Mall is 7.05 billion yuan, and the operating profit rate is 1.58%; The cumulative operating profit in the first three quarters of 2019 was 11.48 billion yuan, and the profit margin further increased to 2.95%.

3) Logistics outsourcing services to open up the second growth curve.

With logistics outsourcing service as the core, Jingdong's innovative business scale has grown rapidly. Cumulative revenue in the first three quarters of 2019 increased 70.6% year-on-year to 16.49 billion yuan, and absolute loss (Non-GAAP operating loss) narrowed by 640 million yuan year-on-year to 3.32 billion yuan.

It is expected that the overall revenue of the logistics sub-group in 2019 will reach 59.8 billion yuan, of which the foreign single income will reach 23 billion yuan.

4) Focusing on the incubation of retail ecology, the independent business value of the sub-group is gradually highlighted.

In addition to Jingdong Logistics and Jingdong Number, Jingdong has created two "unicorns" under the instant delivery platform Dada Group (completed $500 million financing in 2018.8, timely delivery system) and integrated medical and health platform Jingdong Health Group (completed $1 billion financing in 2019.5, Internet medical).

At the same time, its technology sector (Jingdong Cloud and AI division) will be independent, and the independent external financing of the sub-group will further thicken the value connotation of the listed company.

02 E-commerce industry

The leading advantage is stable, and the low line is upgraded at the right time

1. Total volume: growth track, low line upgrade will be the new driving force of the industry

E-commerce has become the core channel of consumption, accounting for 19.7% of social zero stock/increase /50.2%.

According to the data of the National Bureau of Statistics, from January to November 2019, from the perspective of the stock proportion, the scale of domestic physical e-commerce transactions reached 760 million yuan, accounting for 19.7% of the total social zero.