Rough roads ahead, DG to SELL

 2023-02-22

 
Research published by Blue Lotus Research on February 15, 2023





 
(5 Pages, 5 graphs and tables)
Listen to analyst’s audio summary
  • JD’s post-CNY recovery is slower than expected, based on our checks. We suggest JD would face an unfavourable external environment going forward due to: 1) the comeback of offline commerce; 2) PDD’s growing penetration in high-tier cities and brand products; 3) Meituan Instashopping offers faster delivery than JD.
  • JD has pulled back from several key new business initiatives, such as Jingxi and overseas eCommerce, while its peers still grow these operations. Without new drivers, JD would experience more difficulties to expand its revenue.
  • We trimmed our C1Q23/FY23 GMV forecasts from 8%/14% to 6%/12% and cut JD’s FY23 revenue YoY growth forecast from 13% to 11%. Our top and bottom line estimates for FY23 are (3%) and (5%) below cons. Downgrade to SELL with TP of US$48. Our TP implies 17X P/2023E.
 
Offline rebound affects FMCG while electronics remains weak
We suggest that JD is facing challenges in both of its major categories – FMCG and electronics, in the post-COVID era. With fewer hoarding activities and less dependency on eCommerce to shop for daily necessities post-COVID, JD’s FMCG (~25% of total GMV) would be negatively impacted by the normalization of offline retail. In addition, JD was the only shopping option in some areas during lockdowns, thanks to the direct model of JD Logistics, but that is no longer the case with normalized logistics operation of other service providers. The recovery of JD’s electronics (~50% of total GMV) remains slow. Meaningful sales recovery of large home appliance category is likely to lag the return of real estate. Consumer electronics is still on the declining trend as the replacement rate continues to drop.
 
PDD’s penetration in premium market affects JD
PDD has been growing its penetration in brands and high-tier cities. As we elaborated in the previous report, PDD is working with more brand merchants and distributors to offer more higher-ASP products, and brands are more willing to open “flagship store” on PDD, expanding out of BABA and JD. This trend is expected to continue as PDD keeps outperforming peers. JD, normally regarded as the go-to platform for brand products, does not have advantages over PDD in terms of pricing or customer base. PDD owns ~900mn annual active buyers, about 50% ahead of the number of JD active buyers. (TBC)

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