JD Health: Revenue Update; Robust Growth Forecast Remains Intact for 2023

We maintain our fair value estimate of HKD 64 after JD Health 06618 provided an update on its first-half results. It reported first-quarter revenue of CNY 13.95 billion, representing a 54% year-on-year increase, which implies that it’s on pace to surpass our first-half revenue estimate of CNY 26.6 billion—a 31% year-on-year increase. The outperformance was attributed to a combination of greater demand due to the significant surge in positive COVID-19 cases, as well as panic buying stemming from the outbreak in the first quarter after China unexpectedly relaxed all quarantine measures. Despite the outperformance, management kept its 2023 guidance steady at a 30% year-on-year increase for the year. While we believe the outperformance is unlikely to recur, given that China has now reopened, the first-quarter’s results are encouraging and imply that long-term brand recognition and demand for the platform should remain intact. With JD Health’s share price at HKD 52 as of the May 11 close—which is a 24% upside to our fair value estimate—we believe this represents an attractive risk/reward ratio, given its dominant market positioning in the industry.

Management indicated that second-quarter and fourth-quarter 2023 should see slower year-on-year growth due to a higher base in 2022, which was the reason to maintain the current guidance of 30% growth for 2023. The company also briefly outlined its short-term strategic initiatives, which are to build out its offline presence and to focus more on branded advertisement. The company wants to expand its online-to-offline ecosystem and set up more offline pharmacies that also serve as pickup points for online customers. JD Health also wants to increase its ad spending to drive greater traffic toward its platform and enhance even greater brand awareness. The company indicated that its ad spending will be targeted to upscale branding.