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Briefing Sep 23, 2020 02:56 pm EqualOcean

JD's Own Consumption Goods Brand J.ZAO Released Its First Laptop JDBook

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Sep 22, 2020 10:19 am ·

JD.com Confirms JD Health's Listing Plan

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Analysis EO
Sep 10, 2020 11:50 pm ·

JD.com: 'One-Trick Pony' Gains a Set of Tricks – Initiate with Hold [2/2]

This article is part II of our analysis on Meicai – check out part I before you read.  ► JD.com's expanded category mix change effectively makes up for the weakness of the home appliance sector – as Suning catches up. Superior advantages in 3C make JD an unwelcoming 'one-trick pony' on capital markets, but the company's category mix change alleviates the concerns. Low marketing spending and increase of order value of categories like FMCG, clothes and underwear and beauty, some with low margins, can turn the new categories profitable. A more balanced category strategy is highly aligned with JD's reform to put user experience as the top priority. ► Similar to Amazon, membership services may become the next profit engine, as the two companies are enjoying benefits in terms of sales and users' numbers. JD started with the home appliance business, so its online share has always been the first, accounting for 37.3% in 2019. From the perspective of omnichannel in 2019, Suning ranked first with a market share of 22.8% as the company previously focused on the offline market, and its offline market share reached 18% in 2019. However, JD.com acquired Five Star Electric in August 2020 with a wholly-owned subsidiary and implemented an omnichannel layout, which has impacted Suning's offline dominance. Though the home appliance market as a whole is shrinking, JD.com's multi-category mix strategy can effectively make up for the weakness of the home appliance sector. Member services may become the next growth engine According to QuestMobile, China's mobile Internet monthly active users fell from 1.138 billion to 1.136 billion in the second quarter of 2019, a decrease of 2 million. This shows that the dividends of natural traffic growth are gone, and the next step is to grab the 'cake' from each other. In addition to social e-commerce, content e-commerce and new retail, a paid membership is one of the few relatively mature practices. Amazon launched its membership service in 2005. At present, the total number of Prime members exceeds 100 million, and the per capita spending exceeds USD 1,200, which is twice that of ordinary members. But this method is currently challenging to implement in China. Amazon Prime members enjoy free home delivery within two days across the country, while regular users have a free shipping threshold, and the delivery time is 5-6 days. The advantages of paying members are apparent. However, in the Chinese market, free shipping and two-day delivery are the industry averages. The cost-effectiveness of continuous improvement is not high, so paying members cannot enjoy a differentiated experience. The innovation of JD PLUS is the launch of 'JD+iQIYI' joint membership. Five months later, the number of PLUS members reached 10 million. The main reason is that entertainment has a paid tradition, while e-commerce does not. Besides, Amazon Prime can only maintain its rapid growth momentum after it covers entertainment content such as videos, music, and e-books. On the other hand, JD.com launched a strategy of 'Member Day + Price Promotion + Member Price.' The advantage of promotional activities is that the cost of promotional activities has been included in the cost calculation of pricing, and in most cases, can be shared with the supplier. Therefore, the platform input cost is entirely controllable. JD's big data shows that PLUS members have contributed more than 60% of sales to maternal and child brands. This model, which is still young in China, is likely to bring the same benefits to JD.com as Prime brings to Amazon. Valuation We drive a Dec-20 price target of USD 84 from a DCF methodology, assuming a WACC of 9.8%. We apply a 2% perpetual growth rate. Our price target implies a 9% upside – therefore, Initiate with a Hold rating. The revenue growth forecasts for 2020/21/2022 are 20%/20%/18% driven by 1. Unique consumer experience leveraging the logistic network, 2. The membership system expects to retain customers and improve mindshare gain, 3. higher monetization rate of the 3P business. We expect short-term gross profit margin will improve slightly due to the decrease in fulfillment expense rate and increased monetization rate. Still, the company's rapid user growth in the sinking market can inhibit the rise of Pinduoduo. At the same time, JD Logistics has opened up third-party logistics services to drive the rapid growth of innovative businesses; JD Health, as the third unicorn incubated by the company, performed brilliantly under the epidemic, with a year-on-year growth rate exceeding 100%. Synergistic efforts in innovative businesses create a second growth curve for the company.

Analysis EO
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Analysis EO
Sep 10, 2020 11:44 pm ·

JD.com: 'One-Trick Pony' Gains a Set of Tricks – Initiate with Hold [1/2]

► JD.com is riding on the wave of higher e-commerce penetration of the social consumption goods market, which reached 28% in 2019 from 1% in 2010. ► Expense cost ratios of fulfillment, marketing, technology & content and G&A have kept a steadily decreasing speed from 2015 to 2019. In the 2Q 2020, the fulfillment expense ratio decreased to 5.9% vs. 6% one year ago, dropping from 7% during the spreading coronavirus time in 1Q20. We believe this is due to 1. effective control over expenses, 2. accelerating 3P business, which allows JD to unleash its logistics potential. ► Net service revenue that generates from 3P merchant sales delivered significant growth in the past years, representing only 11% of the total in 2019. Amazon's 3P revenue, however, made up for 31% of the total after deducting AWS. We forecast JD's 3P revenues to grow in 33.6%/31.0% in 2020/21 and further to account for 20% of total revenues in 2024.        As China's largest B2C self-operated e-commerce platform, unlike Alibaba (BABA:NASDAQ, 09988:HK) and Pinduoduo (PDD:NASDAQ), JD.com (JD:NASDAQ, 09618:HK) has built a deep competition barrier through its self-built logistics system in the early stage. As of 2Q 2020, the company has more than 750 warehouses, with more than 90% of orders delivered within 24 hours. The company saw revenue and net profit increase by 24.9% and 589% year-on-year, respectively, in 2019. With the 2020 epidemic stimulating e-commerce, JD has proven its logistics model has a sound approach to user experience and we expect to continue high growth driven by: 1. pent-up demand for high ticket size products 2. higher penetration in low-tier cities. Industry perspective: riding on the wave of the secular e-commerce trend According to Euromonitor, e-commerce penetration of the social consumption goods market reached 28% in 2019 from 1% in 2010, becoming the second purchasing channel after offline chain stores with a 39% share.  In 2019, online shopping for physical products volume had reached CNY 8.5 trillion. It has become the largest driver, accounting for a 50.5% increase in total social retail sales growth in 2019. Affected by the epidemic, e-commerce channels have shown remarkable consumption resilience. By May 2020, the cumulative growth rate rebounded to 11.5%. With the stimulus of powerful e-commerce platforms through promotions, e-commerce is expected to develop into the largest consumer channel. According to the National Bureau of Statistics, the scale of China's e-commerce reached CNY 10.6 trillion in 2019. The number is expected to maintain a compound growth rate of over 13% in the next five years, reaching CNY19.7 trillion. Coupled with industry upstream, JD's GMV is climbing JD.com's GMV is divided into two parts: the 1P and 3P business. 1P mainly refers to the self-operated business, which generated 89% revenue in 2019, while 3P represents third-party platform business. Based on the traffic of self-operated platforms, JD.com diverts traffic to third-party platforms and expands logistics and distribution, supply chain finance, marketing and promotion services for third-party platforms, driving up the company's profitability through commissions and advertising. From 2015 to 2019, 3P business's GMV has achieved an annual growth rate of 45%, and the proportion of revenue also increased from 7% in 2015 to 11% in 2019. As a profit engine, the 3P business's steady development is expected to continue to improve the company's profitability. From 2015 to 2019, the company's self-operated revenue increased from CNY 108.7 billion to CNY 510.7 billion, with a CAGR of 36.3%, of which the CAGR of 3C home appliances/other category revenue was 28.7%/66.7%, respectively. The reason is that Tencent's WeChat first-level traffic portal for JD.com and the external traffic provided by search engines Baidu and Jinri Toutiao in 2017 accelerated the company's monetization ability. This existing traffic and the advantages of JD Logistics pave the way for future consumer stickiness. From 2015 to 2019, the company's gross profit margin increased from 11.6% to 14.6%. The operating profit margin increased from -5.0% to 1.6%, showing a sustainable increase. The improvement in operating efficiency mainly comes from: (1) The effect of category expansion is significant, and the high-margin SKUs continue to rise: from 2014 to 2019, the proportion of revenue from other categories except 3C appliances increased from 13.0% to 35.6%; (2) Periodic expenses under the effect of economies of scale decline, lifting the operating profit margin: the company's period expense ratio in 2019 was 13.7%, a 1.1pcts decrease from the same period last year, which lifted the operating profit margin from -0.6% to 1.6%. JD Logistics empowers retail business Self-built logistics is the core competitiveness of JD.com. With the increase in the proportion of JD logistics, the number of front-end orders is on the rise. When the penetration rate is 80%-100%, 87% of the merchants have achieved 100% growth. Among them, major categories such as digital, home improvement and home appliances have achieved an average increase of more than 100% after entering the warehouse. As of 1Q 2020, the company's annual active purchase user rate reached 387 million, and the number of monthly active users was approximately 270 million. With the continuous improvement of user stickiness, the company's annual per capita purchase amount increased from CNY 4,144 in 2016 to CNY 5,761 in 2019, while Alibaba's number dropped from CNY 9,359 in 2017 to CNY 9,267 in 2019. Cost reduction and efficiency improvement The company's expenses mainly include four categories: fulfillment, marketing, technology & content and G&A. The first accounts for more than 40% of total costs, making it the leading factor. This most critical rate has continued to decline since 2016, from 7.2% to 6.4% in 2019. The average fulfillment cost per order in 2019 was CNY 13.4, a decrease of CNY 5.1 compared to 2014. With the continuous improvement of the company's logistics network and the improvement of logistics technology such as 'unmanned systems,' the average delivery cost per order was CNY 7.5 in 2014 and dropped to CNY 6.5 in 2019, improving distribution efficiency. The company's intelligent logistics center 'Asia No. 1' is the largest and most automated modern operation center in the B2C industry in Asia. The cross-belt sorter system is more than ten times higher than the traditional manual sorting mode. In the future, as the company's logistics technology is fully implemented and the proportion of the scale of application is increased, the number of personnel is expected to be reduced on a large scale, thereby reducing personnel expenses and improving the efficiency of personnel operations. In 2019, the company's marketing expense ratio dropped from 4.3% in 2015 to 3.9%. In 1Q 2020, Alibaba/JD.com/Pinduoduo's new user marketing expenses were CNY812/170/176 /person, +64.5%/-13.7%/-76.8% year-on-year, respectively, indicating that JD.com's marketing efficiency topped. One of the reasons is that JD.com and Tencent have jointly accumulated massive shopping behavior data and established a more accurate target consumption profile through the 'Jingteng program,' which includes marketing solutions with precision portraits, multi-dimensional scenes and high-quality experience. With the 'Jingxi' targeting the sinking market (against Pinduoduo) launched in WeChat's first-level traffic portal and strategic collaboration with Kuaishou, the latter’s large membership in low-tier cities and short video marketing scenarios are expected to continue to build resilience in the sinking market for the company and improve precision marketing efficiency. Also, the company's inventory turnover days in 2019 numbered 37.3, higher than Alibaba's 14.2 days as JD's 1P business is responsible for inventory management and must take the inventory risk. The number dropped from 2014's 49 days. Costco, Wal-Mart, Carrefour, Amazon, Suning.com are 30.3, 40.5, 37.2, 41.0, 38.4 days, respectively. This article is part I of our analysis on JD.com. Please continue to part II.

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Aug 21, 2020 01:44 pm ·

JD's Market Value Exceeds HKD 900 Billion in HKEX

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Oct 16, 2020 04:15 pm · ITjuzi

Beijing-Based AI Startup Vion Closes Series C Financing

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