JD.com:Promised margin expansion
Event
3Q17non-GAAP net profit for JD.com came in at Rmb2.2bn, 130% ahead ofour estimate, primarily on robust margin expansion. Management is promisingto continue improving margin on a full-year basis over the next few years, andwe project FY17/18non-GAAP NPM improvement of 0.6ppts YoY each yearto 1.4%/2.0%. While JD is currently facing headwinds in the apparel business,with 100+ domestic brands leaving the platform, the company is determined torevamp the business, supported by the growing female customer base. Afteryears of investment, the company’s logistic network is to cover 100% ofChina’s counties and villages by end-2017, which should facilitate the rolloutof its Xintonglu/ZGB. We maintain our OP rating and target price of US$51,which is based on 1.0x FY18E EV/sales.
Impact
Strong earnings beat on margin expansion. 3Q17revenue increased 39%YoY to Rmb83.7bn, in line with our and the consensus estimates. Grossmargin improved 1.2ppts YoY and 1.9ppts QoQ to 15.5%, ahead of our andthe market’s expectations. As GPM expansion trickled down, non-GAAPoperating profit grew 171% YoY to Rmb1.5bn, 40% above our forecast. Non-GAAP net profit came in 130% above our estimate, at Rmb2.2bn, up by asubstantial 359% YoY. During the 1
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