JD Health Earnings: Moat Still Intact but Growth May Be Slowing Long-Term; Lower Fair Value by 25%

We lower our fair value estimate for JD Health to HKD 45 per share from HKD 60 after it reported second-half 2023 revenue of CNY 26.4 billion, representing a 0.3% decline year over year, which was in line with our expectations. While we expected headwinds in the second half due to the reduced consumption of pandemic-related items, we now have new concerns over the long-term growth recovery, given the company’s soft revenue guidance in 2024 that was below our forecast. Previously, JD Health had indicated that revenue for categories unrelated to the pandemic is still positioned to grow about 30% year on year, but it now provided guidance of a high-single-digit decline in the first quarter of 2024—although recovering to a 20% year-on-year increase for the rest of 2024. This amounts to only a 13% revenue increase in 2024, due to demand recovering slower than expected. JD Health also expects the operating margin to decline 10 basis points in 2024 to about 1.2%, which is slightly disappointing, given it was 3.5% in the first half of 2023.