JD Health: Brief Update Shows Recovery on Track to Meet Company Expectations

We maintain our fair value estimate of HKD 45 per share for JD Health after the company provided a partial financial update on its first-quarter results. Revenue of CNY 13.27 billion, representing a 5% year-on-year decline, is slightly better than anticipated, given previous guidance of a high-single-digit decline. Non-IFRS operating income was CNY 754 million (adds back stock-based compensation), which declined 35% year on year and reflects a 5.7% operating margin. JD Health indicated that the first quarter of 2023 had a high base effect where pandemic-related purchases still accounted for a significant portion of transactions. It expects consumer behavior to normalize for the rest of the year and maintains that it still expects revenue to increase 20% year on year for the remainder of 2024. Despite the stock having struggled this year, we believe our narrow moat rating remains intact as JD Health owns logistics and has user-acquisition advantages over its competitors for healthcare e-commerce.