UOB Kay Hian analysts Julia Pan Meng Yao and Oong Chun Sung have reiterated “buy” on JD.com as the Chinese e-commerce company posted a strong set of results for the 2QFY2021 ended June.
JD.com’s revenue grew 26% y-o-y to RMB253.8 billion ($52.98 billion), in line with the expectations forecasted by the analysts as well as consensus.
The group will also be relatively unaffected by the ongoing global chip shortage as it had made early payments to its suppliers to secure various consumer electronics products previously.
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“Management re-iterated that it will not be affected significantly by this incident due to its long-established supplier relationship as well as precise supply chain prediction capability,” write Pan and Oong in an Aug 24 report.
Non-GAAP (generally accepted accounting principles) net profit fell 25% y-o-y in the 2QFY2021 to RMB4.6 billion, but still 31% above the street’s estimate of RMB3.5 billion.
The lower net profit was dragged by the widening loss from a new business segment, note the analysts.
As such, they have lowered their target price on the counter to US$77 ($104.20) from US$86.
This is to factor in lower profitability due to investment in new initiatives.
The new target price implies 0.7 times 12-month forward electric vehicle (EV) sales, say the analysts.
Pan and Oong have, however, kept their topline forecast for the 3QFY2021 unchanged.
“We forecast non-GAAP net margin of 1.6% in 3QFY2021 due to the continued drag from the new businesses segment as the higher investment in logistics and Jingxi Pin Pin will continue to drag on margin growth,” they write.
To this end, the analysts have deemed strong new user growth, a continued margin expansion with improved operating efficiency and further extension of logistics services to internal and external customers as catalysts to JD.com’s share price.
Downside risks include intensified competition in fresh produce and the fast-moving consumer goods (FMCG) segment from Pinduoduo with their subsidies leading to potential fines from regulators.
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Shares in JD.com closed 90 US cents higher or 1.18% up at US$77.04 on Aug 26.
Photo: Bloomberg
