EUR 850.00 For Business Accounts Only

Morningstar | JD Remains Undervalued With a FVE of USD 36 per Share

We are lowering JD’s fair value estimate to $36 per share from $41, attributed to the slowing economy, weak home appliances sales, and more conservative margin assumptions in light of intense competition and weaker-than-expected margin growth. We estimate total revenue growth to be 26% in 2018, 20% in 2019, and 15% in 2020, reflecting the weaker macro environment, before rebounding to 20% in 2021 and 24% in 2022 as the economy recovers. We believe operating margins will gradually expand in the next 10 years as the group gains bargaining power against suppliers (as reflected in gross margin expansion to 17.6% by 2027) and sees rising operating leverage, as the money-losing logistics business sees increasing utilization, and as the higher-margin third party platform contribution increases. On a non-GAAP basis, operating margin is expected to reach 5.2% by 2027, from 0.8% in 2017. We assume fulfillment/sales ratio to be flat in the next few years before reducing in 2023 to 7.1% and to 6.7% in 2027 because of better unit economics. Its marketing/sales ratio is expected to remain at 4% as we think competition in e-commerce sector will always be intense and JD will always have to maintain its brand awareness. As the key teams in the research and development are already in place, we expect its R&D/sales ratio to peak at 3.3% in the third quarter of 2018, and we expect this ratio to gradually reduce to 2.1% by 2027.