Forensic Analyst

Jason Yap, CFA

Forensic Accounting

In Q1 2021, <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> reported strong topline growth (+39% yoy) that exceeded consensus expectations mainly due to strong user growth (+29% yoy), with more than 500 million reported Annual Active Users (AAU).  Out of which, 80% new active users came from lower tier cities, which reflects JD's strategy shift to target the fast growing lower tier markets (下沉市场) through its newly formed Jingxi business group. 
As JD continues its transition from the largest retail company in China (by revenue) to a supply chain-based technology and service provider, we can likely expect a moderated revenue growth for its core JD Retail business and incremental investments in New Initiatives and its logistics and fulfillment capabilities, with a key focus on Jingxi.
In Q1 2021, JD announced that Jingxi related businesses, will be carved out from JD Retail and reported under the New Businesses segment.  Having grown to a certain size, the change in reporting segment is not a jingxi or surprise. Instead, JD has been telegraphing the growing role of Jingxi and, more broadly, the moderating pace of growth of its core businesses in mature markets during recent quarter-end earnings calls and in related disclosures.   
This article discusses how to analyse earnings calls and disclosures using a forensic approach, with a view to gain relevant insights on JD's future prospects.

In Q1 2021, JD.com Inc (ADR) (JD US) reported strong topline growth (+39% yoy) that exceeded consensus expectations mainly due to strong user growth (+29% yoy), with more than 500 million reported Annual Active Users (AAU).  Out of which, 80% new active users came from lower tier cities, which reflects JD's strategy shift to target the fast growing lower tier markets (下沉市场) through its newly formed Jingxi business group. 
As JD continues its transition from the largest retail company in China (by revenue) to a supply chain-based technology and service provider, we can likely expect a moderated revenue growth for its core JD Retail business and incremental investments in New Initiatives and its logistics and fulfillment capabilities, with a key focus on Jingxi.
In Q1 2021, JD announced that Jingxi related businesses, will be carved out from JD Retail and reported under the New Businesses segment.  Having grown to a certain size, the change in reporting segment is not a jingxi or surprise. Instead, JD has been telegraphing the growing role of Jingxi and, more broadly, the moderating pace of growth of its core businesses in mature markets during recent quarter-end earnings calls and in related disclosures.   
This article discusses how to analyse earnings calls and disclosures using a forensic approach, with a view to gain relevant insights on JD's future prospects. 

JD - Analysing Earnings Calls and Disclosures Using a Forensic Approach

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<ul>
<li>
There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> just happens to be one of them.  </li>
<li>
JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. </li>
<li>JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, <a href="https://www.smartkarma.com/insights/china-e-commerce-robust-consumption-data-hints-at-online-spending-spree" target="_blank" data-smartkarma-citation="insights:50798" rel="noopener">China E-Commerce: Robust Consumption Data Hints at Online Spending Spree</a>.  </li>
<li>
Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  </li>
<li>Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  </li>
</ul>



There are only a few large cap stocks in Asia that can deliver on 30%+ revenue growth and trade at 1x P/Sales (TTM) and forward P/E of 40x (on consensus estimate). JD.com Inc (ADR) (JD US) just happens to be one of them.  

JD reported the highest topline growth (39% YoY) in the last 5 years, aided by the explosive JD Logistics and marketplace revenue growth.  The stock still trades at 34% below the peak in March. 
JD's product revenue growth was 35% YoY, outpacing the China over all online physical goods sales growth of 32%.  This suggests JD is gaining market share. I highlight this trend in my report, China E-Commerce: Robust Consumption Data Hints at Online Spending Spree.  

Some may be concerned over operating margin declining, but I remain constructive as the core business (JD Retail) operating margin hit 4%, second highest level in its history.  However, total Non-GAAP operating profit margin declined to 1.7% from 2.2% in 1Q20.  This was due to investments in JD Logistics capacity and in new businesses -- Jingxi, cloud and AI.  
Risk: The market may hold back its enthusiasm as lower revenue growth relative to 1Q21 is estimated in 2Q21 because of the skewed growth in 2Q20.  Management stressed that similar growth is expected for 1H21 compared to 1Q20.  


JD.com (JD US): Robust Growth, Impressive Core Profit

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>Stellantis invested in Leapmotor and their joint venture will sell electric cars in Europe.</li>
<li>Two vehicle producers, GAC and Li Auto, are dismissing employees.</li>
<li>Tencent Music’s music revenue grew by 43% YoY in 1Q24.</li>
</ul>


Stellantis invested in Leapmotor and their joint venture will sell electric cars in Europe.
Two vehicle producers, GAC and Li Auto, are dismissing employees.
Tencent Music’s music revenue grew by 43% YoY in 1Q24.


China Consumption (20 May 2024): Leapmotor, Stellantis, GAC, Honda, Li Auto, ZTO, Tencent Music

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Equity Capital Markets

HD Hyundai Heavy Industries  / Equity Capital Markets

<ul>
<li>Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.</li>
<li>On the IPO front, Indian IPOs continued to do well, we also looked at two upcoming deals in Hong Kong.</li>
<li>On the placement front, last week ended up being one of the busiest ones so far this year with five deals live just on Thursday night alone. </li>
</ul>


Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
On the IPO front, Indian IPOs continued to do well, we also looked at two upcoming deals in Hong Kong.
On the placement front, last week ended up being one of the busiest ones so far this year with five deals live just on Thursday night alone. 


ECM Weekly (20th May 2024) -Lalatech, Go Digit, Aadhar, TBO Tek, Ecopro, Nexus, Modec, Hyundai Heavy

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/byd-electronic-international-co-ltd" target="_blank" data-smartkarma-citation="entities:1927:1" rel="noopener">BYD Electronics (285 HK)</a> will be added to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hang Seng Index (HSI INDEX)</a> after market close on 7 June while <a href="https://www.smartkarma.com/entities/country-garden-services-holdin" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services (6098 HK)</a> will be deleted.</li>
<li>Estimated one-way turnover is 1.9% and the estimated round-trip trade is HK$8.46bn (US$1.08bn) with over 1x ADV to trade in the add and delete.</li>
<li>We remain at 82 index constituents and the road to 100 index members looks to be a long and winding one.</li>
</ul>



BYD Electronics (285 HK) will be added to the Hang Seng Index (HSI INDEX) after market close on 7 June while Country Garden Services (6098 HK) will be deleted.
Estimated one-way turnover is 1.9% and the estimated round-trip trade is HK$8.46bn (US$1.08bn) with over 1x ADV to trade in the add and delete.
We remain at 82 index constituents and the road to 100 index members looks to be a long and winding one.


Hang Seng Index (HSI) Rebalance: BYD Electronics Added; Country Garden Services Deleted

China

JD.com, Inc. is an online direct sales company in China. The Company offers a wide selection of products through its website and mobile applications. JD.com sells appliances, computers, digital products, communication products, garments, books, and household items to consumers and vendors.

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JD.com (9618 HK)

JD - Analysing Earnings Calls and Disclosures Using a Forensic Approach

JD has at times revised disclosures possibly to conceal growth or margin weakness. We discuss how to analyse earnings calls and disclosures using a...

Jason Yap, CFA

JD.com (JD US): Robust Growth, Impressive Core Profit

When a USD115 billion revenue company is growing 39% YoY and core business operating margin improving 27 bps to 4%, it is hard to sit on the fence....

Mitchell Kim

China Consumption (20 May 2024): Leapmotor, Stellantis, GAC, Honda, Li Auto, ZTO, Tencent Music

Stellantis and Leapmotor's joint venture will sell electric cars in Europe. GAC and Li Auto, are dismissing employees. Tencent Music’s music...

Ming Lu

ECM Weekly (20th May 2024) -Lalatech, Go Digit, Aadhar, TBO Tek, Ecopro, Nexus, Modec, Hyundai Heavy

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.

Sumeet Singh

Hang Seng Index (HSI) Rebalance: BYD Electronics Added; Country Garden Services Deleted

BYD Electronics is an add and CG Services is a delete. Estimated one-way turnover is 1.9% and the estimated round-trip trade is HK$8.46bn...

Brian Freitas

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