Morgan Stanley downgraded JD.com’s investment rating to "Underweight," anticipating the aftereffects of the trade-in subsidy to emerge

Morgan Stanley downgraded its investment rating on JD.com (JD.US) from "Equal Weight" to "Underweight," with a target price of $28 for American Depositary Receipts.

The firm indicated that compared to Alibaba (09988.HK)(BABA.US) and Pinduoduo (PDD.US), JD.com benefits the most from the government's trade-in subsidy policy, but the effectiveness of the policy is diminishing and has turned into a high base since last quarter. It expects JD.com's revenue growth in the fourth quarter to slow to 5.6% year-on-year, with sales of home appliances and electronics potentially declining year-on-year, and revenue growth next year is expected to further slow to 4.4%. This situation will reduce the company's operating leverage over the next 12 months, and ongoing investments in new businesses will also drag down long-term profit margins and return on equity.

The firm expects the company's non-GAAP net profit margin to decrease by 2.3% to 2.5% from this year to 2030, and the return on equity is expected to structurally decline from 20.3% last year to 12.6% by 2030. The firm believes that the only way to support JD.com's valuation level is to accelerate shareholder returns, but ongoing investments in new businesses may weaken the ability to increase shareholder returns, leading to further valuation downgrades. Artificial intelligence is also unlikely to become a transformative growth driver for the company's e-commerce business, as the company focuses on vertical integration and operational efficiency, with relatively less emphasis on building an ecosystem compared to its peers