Daiwa downgraded JD.com's target price to 176 yuan, expecting retail business to face challenges from a high base

Daiwa's research report indicates that JD.com (09618.HK) achieved an operating profit margin of 5.9% in its retail business for the third quarter, which was a pleasant surprise, while losses in new businesses were in line with the firm's expectations.

During the period, the number of quarterly active users and user engagement in new businesses increased by 40% year-on-year, with the annual active user count surpassing 700 million in October. Driven by order volume, the gross merchandise volume (GMV) of the food delivery business grew double digits quarter-on-quarter, and losses also narrowed quarter-on-quarter due to improvements in the structure of food orders and average order value; limited advertising revenue has also been generated.

As for the retail business, the firm expects that fourth-quarter revenue will face high base challenges, particularly in the home appliance category, which was impacted by last year's government subsidy policies and strong performance in December; therefore, it anticipates that fourth-quarter direct sales revenue will only increase by 3% year-on-year, with the operating profit margin expected to decline by 0.7 percentage points year-on-year to 2.6%, as the company needs to actively promote and bear subsidies itself.

The firm has lowered its earnings per share forecast for JD.com for 2025 to 2026 by 4% to 6% to reflect weaker-than-expected operating revenue from JD Logistics (02618.HK); the target price has been reduced from 205 yuan to 176 yuan, maintaining a "Buy" rating