CICC maintains "outperform" rating on JD HEALTH (06618) and raises target price to 30.2 Hong Kong dollars.

CICC has released a research report stating that it has raised the target price of JD HEALTH (06618) by 12% to HKD 30.2, maintaining an "outperform" rating. Considering that the fourth quarter of 2024 is usually a key quarter for the company's expenditure, the revenue and profit forecasts for 2024 and 2025 remain unchanged. The bank pointed out that in the third quarter of 2024, the company's revenue was RMB 13.302 billion, a year-on-year increase of 14.8%, with a net profit of RMB 932 million, a year-on-year increase of 212%, and an adjusted net profit of RMB 1.336 billion, a year-on-year increase of 40.6%. Revenue met market expectations and profits exceeded market expectations, mainly due to improved gross margins and continued optimization of expenses. The company's revenue performance is robust, with the pharmaceutical sector expected to remain the main growth category, with growth potentially faster than the health care products and equipment categories. On the other hand, considering the company's strong supply chain capabilities, self-operated businesses are expected to perform slightly better than the medical e-commerce platform sector, driving overall revenue growth steadily. The report stated that the company's profit growth is significant, expected mainly due to the improvement in gross margins driven by the first launch of pharmaceutical business and the continued rapid growth in advertising revenue. However, considering the many major promotional activities such as the fourth quarter shopping festival, which is usually a key quarter for the company's expenditure, CICC remains cautious about fourth-quarter profits. Additionally, as of the end of the third quarter, the company has launched online payment services for health insurance in 12 cities, with nearly 2,000 designated retail pharmacies under medical insurance coverage, serving over 100 million people. CICC believes that the growth rate of online channel penetration in the industry is slowing down marginally, but the competitive landscape among top companies remains stable. Considering the advancement of activities such as O2O channels being included in medical insurance payments since the second quarter, such activities are expected to have a relatively limited short-term impact on the fundamentals, but are expected to potentially drive online drug purchasing behavior.