JD.COM, Inc. – Leading online retailers with improving margin

  • JD reported 1Q19 net revenue of RMB150.3bn, +22.9% YoY, net services revenue surged 42% YoY to RMB16.8bn.
  • Operating margin was up 2pps QoQ in 2Q19, to 2.1%, compared to operating margin of 0.1% in 1Q18.
  • Annual active customer accounts increased to 321.3mn in 2Q19 compared to 310.5mn in 1Q19.
  • Overall, we are positive on JD, because of three reasons: 1) revenue growth recovery 2) margin improvement 3) user growth.

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Company Description:

JD.com, Inc. is also known as Jingdong, is a Chinese e-commerce company. It is one of the two massive B2C online retailers in China by transaction volume and revenue, and a major competitor to Alibaba-run Tmall. JD.com, Inc. was listed on Nasdaq in the U.S. on May 2014. JD.com also is the world’s leading company in high tech and AI delivery through drones. It has recently started testing robotic delivery services and building drone delivery airports, as well as operating driverless delivery by unveiling its first autonomous truck.


Why we like JD:

Robust growth in revenue. Revenue grew 22% YoY to RMB150.3bn, and the key revenue drivers were advertising revenue growth (+24.04%) and logistics revenue (+98.05%) due to larger orders from lower-tier cities. JD is the top listed retailer in China in terms of revenue, almost double than second place.  Based on the latest 1H19 statistics from China Home Electric Appliance Research Institute, JD further enhanced its leadership in the China online home appliance market with a market share of 39.6% now vs 38.9% in 2018.

Consistent expansion of operating margin. Operating margin went up 2ppt QoQ in 2Q19, to 2.1%, compared to operating margin of 0.1% in 2Q2018. The increase was primarily due to the growth of the company’s online direct sales business and the reduced losses of third-party logistics service.

Active customer rose further. Annual active customer accounts increased to 321.3mn in 2Q19 compared to 310.5mn in 1Q19. Based on JD’s data, the new users’ growth of lower-tier cities is much higher than tier-one and tier-two cities. The new users (over 50% located in lower-tier cities based on delivery address) from lower-tier cites account for 60% of total new users. JD guided that it will continue to achieve stable new users growth from lower-tier cities.



Overall, we are positive on JD, because of three reasons: 1) revenue growth recovery 2) margin improvement 3) user growth.


Blue line = 50 periods moving average

Green line  = 22 periods moving average

Relative Strength Index

Support 1: 25.82                     Resistance 1: 31.75

                                                 Resistance 2: 45.00

JD.com current price action indicates that the stock is heading for a strong bullish upside as there are two classical technical patterns that reveal the stock underlying bullish sentiment. First, the falling broadening wedge has been broken in June 2019. Secondly, the ascending triangle formed gave us a clue that the stock may be heading for a breakout of the top at $31.75.

Although the ascending triangle has been broken out of the bottom of the descending triangle, the breakout seems to be a false breakout as the bullish pin bar close above the 50 SMA and 50% Fibonacci retracement gave a clue that the stock is heading for a strong bullish movement. To add on, this week’s bullish candle has confirmed a morning star formation, which is the strongest reversal signal.

China Banking Sector – Robust asset fundamentals and increasing capital inflow

We are overweight on China Banking sector. The sector benefited from a better than expected growth in social financing, and implementation of an easier credit and monetary policy. With social security fund reforms and the opening up of China’s financial market, a large amount of capital will flow into China’s A-share market.  Based on market cap weight and dividend yield, the banking sector will benefit greatly, and the valuation is expected to be boosted.

Bank Performance Review: The banking sector in CSI 300 rose 9.65% as of 15 May, underperforming than the CSI 300 Index. Since April 10, social finance exceeded expectations in the first quarter, the relative performance of the sector to the CSI 300 began to strengthen. On May 6, the People’s Bank of China (PBOC) announced the reserve requirement ratio reduction, further narrowing the gap of the banking sector’s relative performance.

We also noticed an internal differentiation of the banking sector. The financial supply reform in 2019 emphasised the increase in the number of small and medium-sized banks and the proportion of its businesses, resulting in an improvement in its strategic position. The regional banks performed outstandingly, with an average increase of 26.81%, outperforming the CSI 300 Index by 4.23%. The leading banks include Ningbo Bank (38.72%), Jiangsu Bank (24.79%) and Nanjing Bank (20.52%).


With the implementation of an easing credit and monetary policy, China banking sector’s asset fundamentals are in a favorable and improving position. The expansion of capital pushed the banking sector into increasing its loan volume. We believe that asset expansion will be the key factor in profit growth in the banking sector.

1. Capital and Liquidity improvement. The central bank lowered the reserve requirement ratio (RRR) by 1% in early 2019 and announced to further reduce the RRR on May 6 for small and medium-sized banks. Externally, the China Banking and Insurance Regulatory Commission (CBIRC) supports banks in replenishing capital through multiple channels and promote the issuance of perpetual bonds. Perpetual bond will be classified as tier one asset starting from 2019. On January 25, 2019, the Bank of China successfully issued the first bank perpetual bond. The Bank of China issued the RMB 40bn perpetual bond which was more than two times subscription.

In 2019, the core tier one capital of commercial banks rose to RMB16.56tn, up 15.88% YoY. At the end of April, loans rose to RMB148.64tn, increased 12.9% YoY.

We believe that lowering RRR and issuing perpetual bonds will further expand banks’ capital. The increase in capital will encourage a greater willingness of banks to supply loans.

2. Asset quality. With the implementation of the tax reduction policy in 2019, saved about RMB0.95tn tax expense for companies. We observed decline in non-performing loans. We expect the asset quality of China’s banking industry to remain stable. In the first quarter of 2019, the provision coverage ratio for NPL is 192.17%. Under the background that regulators reduce the regulatory requirement of provision coverage ratio to 120%-150%, the industry has more risk-resistant space.


Long-term institutional funds are expected to continue to flow into China’s A-share market. The banking sector, which has a larger share of market cap, is expected to benefit from this and get its valuation boosted.

  1. Firstly, the opening up of China’s financial market will attract foreign investments to the A-share market. Including QFII expansion, MSCI FTSE flagship indexes include China A-share. MSCI announced on February 28 that the inclusion factor of A-shares would be increased from 5% to 20% in three steps. Among the 241 large-cap stocks currently included in the MSCI Emerging Market Index, 22 are bank stocks, accounting for 30.47% of the total market cap. Based on the current size of the fund to track the MSCI Emerging Markets Index (about $1.8tn), we estimate it will bring about $14.31bn for the banking sector.
  2. Secondly, social security funds, insurance and other institutional funds reform are accelerating and expected to increase its investment in the China A-Share market. In February 2019, Yi Huiman, Chairman of the CBIRC proposed to further open up A-Share market for various institutional investors, such as social security funds. Considering the large size of insurance and social security funds, the long assessment interval and its main objective, the bank shares with high dividend yield are expected to become an attractive investment.

In the first quarter of 2019, the use of insurance fund in equity assets began to rise, but it is still at a historically low level. In the first quarter of 2019, the balance of insurance fund utilisation reached RMB 17.05 tn, of which equity investment accounted for 12.38%, up 0.67% from the end of 2018. If the balance of insurance fund utilisation increases by 11.74% YoY (the same as in the first quarter of 2019) and the proportion of insurance fund stock and fund investment rises to 15.95% (the historically high level), the incremental fund of A-share market will be RMB 704bn.

Also, we expect the pace of social securities fund investing in China A-share to accelerate. Since May 1, the policy of reducing the social security premium by RMB300bn has been implemented in 27 provinces, and the social security premium rate has been reduced from 20% to 16%. The reduction of the social security premium rate by 4% points poses a challenge to preserving and increasing the value of the pensions fund. Under such conditions, the authorities may increase the weight of investment in the A-share market.

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Maximise Your Chinese Exposure with China A Shares


China Strategy – Foreign Capital Will Continue to Flow In


On March 1, 2019, MSCI announced the results of increasing the Inclusion Factors of China A-shares. MSCI decided to upgrade the Inclusion Factors of A shares in the MSCI Emerging Market Index in three steps and expanding the Inclusion Factor from 5% to 20%.


Research Summary:

  • The inclusion factor of A shares in the MSCI Emerging Markets Index will increase to 20% in three steps, which is expected to bring more than $50bn into the A shares market.
  • In 2019 multiple indexes will include China A-share and RMB bond into their flagship index. Foreign investment into A-shares and bond market will deepen. Stock connect will become the main investment channel.
  • Foreign capital currently prefers consumer sectors and the proportion of emerging industries is expected to increase in the future.


Maximise Your Chinese Exposure with China A Shares

China & Hong Kong Stock Market Outlook 2019 (Chinese)




欢迎收看辉立资本管理(香港)有限公司董事黄伟杰(Louis Wong)先生的投资讲座—-中国与香港市场2019展望——熊市是否已接近尾声?




黄玮杰先生(Louis Wong), 人称【黄师傅】,现任辉立证券及辉立资本管理董事。从事证券业超过二十年,目前专责基金管理,起管理的资产超过十亿元。黄师傅连续三年荣膺香港电台普通话节目【最佳财经专家】,更连续七年获选为壹周刊【选股专家】之一,擅长评析宏观经济,为读者挖掘优质潜力股。


In 2018, the China-US trade war is a major topic that concerned all. Investors are also weighing the economic impact of the trade war, constantly adjusting investment strategies.

What is the expectation of investors about China and the Hong Kong markets in the upcoming new year? Will China and Hong Kong stock markets weaken further? Is the bear close to the end?

Louis Wong, Director of the Phillip Capital Management (Hong Kong) Ltd, shared more insights on recent seminar in Singapore.  Please view video above.

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