JD.com

The core ecommerce business at JD.com (JD) is showing good signs of recovery after a tough couple of years post the Covid reopening in late 2022. The three main parts of ecommerce (electronics & appliances, general merchandise, and third-party marketplace & advertising) are all growing strongly (around 10%), and this led to operating profit in the retail business growing by 38% YoY. The main reason for the share price decline has been concerns about JD entering the food delivery business to compete with Meituan, which dominates the sector in China. For reasons similar to Coupang in Korea, JD believes that its investment in logistics and drivers gives it an opportunity to have a meaningful contribution from food delivery in the years ahead, but in the short term, it will require heavy investment to get customers and restaurants on board. The “new business” segment in which food delivery is measured saw operating losses of RMB1.3bn in the first quarter, and with food delivery having just launched in February, it is likely these losses will be larger in the quarters ahead as it ramps up. With markets being very short-term focused, this has weighed on the share price.

We believe that JD will be rational in its approach, and that these losses will moderate over time. They are also relatively small to the operating profit of RMB13bn that JD delivered in its retail operation. Very importantly, JD continues to prioritise capital allocation and, after having bought back $3.7bn in shares last year, they bought back another $1.5bn in the first quarter as well as paying a $1.5bn dividend in April. This combined shareholder return of $3bn so far this year is around 6% of the company’s market capitalisation. JD trades on just 7x 2026 earnings and we believe it is materially undervalued. 

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