mk-京東-jd.us電商砥柱,物流發(fā)展

SWSResearch isasubsidiaryofShenwanHongyuan99EastNanjingRoad,Shanghai|+86212329InternetSoftware&Services| BringingChinatotheMarketData:15MarketData:15ClosingPricePriceTarget

FinancialsummaryandRevenueee-52-weekHigh/LowAdj.EPSMarketCapAdj.DilutedEPSROEDividendMarketCapP/ESharesOutstandingP/BEV/EBITDAPricePerformance

shallhaveacomprehensiveunderstandingofthedisclosureand eruponthelastSource:MaeHuang(+86)21-2329-Thecompanydoesnotholdanyequitiesorderivativesofthelistedcompanymentionedinthisreport(“target”),butthenweshallprovidefinancialadvisoryservicessubjecttotherelevantlawsandregulations.Anyaffiliatesofthecompanymayholdequitiesofthetarget,whichmayexceed1percentofissuedsharessubjecttotherelevantlawsandregulations.Thecompanymayalsoprovideinvestmentbankingservicestothetarget.TheCompanyfulfillsitsdutyofdisclosurewithinitssphereofknowledge.Theclientsmaycontactcomplian relevantdisclosurematerialsorloginto underdisclosurecolumnforfurtherinformation.TheclientsNote:DilutedEPSiscalculatedasifalloutstandingconvertiblesecurities,suchasconvertiblepreferredshares,convertibledebentures,stockoptionsandwarrants,wereexercised.京東被稱(chēng)為中國(guó)最大的在線零售商，包括直銷(xiāo)模式和平臺(tái)模式。京東只做B2C，服務(wù)于品牌合作伙伴，以更好的管理產(chǎn)品質(zhì)量，在2016年B2C市場(chǎng)中占有大約32%的市場(chǎng)份額，緊隨天貓53%的市場(chǎng)份額之后。我們認(rèn)為在滲透率可持續(xù)增長(zhǎng)的假設(shè)下，京東有很好的成長(zhǎng)機(jī)會(huì)，因?yàn)樗脑鲩L(zhǎng)主要源于交易。我們預(yù)測(cè)20172.99元(同比增長(zhǎng)304%)，2018年為5.21元(同比增長(zhǎng)2019年為8.74(同比增長(zhǎng)68%)。我們給出56 活躍買(mǎi)家量驅(qū)動(dòng)。因?yàn)榫〇|的模式更基于交易而不是基于流量，活躍買(mǎi)家數(shù)成為京東模型的關(guān)鍵驅(qū)動(dòng)因素。我們注意到市場(chǎng)擔(dān)心京東在未來(lái)的競(jìng)爭(zhēng)時(shí)遇到更大的壓力,但認(rèn)為只要京東每季度買(mǎi)家數(shù)量增長(zhǎng)和預(yù)期相符,2.58億的年度活躍買(mǎi)家與阿里巴4.66億的年度活躍買(mǎi)家之間的差距可繼續(xù)縮小，我們并不擔(dān)心京東成長(zhǎng)邏輯受到。3P轉(zhuǎn)化率有上升空間。京東投資3P晚于阿里巴巴，運(yùn)行經(jīng)驗(yàn)也較少一方面由于長(zhǎng)尾品牌對(duì)于其他平臺(tái)流量的訴求需求和另一方面大型品牌偏好多渠道經(jīng)營(yíng)的意愿，京東平臺(tái)并不缺需求。然而，目前京東3P的高增隔檔主要因?yàn)榧夹g(shù)系統(tǒng)不夠先進(jìn)，于阿里巴巴大約2年。我們認(rèn)為只要京東能夠提供更成 系統(tǒng)和操作，3P轉(zhuǎn)化率仍可上升。

O2O的快速整合。我們看好沃爾瑪和京東商城的合作，還有永輝超市和京東到家的合作。我們看到京東和沃爾瑪兩者之間的庫(kù)存和后端開(kāi)始整合，并看好京東借沃爾瑪分散于個(gè)城市的家擁有良好的位置門(mén)店的來(lái)發(fā)展線下的效率。 年京東物流還未對(duì)外開(kāi)放包裹量只占%的市場(chǎng)份額，但它的服務(wù)質(zhì)量可同順豐(002352CH-增持)快遞聲譽(yù)媲美，順豐的市值已經(jīng)超過(guò)2000億元人民幣。我們目前僅大部分加盟式物流公司來(lái)比價(jià)京東物流，大約為500億元，但京東物流今年開(kāi)始向第開(kāi)放，未來(lái)將占有更高的市場(chǎng)份額，我們預(yù)計(jì)這部分在2020年或能享有順豐目前的估值。這使得京東物流成為我們17年至20年預(yù)測(cè)中估值上行幅度首次覆蓋給予買(mǎi)入。我們預(yù)測(cè)2017年調(diào)整后每股收益為2.99元(同比增長(zhǎng)304%)，2018年為5.21元(同比增長(zhǎng)74%)，2019年為8.74元(同比增長(zhǎng)68%)。我們根據(jù)分部加總估值法（商業(yè)部分基于都是以交易為基準(zhǔn)使用P/GMV估值，京東物流對(duì)標(biāo)可比公司，京東金融使用最近一輪的融資估值）得出56的目標(biāo)價(jià)格，17122x17EPE,1.6x17EPS32x17EPB,0.4x17EPEG213xEV/Ebitdaand0.6xP/GMV。鑒于股價(jià)仍有24％的上升空間，我們給予買(mǎi)入SWSResearch isasubsidiaryofShenwanHongyuan99EastNanjingRoad,Shanghai|+86212329InternetSoftware&Services| BringingChinatotheisoneofChina’slargestonlineretailers,withanexclusivefocusontheB2Cmarket.Thefirmemploysadirectsalesmodel,sourcingbrandedproductsandsellingthemdirectlytocustomers,andamarketplaceplatform,allowingthird-partymerchantstosellproductstocustomers.JDoccupiedthesecondlargestmarketshareintheB2C mercesectorin2016(c.32%),behindAlibaba’s(BABA:US–BUY)Tmall(c.53%).WearepositiveonJD’stransaction-basedrevenuemodel,amidChina’sthriving mercesector.WeforecastadjustedearningsperAmericanDepositaryShare(ADS)ofRmb2.99in17E(+304%YoY),Rmb5.21in18E(+74%YoY),andRmb8.74in19E(+68%YoY).With24%upsidetoourtargetpriceofUS$56,weinitiatecoveragewithaBUYTransaction-basedrevenuemodel.AsmostofJD’smarketplace ederivesfromcommissions,asopposedtomarketingservices,revenueismoretransaction-basedthantraffic-based.Assuch,thenumberofannualactivebuyersisakeydriverforthefirm.Wenotemarketconcernsaboutincreasingcompetition,however,webelieveJD’smodelwillremainsuccessfulaslongasitmaintainsquarterlygrowthinthenumberofactivebuyers.Weexpectthenumberofactiveuserstoincreaseto301min17EforJD(+32.6%YoY)and484mforAlibaba(+9.3%YoY).WeforecastGMVofRmb926bnin17E(+41%YoY),Rmb1,238bnin18E(+34%YoY),andRmb1,596bnin19E(+29%YoY).Wealsoexpectgrowingcontributionfrom3P(marketplace)GMVandgeneralmerchandiseTake-rateupside.JD’sentryintothe3PsegmentlaggedAlibaba’s.Whilelong-tailedbrandsenjoybettertrafficonJD’splatformandlarge-brandsarewillingtoexploremulti-channeloperations,JD’s3Pbusinessisnotyettechnologicallyadvancedenoughto edominantwithbrandpartners(thefirm’s3PtechnologylagsAlibaba’sbyroughlytwoyears).AsJDgainsoperationalexperienceanditssystemsmature,weforecastthetake-rateforits3Pbusinesstoimprovefrom6.5%in16Ato6.7%in17E,underpinningitsblendedtake-rateimprovingfrom5.2%in16Ato5.5%in17E.UpliftfromJDLogistics.Byparcelvolume,JDLogisticsaccountedforjusta4%marketsharein2016asitonlyservicesgroupcompanies.However,itdoesenjoyasimilarreputationfordeliveryservicesasSFHoldings(002352CH–O-PF),whichisvaluedoverRmb200bn.WecurrentlyvalueJDLogisticsatsamelevelasfranchisedlogisticscompaniesatc.Rmb50bn.Giventhatthecompanywillprovideservicestothirdpartiessincethisyear,weexpectittoenjoySF’scurrentvaluationin20E,makingthesegmentthelargestcontributiontothecompany’svaluationupliftfrom17-20E.InitiatewithaBUY.WeforecastrevenueofRmb363bnin17E(+40%YoY),Rmb474bnin18E(+31%YoY),andRmb605in19E(+28%YoY),withadjustednetmarginreaching1.2%in17E,1.6%in18E,and2.1%in19E.Weestimatenon-GaapdilutedearningsperADSofRmb2.99in17E(+304%YoY),Rmb5.21in18E(+74%YoY),andRmb8.74in19E(+69%YoY).Usingasum-of-the-partsvaluation(P/GMVfor merce,peersforJDLogistics,andfinancingvaluationforJDFinance),wederiveatargetpriceofUS$56,representing122x17EPE,1.6x17EPS,32x17EPB,0.4x17EPEG,213xEV/Ebitda,and0.6xP/GMV.With24%upside,weinitiatecoveragewithaBUYrating.TableofTOC\o"1-1"\h\z\uJDATA FROM1PTO JD JD APPENDIX2:JDFINANCE JDataisChina’ssecondlargest merceplatform,behindAlibaba(BABA:US–BUY).ByfocusingexclusivelyontheB2Csegment–professionalmerchantssellingtoretailcustomers–JD’splatformenjoysapositivereputationasaproviderofqualityproducts,asopposedtotheC2Cbusiness,whereproductqualityvariessubstantiallyacrossnon-professionalvendors.WithintheB2C mercesector,JDoccupiedac.32%marketsharein2016bygrossmerchandisevolume(GMV),comparedtoTmall’sc.53%marketshare.Wenote91%ofJD’sgrossrevenuecomesfromonlinedirectsales,whilethecompanyisdeveloitsplatformbusinesswithrevenuecomingfromcommissionfees.JDstartedasapureonlineretailerwithalow-pricestrategy,cuttingintermediaryagencyfees,inthecommunication,computer,andconsumerelectronics(3C)market.Thecompanyisnowexpandingintomoreproductcategories.WenoteanincreasingnumberofpartnerbrandsareopeningtheirownstoresonJD’splatform.In2016,itsmarketplacetransactionsrepresentedc.45%oftotalGMV.Fig1:Revenuebreakdown,bytworeporting-JDNew--Source:Bloomberg,SWSTwotypesoftake-rateslinkJD’sGMVwithitsrevenue:theconversionratefromGMVtonetrevenuewithinthe3Pbusiness(vendorssellingdirectlytocustomersviaJD’smarketplace),whichissimilartoamonetisationrate,andtheconversionratefromGMVtogrossprofitwithinthe1Pbusiness(vendorssellingwholesaletoJD),whichiscomparabletothe3Pmonetisationrate.Wecalculatethe1Ptake-ratebymultiplyingthegrossrevenueratewithgrossmargin.WenoteJD’s3Pbusinessenjoysaslightlyhighertake-ratethanits1Pbusiness,althoughbothfallwithinthe4-6%range.JD’sblendedtake-ratereached5.2%in2016(vs5.0%in2015).Fig2:JD’stake-1Pgrossprofit(net%%Gross%Take-rate/GMV(%3Pnet%take-Source:Companydata,SWSNote:1Ptake-rateincludesrevenueandcostofsalesfromJDLogisticssinceDemandfor3PishighamongvendorsasonlinetrafficonJD esmoreandmoreexpensiveforsmalltomedium-sizedmerchants.However,giventhecompany’slateentryintothemarketplacesegment,itstechnologyin3Poperationandmanagementisstilllaggingc.2yearsbehindAlibaba’s.AsJDincreasesitsinvestmentintechnology,webelievethegapbetweenJDandAlibabawillnarrow,withfurtherupsideforit3Ptake-rate.JDhasdevelopedofflinepartnershipswithinthesupermarketandfast-movingconsumergoods(FMCG)segments,withWalmart(collaboratingwithJDMall)andYonghuiSuperstores(collaboratingwithJDDaojia).WeareverypositiveonthecooperationbetweenWalmartandJD,asweseeincreasingintegrationbetweenbothcompanies’inventories,JDLogisticspickingupfromWalmartstoresdirectly.Wenotefaster-than-expectedsynergiesbetweenthetwocompanies.Walmartcurrentlyhas439storesinChina,locatedin189cities.WeexpectJD’sofflinebusinesstomovefasterthankstoitspartnershipwithWalmart.JDmainlycollaborateswithYonghuiSuperstores(601933:CH–BUY)throughJDDaojia,47%-ownedNew’sonline-to-offline(O2O)grocerye-commerceplatform,focusingoninstantdeliveryoffreshfoodanddailynecessities.Weanticipateincreasingsynergiesbetweenthetwocompanies,amidYonghuiSuperstores’turnaround.JDNewChanneldepartment,whichwassetupinlate2015,isaB2Bbusinessservingofflinestores,similarlytoAlibaba’sLingshoutong(LST).ItdevelopedaB2BorderingplatformapplicationcalledJDZhangguibao.OnDecember2016,JDNewChanneldepartmentannounceditstargetof500,000conveniencestorestobecoveredbyend-2017,whileLSTannouncedinAugust2017atargetof1mTmallsmallshopsby2018.Bothcompaniesfollowanasset-lightstrategy,usingafranchisemodelwithparticipatingofflinestores.Thekeydifferenceliesisdeliveries.WebelieveJDLogisticsisbetterequippedthanAlibaba’sCainiaotoensurethetimelydeliveryofFMCGproductstofranchisedstores.FigFig3:ComparisonofJDandTmall’sofflineandonline Offlineappliance+3CservicestationWorkedwithSuning,whichby1H16alreadyoperatedc.80centres,1,442stores,1,478servicestationsfordirectsales,and2,329allianceservicestations

Aimstoopen1mconveniencestoresinfiveyears,and300experience3Cretailstoresintier-1and2citiesbyend-2017(JDHomeandJDexclusiveshop)LSTaimstobuild250warehouses,covering2,000ofChina’scounties,andserving2mconveniencestoresinthreeNewChannel(alreadycovering300,000stores,aimscover500,000byend- Tmallsmallshop JD InvestmentinSanjiang; Walmart;andinvestmntinYonghui ConsolidatesYintai;cooperateswith B2CB2Conlinetotalsales Largestmarketshare Marketshareofc TmallSupermarkethasaturnoverof JDsupermarketturnoverofc.50bn FruitCateringO2O JDInstantdelivery(2016) No.1Hummingbird(Ele.mesubsidiary)(c.26%) (23%) Coldchaindelivery Other Source:Companydata,SWSJD’sfulfilmentexpenseaccountedfor8.1%ofthecompany’stotalrevenue(3.2%oftotalGMV)in2016,representingJD’slargestexpensebesidescostofsales.WenoteitsfulfilmentexpenseperorderreachedRmb10.5,lowerthanthenationalaverageofRmb12.3in2Q17,althoughthebasisforcalculationisslightlydifferent.WhollyownedJDLogisticswassetasanindependentdepartmentinApril2017.In-houselogisticsenablesJDtoincreaseefficiencyandmaintaincontroloverdeliveryservicequality,toprovideabetterdeliveryexperiencetoconsumers,whichisoneofthemainpointsdifferencingJDfromotheronlineretailers.Thecorenotionbehindin-houselogisticsistoreducethenumberoftimesproductsaretransported.Thankstoself-builtlogistics,JD’sinventoryturnoverreached32days(vsanindustryaverageof70-90Byparcelvolume,JDLogisticsonlyoccupieda4%marketsharein2016duetorestrictionstothirdparties.However,itenjoysasimilardeliveryservicereputationtoSFHolding(002352:CH–O-PF),whichisvaluedatoverRmb200bn.WecurrentlyvalueJDLogisticsatc.Rmb50bn(vsacurrentvaluationofUS$5bn),andexpectJDLogisticstoenjoySFHolding’scurrentvaluationofc.Rmb200bnby20E,afteritopenstothirdpartieswithlargerbusinessscaleincomingyears.Inourvaluationmodel,JDLogistics thelargestupsidecontributingsegmentfrom17Eto20E.Fig4:peerMarketValuationSelf-SFTTK-Source:Wind,SWSJDinitiatedthespinoffofitsfast-growingfinancearm,JDFinance,in2017.Aspartofthedeal,JDwillget40%ofJDFinance’sfuturepre-taxprofitandtherighttoswapthisfora40%equitystake.WenoteJDFinance’smostprofitablebusinessissupplychainfinance.WeuseJDFinance’svaluationinthelatestroundoffinancingtoestimateitscurrentvaluation,andexpectJDFinancetostartmakingprofitin17E.Fig5:JD’smajorinessBusinessJDDomesticRetailJDShanghaiJDJDJDJDDigitalpDigitalpNewJDJDExpressNewData&JDO2O&crowdsourceddeliveryJDSurveyJDServiceMerchantsJDNewChannelJDConvenienceJDB2BorderJDSource:Companydata,SWSFig6:JD’stedbusinessEquityYixinFruitSource:Companydata,SWSJDusesanon-Gaapadjustmentinitsfinancialstatements,removingtheeffectsofthecompany’sshare-basedcompensationandgains(orlosses)onitsinvestments.Asthecompany’sspendingoninvestmentscanfluctuatesubstantiallyfromoneyeartoanother,althoughusuallyhigh(exceedingamountsspentonCapexinrecentyears),webelieveitisreasonabletoadoptasimilarapproachinourforecastofJD’scoreperformance.WeforecastrevenueofRmb363bnin17E(+40%YoY),Rmb474bnin18E(+31%YoY),andRmb605in19E(+28%YoY).WeexpectmarginstoincreaseYoY,withadjustednetmarginreaching1.2%in17E,1.6%in18E,and2.1%in19E.Weestimatenon-GaapdilutedearningsperADSofRmb2.99in17E(+304%YoY),Rmb5.21in18E(+74%YoY),andRmb8.74in19E(+68%YoY).Weuseasum-of-the-parts(SOTP)valuationmodel,asthebestreflectionofthecompany’scurrentvaluegivenitsrecentrestructuringmoves.WevalueitscommercebusinessbyP/GMV,asboth1Pand3Pbusinessmodelsaremoretransaction-focused,JDLogisticsusingcomparablecompanies,andJDFinancebasedonitsrecentroundoffinancing.Byaddingcashandotherinvestments,wederiveaSOTP-basedtargetpriceofUS$56,representing122x17EPE(basedonnon-GaapdilutedEPS),1.6x17EPS,32x17EPB,0.4x17EPEG,214\3xEV/Ebitda,and0.6xP/GMV.With24%upside,weinitiatecoverageofthecompanywithaBUYrating.Fig7:JD’sSOTPvaluationinValuationPriceperADSValuationPricepershare1P&JD85JD7RecentroundofOther32Cashandcashs32*ExchangerateSource:SWSFrom1PtoJDstartedasanonlineretailerandbecameChina’slargestretailer.Itthenturnedintoamixedplatform,afterstartingitsmarketplacebusinessin2010.Onlinedirectsales(1P)stillcontributed91%ofrevenuein2Q17(basedonthecompany’sgrossrevenuerecognitionmethod).FigFig8:JD’srevenuestructure, Fig9:JD’srevenuestructure,2015-Servicesandothers(3Pandothers)

Online

sales(1P)91%

Onlinedirectsales Servicesandothers(3PandSource:Companydata,SWS Source:Companydata,SWSGMVdatarevealsthat3Psalesaccountedforc.40%oftotalGMVoverthepastthreeyears.FigFig10:JD’sGMVstructure, Fig11:JD’sGMVstructure,2015-

Source:Companydata,SWS Source:Companydata,SWSFigFig12:JD’sgrossprofitstructure, Fig13:JD’sgrossprofitstructure,2015-%1Pprofit,incl.JD

Source:Companydata,SWS

%1P(grossprofit,incl.JD %3P(netSource:Companydata,SWSNote:1Ptake-rateincludesrevenueandcostofsalesfromJDLogisticssince

Note:1Ptake-rateincludesrevenueandcostofsalesfromJDLogisticssinceJDMallcompetesdirectlywithAlibaba’sTmallintheChineseB2Cmarket.However,JDdoesnotoperateanyC2Cbusinessatpresent. ,aC2CplatformacquiredfromTencentinearly2014,wasshutdowninlate2015duetouncontrollableproductqualityproblems.BycomparingGMVsofcompetitorstoJD’sRmb939bnin2016,weestimateJDhada32%marketshareintheChineseB2Cmarketin2016(vs53%forTmall).WhileTmallisrisingitsmonetisationratebyincreasingtrafficthroughengagementtimeandclickrates,weexpectJDtomaintainahigh-growthrateonGMVinthecomingthreeyears.Fig14:JD’sGMVvsTmall’s

Tmall'sGMV JD'sGMVTmall'sGMVYoYgrowth JD'sGMVYoYgrowthSource:Companydata,SWSWenoteJDhad227mactiveusersin2016(vs443mforAlibaba).Weexpectthenumberofactiveuserstoincreaseto301min17EforJD(+32.6%YoY)and484mforAlibaba(+9.3%YoY).Weforecastthedifferenceinthenumberofactiveusersbetweenthetwo mercegiantswillcontinuetonarrowintheFig15:JDandAlibaba’aannualactive 0 Alibabaannualactiveusers JDannualactivebuyersSource:Companydata,SWSResearchFig16:JDandTmall’ssharesintheB2Cmarket,by Source:Companydata,SWSResearchWebelieveJDismoresensitivetoChina’sretailconsumptiongrowthandonlineconsumptiongrowththanAlibaba,asover99%ofitsrevenuedirectlycomesfromGMV,whereasAlibabaalsoreliesonengagementtime,entertainment,cloud,andinternational merce.Wenotethatthisyear,China’sretailconsumptiondata,releasedbytheNationalBureauofStatistics(NBS),beatmarketestimatesonaconsistentbasis,amidtherecoveringmacroenvironmentandconsumptionupgrades.Chineseretailconsumptionisshiftingtowardshigher-endproductsasdisposable eincreases,amidtheemergenceofasizabledomesticmarketandaspirationalmiddleclass.WebelievethosemarketchangeswillcontributetoJD’sfastdevelopment.Fig17:China’sYoYonlineretailconsumptiongrowth,July2016-July Physical Virtual AllSource:NBS,SWSNote:WedonotrestateNBShistoricaldatawhencalculatingYoYFig18:Percentageofpeoplethatpursueconsumption Fig19:PercentageofusersthatonlyconsumefavouritebrandedFrozenfoodIceHair

0Food& al 3C&(20) Source:McKinsey,SWS Source:McKinsey,SWSTwotypesoftake-rateslinkJD’sGMVwithitsrevenue:theconversionratefromGMVtonetrevenuewithinthe3Pbusiness(vendorssellingdirectlytocustomersviaJD’smarketplace),whichissimilartoamonetisationrate,andtheconversionratefromGMVtogrossprofitwithinthe1Pbusiness(vendorssellingwholesaletoJD),whichiscomparabletothe3Pmonetisationrate.Wecalculatethe1Ptake-ratebymultiplyingthegrossrevenueratewithgrossmargin.WenoteJD’s3Pbusinessenjoysaslightlyhighertake-ratethanits1Pbusiness,althoughbothfallwithinthe4-6%range.JD’sblendedtake-ratereached5.2%in2016(vs5.0%in2015).Fig20:JD’stake-1Pgrossprofit(net%%Gross%Takerate/GMV(3Pnet%take6Blendedtake Source:Companydata,SWSNote:1Ptake-rateincludesrevenueandcostofsalesfromJDLogisticssinceWeassumethesametake-rateasinthelastquarter.Weseeupsidepotentialforboth1Pgrossmarginand3Ptake-rate.1Pgrossmargingrewsteadilybyc.1%everyyearoverthepastfewyears,asJDbenefitedfromeconomiesofscaleandenjoyedhigherrebatesfromrs.With3Prevenuecomingmostlyfromcommissionfeesratherthanmarketingservicesatpresent,weseeupsidepotentialinJD’s3Ptake-rateasrevenuefrommarketingservicesrevenueincreasesinthefuture.Moreover,weexpectJD’saveragerevenueperuser(ARPU)toriseatarateofc.10%peryeargoingforward.FigFig21:JD’sARPU

YoYgrowthSource:Companydata,SWSJDhasbuiltasolidreputationasa1Pbusinessplatform,withqualityproductsatreasonableprices.The1Pbusinessmodelallowsthecompanytoofferstandardinvoicing,fastdelivery,andqualitygoods,whichismoredifficulttoachieveinamarketplacemodelduetolackofcontrol.AsJDtriestodealdirectlywithoriginalbrandrs,thecompanyenjoyslowercomplaintsandhighercustomersatisfactionthanforexample.JDApparelreceivedapprovalfromtheAmericanApparel&FootwearAssociation(AAFA)thisyear,whereasisblacklisted.Ourresearchshowsthatfakeproductsareavailableonbothplatforms.However,hasmorenegativereviewsthanJD’s1Pplatform.WenoteJD’s3PplatformandTmallalsohavemorenegativereviewsthanJD’s1Pplatform,thoughfewerthan.InvoicingisoneofJD’sstrengths.DirectsalesallowJDtoprovidestandardstosellers.Inamarketplacemodel, svaryfromonesellertoanotherand,mostofthetime,donotmeetthestandardsofcompaniesandernmententitiestobeeligibleforreimbursement.TmallandJDbothdevelopedaplatformforcorporatebuyers, //,althoughJDisstrongerthanTmallintermsofFastdeliveryisacrucialpartthatmakesJDcustomersloyaltotheplatform,onthebackofthecompany’sefficientJDLogisticsunit.WeseeanincreasingnumberofcustomersturningtoJD’splatformforitemsrequiringtimelyorurgentdelivery.Weestimatec.50%ofvendorsonJD’smarketplacechooseJDLogisticsfordeliveries.WeexpectgrowthofJD’s1Pbusinesstoremainsolidincomingyearsduetogrowingdemand,andanticipateevenhighergrowthpotentialforits3PFig22:GMVgrowthforJD’s1Pand3P 0

1P 3P %1PGMVgrowth %3PGMVgrowthSource:Companydata,SWSWenotetheratioofdirectsalesgrossrevenueover1PGMVremainedstableovertimeduetoproductreturnsanduncloseddeals.Bycontrast,grossmarginkeptincreasingthankstohigherrebatesandeconomiesofscale.Fig23:1PGrossrevenueoverGMVstable,grossmarginkeeps %1PGrossmargin(LHS) %Directsalesrevenue/1PGMV(RHS)Source:Companydata,SWSResearchWeseemoreupsideforJD’s3Pbusiness,asourchannelcheckswithbrandssuggesthigherimprovementpotentialforitsmarketplace.Atpresent,wethinkthecompany’smarketplaceoperations,especiallytheself-developedsystemsprovidedtobrandpartners,arenotasmatureasTmall’sintermsofonlinestorelayout,dataysis,andtraffic-generatingactivities.Weestimateitrepresentsatechnologicalgapofonetotwoyears,whichweseeaslikelytonarrowincomingyears.UnlikeAlibaba,whosemarketplacerevenuecomesmainlyfrommarketingservices,JD’s3Prevenuemostlyderivefromcommissions,asJDismoretransaction-focusedthantraffic-focused.Over50%ofits3Prevenuecomesfromcommissionsalone,andthecompanyhasnointentiontochangethisfocusintheforeseeablefuture.WenoteJDsetupahighercommissionratethanTmall(5-8%ingeneralvs0.4%-5%forTmall).JDalsooffersamembershipservice,JDPlus,forafee,similarlytoAmazonPrime.JDPlus’annualfeeamountstoRmb149peryear.Themembershipallowscustomerstobenefitfromanumberofprivileges,suchasfreedeliverycoupons,extramembershippoints,accesstocertainexclusiveproducts,andmembers-onlypricesonselectedhotsellingitems.Adloadisquitelowon ,asweonlyfound1advertisementper11keywordsearchresults.Both1Pand3Ppartnersneedtobidforsearched.Resultsareshowntocustomersaccordingtoanalgorithmbasedtheirpreferencesandhistoricalbehaviour.Forinstance,ifcustomersprefer1Pproducts,resultsarelikelytodisplaymore1Pproducts.Fig24:MonetisationchannelsonJD’sP4PmarketingBiddingDisplaymarketingBiddingPartial50-80%third-partycommissionfrommerchants;MediaJDgets10-15%ofallcommissionsfromke(usually11%)PlacementPlacementMostlyinthe5-8%Membershipfeesandvalue-addedSource:Companydata,SWSJDchargesahighercommissionratemainlybecausetheplatformisfocusedontransactionsratherthantraffic,unlikeAlibaba.AlthoughTmall’scommissionrateisquitelow,merchantsneedtobearahighcostperclick(CPC)forproductslistedinthetop-100searchresultsforspecific .WhenJD’smarketplaceplatformisnottoocrowded,especiallyincategoriesbesidesappliancesand3Cproducts,merchantscanhavetheirproductsfeaturedincustomers’topresultsmorefrequently.Wenotedemandisnotfullysaturatedyet.WethinkJDcandevelopitsweakerproductcategories,likeapparel,byenteringmorepartnershipswithlong-tailbrands.Fig25:Commissionrate Mostly5- 0.4%- Source:Companydata,SWSContrarytoAlibaba,JDcannotrelyonanumberofdifferentchannelstoincreasetrafficonitsplatform.However,JDhasdevelopedcooperationwithinternetgiants,suchasTencent(700:HK–BUY),Baidu(BIDU:US),andToutiao,inabidtogrowtraffic.WebelieveJD’scollaborationwithlargeinternetcompanieswillhelptheplatforminthedevelopmentofitsmarketingservicesanddrive3Prevenuegrowthinasustainablemanner.FigFig26:InternetpartnersStrategic 27-Sep- 14-Mar- 10-Aug-Equity Marketcap

937.8(Wechat);678(Mobile Toutiao,aleadingChineseonlinenewsandcontentdistributionplatformprovidingalisedSource:Companydata,SWS

Tencentoffersprominentlevel-oneaccesspointstoWeixinandMobileQQTencentprovidesinternettrafficandsupportfromitsotherkeyplatforms.Promotionservicesincludepushmessages,advertising,paymentprocessing,andapplicationactivation.In2016,JDgeneratedatotalofRmb184.2mincommissionservicesrevenuefromadvertisingcooperationwithTencent

searchapplication,willprovideJDwithlevel-oneaccesspoints.JDislookingtogetmoreaccesspointsonotherBaiduapplications,likeBaiduMapBasedondatageneratedbyBaidu’sproductmatrixanduserbehaviours,Baiducouldprovide ,JD'sbrandpartners,andJDPOPMerchantswith alisedandtargeted UnlikeTmall,forwhichmarketingservicesfeesrepresenttwicethe fromcommissions,JDstillreliesmainlyoncommissionrevenue,asitsmarketplaceplatformisstillunderdevelopment.DuetohighercommissionfeesandlowerGMV,JD’smarketplaceachievesahighermonetisationrate,whichweexpecttoremainatahighlevelinthefuture.Fig27:3P,1P,andblendedtake- 3Ptakerate 1Ptakerate Source:Companydata,SWSResearchNote:Our1Ptake-ratecalculationincludesrevenueestimatesfromJDLogisticssinceWhencomparingJDandAmazon,weseeasimilar mercestructure.WenoteAmazon’sdirectsalesaccountedforover70%oftotalrevenue(vs91%forJD),whileits3Pproductsrepresentedc.49%oftotalordersbyend-2016(vsc.45%).Wealsonotethepercentageofthird-partymerchantsusingself-builtlogisticsservicesissimilarbetweenAmazon(c.55%)andJD(c.50%).AmazonPrimemembershipcostsUS$79(vsRmb149forJDPlus).Wedon’tconsiderJD’sdevelopmenttobethesameasAmazon’sinChina,butbelievetheChinesee-commercemarketismoreinclinedthantheUSonetohavingtwogiantsco-existingwithanarrowingsalesgap.Fig28:JD-AmazonDirectsales/total1PgrossPercentageofthird-partymerchantsusingself-builtSource:Companydata,SWSWenoteotherbusinessescontributetoAmazon’snetprofit.Alt