Solid core earnings growth in 1Q26; price hikes to bring ST headwinds to revenue growth

Solid core earnings growth in 1Q26; pricehikes tobringSTheadwindstorevenuegrowth Target PriceUS$47.50Up/Downside50.8%Current PriceUS$31.49 JD.com(JD)reported its 1Q26 results on 12 May:revenue reachedRMB315.7bn,up 4.9%YoY(4Q25:+1.5%),2%/1%ahead of ourforecast/Bloomberg consensus. Non-GAAP net profit was RMB7.4bn, down42% YoY due to continued investment in food delivery (FD), but ahead of ourforecast/consensus of RMB5.9bn/RMB5.3bn, driven by stronger-than-expectedoperating profit from JD Retail (JDR), which came in 14%/18% above ourforecast/consensus. Operating loss from new businesses was RMB10.4bn in1Q26 (vs. RMB14.8bn loss in 4Q25), in line with our estimate and 6% betterthan consensus, reflecting QoQ FD loss reduction broadly in line with ourexpectations.Looking ahead, due to rising memory costs, price hikes in the 3Cand home appliance categories could create short-term headwinds to JD’srevenue growth, in our view. However, GPM expansion driven by increasingeconomies of scale, as well as a higher revenue contribution from high-marginplatform services, should support healthy earnings growth for JD Retail in 2026.Weexpect JDR’s non-GAAP operating profit to grow 4%/5%YoY in1H26/2026E. We maintain our 2026–2028E revenue and earnings forecastslargely unchanged, as well as our DCF-based target price of US$47.5. Greatervisibility on group-level earnings growth and shareholder returns remain keystock price drivers, in our view. Maintain BUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Stock Data JDRetail delivered solid earnings growth in 1Q26.JDR recordedrevenue of RMB268.6bn in 1Q26, up 1.8% YoY (4Q25:-1.7%), 1% aheadofboth our forecast and consensus,while operating profit reachedRMB15.0bn, up 17% YoY (4Q25:-2.5%). Operating margin expanded0.7ppt YoY to 5.6%, driven by GPM expansion supported by economies ofscale and optimization in sales and marketing expenses. For 2Q26E, giventhe headwinds from price hikes and a high base effect, we expect JDR torecord8%/7% YoY declinesin revenue/operating profit. Marketplace and advertising revenue again delivered solid growth.Byrevenue stream, within net product revenue, E&HA(electronics and homeappliances)revenue declined 8.4% YoY in 1Q26 (4Q25:-12.0%), whilegeneralmerchandise revenue increased 14.9%YoY (4Q25:+12.1%).Within net services revenue, marketplace and advertising revenue rose18.8% YoY in 1Q26 (4Q25: +15.0%), which we attribute to improvedadvertising efficiency and increased ad load. We expect JD’s total revenueto decline 5.2% YoY in 2Q26E,ona 9.6% YoY decline in net productrevenue, partially offset by an 11.5% YoY increase in net services revenue. ExpectingFD losses to halve in 2Q26E.Operating loss from newbusinesses was RMB10.4bn in 1Q26, narrowing from RMB14.8bn in 4Q25,mainly driven by reduced losses in the FD business, aided by optimizationin user subsidies, improved operating efficiency, a better order mix, andincreased commission and advertising revenue generation. We expect FDlosses to halve YoY in 2Q26E to RMB6.6bn(vs.CMBI estimate ofRMB7.0bn in 1Q26E). Source: FactSet Update on shareholder returns.In 1Q26, JD repurchased approximately44.5mnClass A ordinary shares (equivalent to 22.3mnADSs) for a totalconsiderationof US$631mn,representing approximately 1.6%of itsordinary shares outstanding as of 31 Dec 2025. As of 31 Mar 2026, theremaining authorization under JD’s share repurchase program, which iscurrently valid through Aug 2027, stood at US$1.4bn. Business forecasts update and valuation DCF-based target price of US$47.5 Our target price of US$47.5is derived from the DCF valuation methodology (WACC of11.8%and terminal growth of 1.0%; both unchanged). Risks 1) Consumption recovery takes longer than we expect; 2) more intensified-than-expectedbusiness competition; 3) moreaggressive-than-expected investment on FD businessmayweigh on earnings growth. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue