JD Health Breaks Even Ahead of Schedule, but Weak Guidance Is a Slight Concern; Maintain HKD 59 FVE

The company reported revenue of CNY 20.2 billion, a 48% increase year on year and 14% better than our CNY 17.7 billion estimate. We also estimate gross merchandise value grew 47% year on year. Better-than-expected net margin was due to the reduction in operating expenses from mostly sales and marketing as well as administrative costs. We expect positive net margin to trend slowly upward and in the medium term we expect operating expenses to account for 20% of sales and 25%-30% gross margin. JD Health optimised costs with more effort in first-half 2022, but we are expecting more sales and marketing costs in second-half 2022 to pave the way for growth and greater market share in 2023.