JD Health: Recovery on Track to Meet Company Expectations

We maintain our HKD 45 fair value estimate for narrow-moat JD Health after the company reported first-half revenue of CNY 28.3 billion, representing 5% growth year on year. More importantly, second-quarter revenue grew 15%. We are encouraged by the second-quarter growth; it reflects the normalization of sales after revenue was flat year on year in the second half of 2023 as sales of pandemic-related items declined 70% after China lifted lockdown restrictions. We expect continued sales momentum after JD Health conservatively guided to 10%-15% sales growth year on year for the second half. We expect drugs to lead the growth at 20% year on year during the period, followed by healthcare items growing 10% and medical devices growing single digits.