Believing the company can deliver a 46% GMV CAGR from 2014-2018 (with potential upside) and will eventually post an 8%-9% net profit margin, JPMorgan's Alex Yao has launched coverage on JD.com (NASDAQ:JD) with an Overweight rating and $42 target.
Yao estimates JD had 49% of the Chinese online direct retail market in 2014, and sees its share of the broader Chinese e-commerce market (where Alibaba's platforms still dominate) rising to 16% in 2018 from 9% in 2014, as the company's competitive pricing and logistics infrastructure continue driving share gains. JD's expansion into new product segments such as home appliances and baby/maternity products is also seen as a growth driver.
A 34% GMV CAGR is forecast for JD's internal sales, and a 60% CAGR for its 3rd-party seller marketplace, which is expected to monetize better than Alibaba's Tmall thanks to JD's ability to offer logistics services (Alibaba is making its own logistics investments). Yao's 2016/2017 EPS estimates are respectively 15% and 25% above consensus.
Shares have made fresh highs. They're up 59% YTD.
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