JD Health: Revenue Update; Robust Growth Forecast Remains Intact for 2023

We maintain our fair value estimate of HKD 64 after JD Health provided an update on its first-half results. It reported first-quarter revenue of CNY 13.95 billion, representing a 54% year-on-year increase, which implies that it's on pace to surpass our first-half revenue estimate of CNY 26.6 billion—a 31% year-on-year increase. The outperformance was attributed to a combination of greater demand due to the significant surge in positive COVID-19 cases, as well as panic buying stemming from the outbreak in the first quarter after China unexpectedly relaxed all quarantine measures. Despite the outperformance, management kept its 2023 guidance steady at a 30% year-on-year increase for the year. While we believe the outperformance is unlikely to recur, given that China has now reopened, the first-quarter’s results are encouraging and imply that long-term brand recognition and demand for the platform should remain intact. With JD Health's share price at HKD 52 as of the May 11 close—which is a 24% upside to our fair value estimate—we believe this represents an attractive risk/reward ratio, given its dominant market positioning in the industry.