CICC: Keeping JD Health (06618) outperforming the industry rating target price of HK$71.4

The Zhitong Finance App learned that CICC released a research report stating that considering the continued release trend of the original research category and strong demand for influenza varieties, the bank raised the revenue forecast for JD Health (06618) by 2% to 72.5 billion yuan and 81.7 billion yuan. At the same time, considering the improving trend in gross margin and the combined impact of potential interest income fluctuations, the bank increased non-IFRS net profit by 4% and 1% for 25 and 26, respectively. For the first time, a revenue forecast of $91.2 billion and a non-IFRS net profit forecast of $6.8 billion were introduced for the first time. Considering recent slight fluctuations in sector performance, the target price of HK$71.4 remained unchanged (23% upside) based on SOTP, maintaining an outperforming industry rating.

CICC's main views are as follows:

The volume of original research categories is compounded by demand for influenza prevention and control, and continues to drive strong revenue side performance

Looking quarterly in 2025, the bank observed strong performance on the company's revenue side, achieving a year-on-year growth rate of around 25% in a single quarter from 1-3Q25. According to the disclosure announcement at the end of 3Q25, the company signed strategic cooperation agreements with pharmaceutical companies such as Eli Lilly, Cinda Biotech, and Bayer China during the 3Q25 period to continuously strengthen the business characteristics of new drug launches across the entire network. Considering that the trend of continued release of original drugs during the year is still the same, and the demand for influenza prevention and control in winter has gradually increased since 4Q25, the bank determined that 4Q25 is also expected to achieve strong revenue performance. The bank expects the company's revenue growth rate for the full year of 2025 to be close to 25% year-on-year.

The profit side is expected to be stable overall, but attention should be paid to the potential fluctuation effects of interest income

The company's 1-3q25 achieved non-IFRS net interest rates of 10.6%, 9.7%, and 11.1%, respectively. The bank believes that it is mainly due to increased investment in advertising budgets by pharmaceutical companies and health products companies, driving continuous improvement in gross margin levels. At the same time, the company's cost-side investment (such as medical AI, offline pharmacy+instant retail omnichannel system layout) during the year was relatively manageable, so it continued to drive impressive profit-side performance. Although 4Q25 is a regular peak investment season, the bank expects that the company's operating profit margin level will also show a steady, moderate to positive trend on a full-year basis, reflecting the strong competitiveness of the company's business. On the other hand, considering that the company has a lot of cash on hand, and according to the semi-annual report announcement, part of the cash was used to purchase domestic and foreign wealth management products, the bank believes it is necessary to pay attention to the potential fluctuation of interest rate cuts on the company's interest income on the non-IFRS net profit side in the next few quarters.

Risk warning: Competition in the industry has intensified, the tightening of regulations has exceeded expectations, and the recovery in medical consumption has fallen short of expectations.