JD.com, Inc.

JD Details

JD.com, Inc. (NASDAQ: JD) is a leading e-commerce and retail infrastructure services provider based in China. Furthermore, the firm provides supply chain, logistics, and other value-added services to various industries and an online marketplace for third-party merchants to sell items to clients. JD sells its items directly to customers through its website and mobile apps. JD has 1.56 billion American Depository Shares (ADS) listed and outstanding (each ADS representing two Class A ordinary shares).

New Brand Additions: AHKAH, a Japanese fashion jewelry company, opened its flagship store on JD's online platform on July 15, 2021. The introduction of AHKAH expands JD Luxury's jewelry brand family and provides additional fashion options to JD's female clients of all ages.

Further, Starbucks staged its new location inside JD headquarters in Beijing on July 10, 2021. This is the latest in a succession of popular stores to launch inside JD's headquarters to improve employee perks and working conditions.

H1FY21 Results: The company reported a 31.60% rise in total net revenues to RMB 456.98 billion during H1FY21 (ended June 30, 2021) compared to RMB 347.26 billion during H1FY20, primarily driven by an increase in income from the JD Retail and logistics segment. However, JD reported a significant decline in net income to RMB 4.12 billion during H1FY21 vs. RMB 17.47 billion during H1FY20, owing to a surge in the cost of revenues. As of June 30, 2021, the company's had cash and cash equivalents (including short-term investments) of RMB 172.80 billion and total debt of RMB 12.97 billion.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. This came after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm. Further, in China, the retail business, particularly online shopping, is very competitive. Increased competition may result in losses for JD by reducing margins and market share and affecting its brand awareness. Any reduction in demand for the company's marketplace or a in margins might hurt the company's operations and finances.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

JD Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: JD's stock price increased by 14.96% in the past month and is currently close to the mid-point of the 52-week range of USD 61.65 to USD 108.29. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 66.79. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 73.87. In light of the lingering regulatory and geopolitical concerns related to China, recent crackdown, and associated risks, we recommend locking in the gains earned on this position and give a "Sell" rating on the stock at the current price of USD 80.76, down 0.02% as of September 02, 2021, 12:28 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Zepp Health Corporation

ZEPP Details

Zepp Health Corporation (NYSE: ZEPP) (formerly Huami Corp.) is a Chinese manufacturer of smart health wearable products. Its proprietary technology, which includes Artificial Intelligence (AI) chips, biometric sensors, and data algorithms, powers a growing line of smart health devices for consumers as well as population health data analytics services. With headquarters in China and the United States, the company is one of the leading global developers of smart wearable health and consumer fitness products. ZEPP has 62.95 million American Depository Shares (ADS) listed and outstanding (each ADS representing four Class A ordinary shares).

Change in Management: ZEPP announced on August 19, 2021, that Mr. Meihui Fan was appointed as the new Chief Technology Officer (CTO), with effect from that date. Mr. Fan will oversee and analyze the company's technological roadmaps, essential functions, and technical indicators.

Investment in neuro42: ZEEP announced on July 27, 2021, that as part of a USD 6.5 million Series A investment round, it will invest USD 2.4 million in neuro42, Inc., a California-based medical technology company focused on diagnostic imaging and image-guided surgical treatments of the brain.

H1FY21 Results: The company reported an uptick of 34% in revenues to RMB 2.98 billion during H1FY21 (ended June 30, 2021) compared to RMB 2.23 billion during H1FY20, driven by the launch of Mi Band 6 and increase in volumes of premium GT series, basic Bip and Pop models and rugged T-Rex models. ZEPP also reported an increase in net income to RMB 52.14 million during H1FY21 vs. RMB 32.48 million during H1FY20. As of June 30, 2021, the company's balance sheet had cash and cash equivalents (including term deposit and short-term investments) of RMB 1.42 billion and total debt of RMB 1.42 billion.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent ZEPP’s operations. This came after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm. Further, the company’s key customer Xiaomi Corporation contributed 69%, 72.2%, and 69.9% of its total revenue in FY20, FY19, and FY18, respectively. Such excessive reliance on a small number of customers for revenue could harm the company's financial health.

Outlook: In its Q2FY21 earnings release, the company stated that it expects net revenue for Q3FY21 to range between RMB 1.6 billion and RMB 1.8 billion.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ZEPP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ZEPP has gained 10.26% in the past three months and is currently trading in the lower band of the 52-week range of USD 7.85 to USD 20.25. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 57.80. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 10.23. In light of the uptick in stock price, lingering regulatory and geopolitical concerns, and other associated risks, we recommend locking in the gains earned on this position and give a "Sell" rating on the stock at the current price of USD 11.18, up 1.45% as of September 02, 2021, 11:56 AM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.