2H23 total revenue was flattish YoY at RMB26.4bn, in line with BOCIe. 12m AAC further increased to 172.3m as of Dec 2023, mainly reflecting increased user mindshare on effective branding and operation initiatives. GPM of 21.4% and adj. NPM of 6.4% were driven by strong interest income. We see Co. maintains their dedicated investments on product offerings, pricing mechanisms, services enrichment, consumption scenario expansions, branding, technology, omni-channel and fulfillment capabilities for sustainable growth momentum. We maintain our 2024-2025E topline and GPM estimates unchanged while our trimmed bottom line forecasts reflect increased Opex and decreased interest income. Maintain BUY but lower our DCF TP to HK$43.0.
　　Key Factors for Rating
　　Dedicated investments amidst post-covid normalisation. Co. remains dedicated to invest in i) enhanced supply chain capabilities by building 1P infrastructures and actively recruiting 3P merchants for enlarged SKUs offerings; ii) competitive pricing mechanisms; iii) expansive healthcare services and consumption scenarios for easy accessibility; iv) extensive fulfillment capabilities; v) branding; vi) omni-channel; and vii) technology. We expect this will build solid foundation for Co. to continue gaining share amid post-covid era with increased user penetration, purchase frequency and ARPU. But for 2024, we expect Co. will encounter high base in 1Q24 (topline down mid to high single digit YoY) while generating ~20% YoY in 2Q-4Q24. We maintain our 2024- 2025E total revenue forecasts unchanged with 3P growth outpacing 1P mainly contributed by marketplace and ad. We raise our Opex estimations especially fulfillment and S&M to reflect Co.’s investments on branding, user acquisition and infrastructures, leading to our trimmed 2024-2025E bottom line forecasts.
　　2H23 profit beat on strong finance income. Total revenue was flattish YoY to RMB26.4bn, in line with BOCIe. Product revenue dropped by -2% YoY due to high base on Covid while service revenue increased by 8% YoY. 12 month AAC further increased to 172.3m as of end Dec, 2023. GPM rose 0.8ppt YoY to 21.4%, mainly on structural revenue mix shift and improved supply chain efficiency. Non-IFRS NPM was 6.4%, beat BOCIe due to strong interest income.
　　Key Risks for Rating
　　Downside risks: i) regulations; ii) Covid-normalization; iii) destructive investments; iv) less support from JD Group; and v) fierce competition.
　　Valuation
　　Maintain BUY but cut our DCF TP to HK$43.0 mainly assuming lower bottom line estimations on increased Opex for pursuing L-T growth momentum, implying 34x/ 31x/ 27x 2024/2025/2026E Non-IFRS P/E. We keep our 10.0% WACC unchanged while lower our terminal growth rate to 3% from 5% to reflect our neutral view on the industry especially lack of nationwide industry-wise policy stimulus amidst macro challenges.