2H24 13% YoY topline slightly beat consensus by 1%. Despite slightly underperformed 22.2% GPM and increased operating expenses, 7.2% adj. NPM exceeded streets’ expectation mainly due to strong finance income. We expect Co. will accelerate their proactive investments in multiple areas including users, products, services, subsidies, offline infrastructures, omni-channel initiatives and AI in 2025 in a disciplined manner to improve their core supply chain and fulfillment capabilities and enhance user mindshare amid favourable policy tailwinds. Maintain BUY and raise our DCF TP to HK$45.0.
　　Key Factors for Rating
　　Accelerated proactive investments for L-T sustainable momentum amid favourable policy tailwinds. We see Co. will actively accelerate their investments in 2025 in a disciplined manner in multiple areas including user acquisition, price competition, supply chain, services categories, Omni channel, fulfillment capabilities, partners, AI and offline infrastructures for improved user mindshare to solidify their leading position amid increased online healthcare penetration and out of hospital drug retail tailwinds benefitted from favourable policies. We assume non-material revenue impact from AI applications while we do expect AI will positively improve efficiency and user experience. Thus, we raise our FY2025-27E total opex assumptions including fulfillment, S&M and R&D by 8-10% and maintain GPM estimates unchanged. We uplift our FY2025-26E revenue forecasts by 2% and cut our adj. EPADS estimates by 3%.
　　2H24 profit beat mainly due to strong finance income. Total revenue grew 13% YoY to RMB29.8bn, 1% above consensus. Product revenue delivered 11% YoY and service revenue logged 25% YoY mainly contributed by ad fees from more advertisers. 12M AAC further increased to 184m and number of 3P merchants exceeded 100K as of Dec 2024. GPM was 22.2%, below consensus of 22.7%. Despite increased operating expenses, 7.2% adj. NPM exceeded streets expectation mainly due to strong finance income on ample cash position.
　　Key Risks for Rating
　　Downside risks: i) regulations; ii) Covid-normalisation; iii) destructive investments; iv) less support from JD Group; and v) fierce competition.
　　Valuation
　　Maintain BUY and lift our DCF TP to HK$45.0 using 9.5% WACC and 4% terminal growth assumptions.