Benchmark analyst Fawne Jiang maintained JD.com Inc (NASDAQ: JD) with a Buy and raised the price target from $72 to $73.

Amidst an improving retail and e-commerce growth backdrop in 2Q23, Jiang's check suggested that JD fared moderately better than the analyst's previous expectations. 

Jiang consequently raised the 2Q23 revenue growth projection to 4% Y/Y (vs. 3% Y/Y prior) and the analyst's net margin projection to 2.7% (vs. 2.5% prior). 

Jiang acknowledged that macro uncertainty remains a moving part in the second half but is encouraged to see that strategic and operational adjustments JD has made appear to bear early fruits and that a fundamental turnaround is in the making. 

With an enhanced fundamental, the analyst is incrementally more positive on the second-half growth outlook and has raised the second-half revenue growth projection to 6% Y/Y from 3% Y/Y accordingly. 

The price target boost reflects the finetuning of the earnings estimates. 

2Q23 preview: According to NBS, China retail grew 18% Y/Y and 13% Y/Y in April and May, respectively. E-commerce physical goods saw a notable recovery, with 21% Y/Y and 17% Y/Y in Apr and May. 

Amidst an improving consumption backdrop in 2Q23, Jiang's checks suggested that JD GMV growth should continue to recover and anticipate a high-single-digit growth Y/Y driven by the outperformance of the marketplace. 

Core categories like smartphones and home appliances (i.e., air conditioners) in 1P were tracking moderately better than Jiang's expectations, thanks to its effective business adjustment, 6.18 promotions, and favorable weather conditions. 

As a result, the analyst raised the 2Q23 revenue growth projection from 3% Y/Y to 4% Y/Y. Considering better-than-expected JD retail growth on top of its diligent cost management, Jiang sees upside potential to earnings estimates and raised the 2Q23 net margin projection to 2.7% vs. 2.5% prior. 

Business adjustments, setbacks, and macroeconomic pressure have overhung JD growth YTD. 

While the Jiang anticipated macro backdrop remains variable in the second half, the analyst is encouraged to see that strategic and operational adjustments appeared to bear early fruits, evidenced by accelerated marketplace growth, resilience in-home appliance growth, and effectively managed promotions. 

Categories and SKU optimization in FMCG should be rebased with a reaccelerated growth by 4Q23. 

Despite macro uncertainties, Jiang is incrementally more positive on the second half outlook and raised the revenue growth projection to 6% Y/Y from 3% Y/Y prior. 

The updated FY23 revenue and non-GAAP EPS are RMB1,092 billion (vs. RMB 1,073 billion prior) and RMB20.31/$2.91 (vs. RMB 19.86/$2.89), respectively.

The price target represents 20x of Jiang's FY23 non-GAAP EPADS of $2.91 (plus $14.62 net cash per share). The multiple reflects an earnings growth outlook of mid/high teen % and a PEG of 1.2.

Price Action: JD shares traded lower by 3.25% at $38.08 on the last check Friday.

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