J.P. Morgan strongly supports JD.com: Substantial improvement in profit structure, valuation remains severely underestimated

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JD Group's performance in the first quarter of 2026 has comprehensively exceeded market expectations, confirming a substantive improvement in its profitability structure. JPMorgan maintains its "Overweight" rating on the stock, believing that this result validates its previous non-consensus view—the market's consensus expectations have yet to fully reflect JD's potential for profit upside.

JD's First Quarter adjusted net profit reached 7.4 billion yuan—24% higher than JPMorgan's forecast and 38% higher than market consensus. According to ZF Trading Desk news, JPMorgan China's Head of Securities Research, Yao Cheng, stated in a May 12 earnings quick review that this performance establishes three key conditions: Sustainability of retail profit margin, reliability of narrowing path for losses in new businesses, and accelerated improvement in commission rates for high-profit service business.

From the perspective of market impact, JPMorgan expects this performance will drive consensus forecasts for JD's revenue and profits to be revised upward by double digits over the next several quarters. The current share price corresponds to a projected 2027 P/E ratio of only 8 times, which JPMorgan believes has yet to reflect the aforementioned structural improvement trend, and is including valuation upside in its forecast.

Profit Far Exceeds Expectations, Retail Profit Margin Hits Historic High

JD’s first quarter total revenue was 315.7 billion yuan, up 5% year-on-year, 2% higher than JPMorgan's forecast and 1% higher than market consensus. Adjusted operating profit was 5.6 billion yuan, 177% higher than JPMorgan's forecast; adjusted operating profit margin was 1.8%, far exceeding JPMorgan's and Bloomberg consensus forecasts of 0.7% and 0.8% respectively.

Regarding profit structure, JD retail revenue increased only 1.8% year-on-year, but operating profit margin expanded to 5.6%, a 0.7 percentage point increase from a year ago and 0.4 percentage point higher than JPMorgan's forecast, setting a historic high. JPMorgan points out the margin beat mainly stems from two factors: First, improvement in retail business profit margins; second, cooling competition in China’s food delivery market, leading to reduced subsidies.

Adjusted diluted earnings per ADS was 5.12 yuan, beating JPMorgan and Bloomberg consensus by 26% and 44% respectively. Net profit under GAAP was 5.8 billion yuan, up 52% year-on-year.

Service Revenue Accelerates, Food Delivery Losses Narrow Sharply Quarter-on-Quarter

Improvement in revenue structure was another highlight this quarter. Service revenue growth accelerated to 20.6%, benefiting from a shift toward higher-margin platform and commission-drawing businesses. This structural transition helps continuously expand overall profit margins amid modest revenue growth.

In new business, management confirms that losses in the food delivery segment narrowed sharply quarter-on-quarter. JPMorgan believes this trend proves that the phase of most aggressive investment in food delivery is over. The report notes that compared to loss reduction in flash sales, the push for international business in 2026 is expected to be more cautious, and this combination will help the group’s overall profitability to keep improving.

Cash Flow Continues to Improve, Valuation Still Has Significant Upside Potential

The cash flow front has seen clear improvement. Free cash outflow narrowed sharply from 21.6 billion yuan in Q1 2025 to 6.5 billion yuan this quarter, a significant improvement.

Regarding valuation, JPMorgan maintains JD's US stock price target at $38, corresponding to 9x projected 2027 earnings (three-year average), equivalent to 11x 2026 projected earnings. By comparison, most Chinese e-commerce peers currently trade below 10x. JPMorgan notes JD's current forward P/E of 8x for 2027 implies the market is underpricing earnings improvement trend, and sees upside risk to both consensus and JPMorgan’s own profit forecasts, with share price having upward potential.

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The above content comes from ZF Trading Desk.

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