With revenue growth slowing to single digits, JD HEALTH aims to strengthen its omni-channel presence

JD HEALTH (6618.HK) released its first half-year report on Internet medical e-commerce.

On August 16, JD HEALTH (6618.HK) announced its half-year report, with revenue and net profit for the first half of 2024 reaching RMB 28.804 billion and RMB 2.037 billion, representing a year-on-year increase of 6.04% and 30.48% respectively.

This marks the first time that JD HEALTH's revenue growth rate in the half-year report after listing has dropped to single digits.

As of the close on August 16, JD HEALTH's stock price still rose by 8.22%.

Behind this, JD HEALTH's profit margin has significantly improved. According to non-International Financial Reporting Standards, JD HEALTH achieved a profit margin of 9.18% in the first half of 2024, setting a new half-year performance high since its listing.

This may be attributed to continuous efforts such as increasing the sales of high-priced innovative drugs and expanding the scale of third-party sellers.

Next, JD HEALTH plans to further expand its online and offline omni-channel layout to broaden its coverage.

Growth Rate Drops to Single Digits

After years of rapid growth, JD HEALTH's growth momentum is starting to slow down.

In the first half of 2024, JD HEALTH's revenue was RMB 28.804 billion, with a year-on-year growth of 6.04%, a decrease of 27.2 percentage points compared to the same period in 2023.

This is the first time since its listing that JD HEALTH's half-year report has shown a drop in revenue growth to single digits.

The main reason is the slowdown in the growth of pharmaceutical and health products that have been driving JD HEALTH's revenue.

This segment of the business generated RMB 23.91 billion in revenue in the first half of 2024, with a year-on-year growth of 3.2%, a decrease of 29.32 percentage points in growth rate compared to the same period last year.

The slowdown in growth seems to be an inevitable outcome.

JD HEALTH went public at the end of 2020, benefiting from strong online drug purchasing demand in the market due to factors such as the epidemic, experiencing rapid growth from 2020 to 2022.

However, with the return of offline foot traffic, JD HEALTH and other internet medical platforms may be facing new growth bottlenecks.

In fact, signs of revenue slowdown for JD HEALTH appeared in 2023, with revenue of RMB 53.724 billion, a year-on-year growth rate of 14.75%, a decrease of 37.17 percentage points compared to 2022.

But JD HEALTH's profit margin has improved. In the first half of 2024, the non-International Financial Reporting Standards profit amount was RMB 2.644 billion, an 8.54% year-on-year increase; the profit margin for the same period was 9.18%, an increase of 0.21 percentage points year-on-year.

This is related to JD HEALTH optimizing its product portfolio and expanding third-party collaborations.

On one hand, JD HEALTH introduced high-priced innovative drugs through cooperation with major pharmaceutical companies, thereby enhancing the overall profitability.

In the first half of 2024, JD HEALTH launched several new special drugs at JD Pharmacy, including 0.01% atropine sulfate eye drops from Xingqi Eye Medicine (300573.SZ) and Sanofi's new drug Zilenta.

"In terms of pharmaceuticals, JD HEALTH has deepened cooperation with multiple global pharmaceutical companies, fully empowering brands in areas such as the first launch of new special drugs, comprehensive expansion of drug channels, and digital marketing. During the reporting period, several new special drugs were first launched online at JD Pharmacy," JD HEALTH stated However, striving for the first launch right of innovative drugs has become an important strategy among Internet medical e-commerce companies.

In 2023, Alibaba Health (0241.HK) online first launched GLP-1 drug Liraglutide Injection from Huadong Pharmaceutical (000963.SZ), Pfizer's alopecia drug Lefunuo, etc.; Meituan (3690.HK) also online first launched Meilin Fever Patch, Pfizer's Leteke for treating migraines, and more.

On the other hand, the scale of third-party sellers on JD Health is expanding.

As of the end of June 2024, the number of third-party merchants on the JD Health platform reached 80,000, a year-on-year increase of 122.22%.

In March of this year, JD Health also clearly stated at the partner conference that in 2024, it will adhere to the strategy of both self-operated and open platforms, especially increasing support for third-party merchant partners.

Strengthening Omni-channel

With the implementation of online payment reform for medical insurance, JD Health's revenue growth space is expected to open up.

To promote the pilot work of online payment for drugs, starting from July 1 this year, insured individuals in Beijing can purchase OTC drugs at 300 designated medical insurance retail pharmacies using their medical insurance personal accounts on online platforms such as JD and Meituan.

JD Health's semi-annual report shows that as of the end of June 2024, over 350 designated medical insurance retail pharmacies have been connected to JD Health's platform, with service networks covering all administrative districts of Beijing.

JD Health stated that it will actively respond to public demand and policy guidance by launching medical insurance online payment services in Beijing, Shanghai, and Dongguan.

This may become a potential source of revenue growth for JD Health.

As prescription drugs are currently only available for OTC drugs in Beijing, the market for medical insurance payments for prescriptions has not yet been opened up, so the extent to which this can contribute to JD Health's performance growth remains unknown.

Correspondingly, accessing medical insurance payments also means that JD Health's drug prices will be subject to stricter regulation.

JD Health is planning to layout an omni-channel strategy both online and offline.

"By building and improving an integrated online and offline service system, JD Health continuously enhances the efficiency of the retail model," JD Health pointed out.

In 2023, JD Health established an instant retail department to expand service scale and improve delivery efficiency through the layout of self-operated large pharmacies offline and cooperative pharmacies online - as of the end of June 2024, JD Health's services cover over 490 cities, with over 150,000 cooperative pharmacies.

"During the reporting period, we accelerated merchant recruitment and expanded service networks, while improving the efficiency of self-operated stores, achieving 'JD Buy Drugs Instant Delivery' service speeded up to 'average 28 minutes, fastest 9 minutes' delivery," JD Health stated.

Regarding self-operated stores, JD Health has not disclosed specific data for the time being. However, according to public reports citing Wang Yiting, head of JD Health's instant retail department, JD Health has opened more than 150 self-operated offline pharmacies.

However, JD Health's practice of acting as both a "referee" and a "player" may bring certain pressure to its expansion of third-party retail pharmacies.

Currently, large chain pharmacies offline are also strengthening their own online channel construction. In 2023, the online channel sales of chain pharmacy Laobaixing (603883.SH) reached 2 billion yuan, a year-on-year increase of 38% Compared with JD Health, Meituan emphasizes that it has no intention to build its own pharmacies.

"Meituan Health does not open offline pharmacies. From an objective business perspective, we are not good at opening and managing pharmacies, but we always maintain a respectful attitude towards the professionalism of the pharmaceutical industry. We prefer to focus on platform ecosystem development," said Li Jifei, General Manager of Meituan Health Business Unit.

In the first half of this year, JD Health has opened two self-operated offline hearing centers; earlier this year, JD Health also acquired Tangshan Central Hospital, which is the first large-scale comprehensive tertiary hospital controlled by JD Health.

Continuously increasing investment in offline "heavy asset" operations may bring certain pressure on JD Health's profit level.

Whether the omni-channel layout model can bring more incremental space to JD Health is being continuously observed by the market