Beyond its traditional e-commerce business, JD HEALTH is leveraging two new growth engines - innovative drugs and AI - in an attempt to reshape its growth narrative.

According to an HSBC research report dated October 13, JD HEALTH's fundamentals are receiving strong support from two core business segments: pharmaceuticals and health supplements. The report forecasts that driven by these dual engines, the company's revenue will achieve approximately 20% year-over-year growth in the second half of 2025.

Among these, the innovative drugs business is viewed as a "highlight." According to the report, innovative drugs currently account for approximately 30% of JD HEALTH's total prescription drug sales, with growth rates expected to continue rising, primarily benefiting from online traffic migration driven by prescription outflow from hospitals. Meanwhile, the health supplements business is also expected to benefit from increases in users and traffic.

AI Empowerment Shows Initial Results, Conversion Rate Improves by 10 Percentage Points

In this report, AI is no longer just a concept but has been transformed into concrete operational benefits. JD HEALTH revealed in an investor meeting that AI technology applications have helped the company improve cost efficiency and conversion rates by 10 percentage points.

The company is able to utilize massive real user conversation data on its platform to train its AI models, making them more precise and efficient. Going forward, JD HEALTH will continue investing in AI, though the report believes this scale will be "manageable."

Offline Expansion and Investment Drag Short-term Profits

Growth comes at a cost. The report notes that JD HEALTH is actively pursuing offline expansion, planning to open 200 additional self-operated pharmacies within the year. This investment is the primary reason for pressure on its profit margins.

Data shows that JD HEALTH achieved a 10% adjusted net profit margin in the first half of 2025, but the company expects this metric to remain at 8-10% levels in the short term. The report predicts that Non-IFRS net profit margin for Q3 2025 will be approximately 8%, while the second half of 2025 may see it drop to around 6%.

However, the report also mentions that the company is implementing "stricter cost controls," which should provide a buffer for profit margins.

Based on the comprehensive analysis above, the bank ultimately maintained its "Buy" rating for JD HEALTH and raised the target price from HK$65.00 to HK$66.00, believing the company can effectively capitalize on the growing online healthcare demand amid healthcare reform. As of the report's publication date, this target price implies 7.4% upside potential.