CICC: Maintain JD HEALTH (06618) as outperforming the industry with a target price of HKD 66.2.

CICC released a research report stating that considering the overall profit generation of the company continues to improve, it has raised JD HEALTH (06618)'s non-IFRS net profit forecasts for 2026 and 2027 by 5% and 3% to 6.73 billion and 7.01 billion yuan, respectively. Given that the "siphon effect" in the hard technology sector may weaken marginally since July, the mid-term valuation of the sector is expected to continue its recovery, but short-term fluctuations are still anticipated. The firm values the company based on a 20x EV/non-IFRS EBIT for 2026 (currently trading at a 7x EV/non-IFRS EBIT) and maintains the target price at HKD 66.2 (representing an upside potential of 67.5%), and maintains an outperform rating for the industry. CICC's main points are as follows: 1H26 overall performance exceeded its expectations. The company's revenue for 1H26 was 40.89 billion yuan (+15.9% YoY), with a non-IFRS net profit of 3.87 billion yuan (+8.5% YoY), corresponding to a profit margin of 9.5%. The revenue figures were generally in line with the bank's expectations, while the profit figures exceeded expectations, mainly due to a favorable gross margin driven by revenue structure. Growth in revenue was somewhat differentiated, with pharmaceuticals performing exceptionally well. According to the announcement, product revenue in 1H26 reached 33.9 billion yuan (+15.6% YoY), while platform, advertising, and service revenue amounted to 6.98 billion yuan (+17.2% YoY). According to JD HEALTH's official WeChat account, user searches containing "original research" on the JD APP increased by 200% YoY during 1H26, driving the order volume of original research drugs up by over 30% YoY. The bank assesses that the pharmaceutical category fared well in the first half of the year, while non-pharmaceuticals (healthcare products, devices) faced some pressure. However, considering recent regulatory developments in the healthcare products category, attention is advised on the recovery of non-pharmaceutical growth in 2H26. Core operating profit generation continues to improve. The gross margin for 1H26 increased to 26.1% (+0.9 percentage points YoY), mainly due to an improvement in the gross margin of product revenues, which remained steady and contributed to a strong performance in non-IFRS operating profit, which grew by 40.3% YoY, corresponding to a profit margin of 8.5% (+1.5 percentage points YoY), indicating that core business profit generation remains robust. Continuously strengthening the layout of medical AI and omnichannel business. According to the announcement, the company further promoted its AI capabilities to users, doctors, and hospitals in 1H26. The AI doctor "Dawei" served nearly four times more users during the 618 period compared to the previous year, further perfecting the "medical examination, diagnosis, and prescription" service closed loop. On the other hand, the company announced that by the end of 1H26, its online drug purchase insurance payment covered 40 cities, and it has established over 450 JD pharmacies across 10 cities nationwide, continuously reinforcing its online + offline omnichannel business layout.