JD Health International Inc

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Health International 2026 Interim Resource Conference Call. At this time, all participants are in listening mode. Please note that both management's presentation and the Q&A session will be conducted in Mandarin. Simultaneous English interpretation will be provided by a third-party interpreter throughout the call by the English channel, which will remain in listening mode for the duration of the call. will now turn the call over to today's host. Please go ahead. Thank you, operator. Good day, ladies and gentlemen. Welcome to our 2026 interim conference call. Joining us today are JD Health's executive director and CEO, Mr. Cao Dong, and CFO, Ms. Deng Hui. Ms. Deng will first walk us through the financial performance for the period, followed by a Q&A session. Mr. Cao will then deliver closing remarks. Before we start, we would like to remind you that today's discussion may contain forward-looking statements which involve a number of risks and uncertainties. Actual results may differ materially from those mentioned today. The company does not undertake any obligation to update any forward-looking information except as required by law. During today's call, management will also refer to certain non-adverse financial measures for comparison purposes only. for the reconciliation between IFRS and non-IFRS financial results. Please refer to the interim results announcement for the six months ended in June 30th, 2016 for today. Now I'd like to turn the call over to Ms. Deng Hui. Please go ahead. Hello, everyone. This is Deng Hui, CFO of JD Health. Thank you for joining our earnings call today. In the first half of 2026, China continued to advance the quality development of the healthcare industry Our total revenue reached $40.9 billion. Our non-offer as operating profit income was $30.5 billion, up 40.3% a year, notably non-offer as operating margin expended by 1.5% of coins to 8.5%, making nine consecutive quarters every year over the year. increased 15.6% a year, reaching 33.9 billion in the first half of the year, with the core market categories making industry-leading growth. In pharmacy, on top of the fast Q1 growth, we also maintain a fast growth in dermatology, oncology, endocrinology, cardiovascular health, and medical health. We have leveraged our omni-channel networks in professional pharmaceutical operations, we have launched 65 new drops on our platform over the period. So as the first go-to option has deeply been embedded in people's mind share. In supplements, we have been focusing on branding, coupled with our complying to promotional efforts and also competitive advantages. So we have created a certain growth runway in medical devices based on a user insights and also direct a supply chain. We have customized a few new customized devices and also AI powered services in at home health management. Our service revenue in this first half of the year was 7 billion with a share of the total revenue continue to rise. All user needs continue to evolve. We haven't provided a highly efficient digital marketing tool the number of advertising merchants grow over 20% a year. We also deepen partnerships with the Novo Nordisk, Infinite Biolistics, UCR, and Ardoron. Advancing innovative collaborations in areas as new drug launches, academic marketing, intelligence, patient management services. We also continue to expand a new healthcare service offerings and deepen the integration of online and offline operations. As of the end of June, J.D. Pharmacy had expanded its presence to more than 450 stores across 10 cities nationwide, working in tandem with J.D. Instant Delivery Services. We also diversify our payment channels. We have extended medical insurance payment services to 11 additional cities, bringing the total to 40 cities. In offline scenarios, we continue to broaden our healthcare offerings. In Beijing, we actually opened our first integrated healthcare center, integrating physical examinations, dental care, and medical services, also expanded home care and at-home rapid testing services, further strengthening our end-to-end consultation, examination, diagnosis, and pharmaceutical services ecosystem. We also focused on enhancing operational efficiency for more refined management practices. Our growth process, was 10.6 billion for the period of period. Growth margin improved 0.9%. It will be there to 26.1%, marking nine consecutive quarters of the area of growth. Fulfillment cost optimization was constantly increasing. Non-RFS or fulfillment expense ratio was 10%, flat with the same period last year. We have been fulfilling making user experience. So we increased the fulfillment cost However, the economies of scale has been increasing, which has been largely offset at the associated incremental costs in the fulfillment. In first half of 2026, the non-RFS marketing expense ratio improved by over 0.5% in 2020 to 4.6%, mainly attributed to more targeted marketing strategies in terms of spending efficiency. Non-RFS R&D expense ratio was up 0.2% and now at 2.3% was reflecting our efforts investments in AI. Well, we have been iterating our chain chewing functionality. Also, we are introducing its application across different scenarios and focusing on user experience. The AI agent, Dr. Dawei, continue to gain traction. Its user base has increased by nearly four fold, driving the higher have been fully integrated in the JD Health online hospital and embedded in doctors' online clinical workflows, including decision-making and improving efficiency. Non-EFRA's management in crypto is around 0.7%. Operating efficiency also is leading in the industry. In the first half of non-EFRA's operating income for 40.3% of the year to 3.5 billion in the first half of 2026. So the interest or finance income is around 840 million. That was mainly due to the fluctuations in the fair value changes in the wealth management products. Non-office net margin was up 8.5% at around $3.9 billion. The net cash generated from operating activities was $4.46 billion. As of June 30th, cash and cash equivalents are restricted to cash coming deposits with medicine products over the $71.5 billion RMB, an increase of $2 billion from the end of 2025. We have repurchased shares worth HK$840 million. We have canceled all of them. Thanks to the continuous rise in profit and also robust cash position, we'll continue executing our share repurchase program. In summary, JD helps deliver high-quality growth with a steady enhancement in operating efficiency and profitability. Looking ahead to the second half, we are able to maintain and confidently maintain better than industry growth, further solidifying our position as the largest online pharmacy retail platform. And also, we'll continue strengthening our AI power supply chain capabilities and maintain disciplined investments in AI, and we will look forward to return the benefits for our shareholders. And that concludes my prepared remarks, but I'm now open for questions. Now let's move to Q&A session. If you would like to ask a question, please press star 1 on your keypad. For the time constraints, please limit your questions to two questions. If you have any further follow-up questions, please re-enter the queue. Thank you. The first question comes from BOSA Miranda. thank you management for taking my question I was wondering the growth trends for the three key categories some short-term and near-term factors affecting the growth and also in Q2 we maintain an accelerated growth in pharmaceutical products and revenue I was wondering what are the key drivers behind the rapid growth and also what will be the outlook for the second half of the year for non-pharmaceutical product revenue. The growth has slowed down slightly in the first half of the year. What are the reasons behind that? And also, what's the outlook for that? Last but not least, on the policy front, the regulation on nutrition and supplements, what kind of returns are we seeing? Thank you, Miranda. I am Cao Dong. to answer your questions, which are your key concerns. First, let's talk about pharmaceutical product revenue. Indeed, the growth is aligned with our expectations. And let me break you down in terms of the logic behind that. So I think there's a prerequisite. Selling pharmaceutical product or medication is not an easy feat, far more challenging. I mean, to do it well, there are a few things that we need to do well. Number one, we need to have the strong supply chain capabilities. That means your category covering has to be the most up-to-date and comprehensive, and they have to be genuine and with a better prices. I mean, to achieve that, it takes years of efforts. so that's uh it's reflected in the supply chain capabilities so you have to be able to offer the most up-to-date product offerings with the most reasonable prices that can only be achieved with the robust supply chain capabilities secondly you have to possess a strong fulfillment capability so that means your and others. So, there are still access issues that we need to address, I mean, in terms of this market. Thirdly, the company has to have a great mind share. It's, I mean, I've been talking about both on the C-side and B-side. We can sell our medications to remote areas. For example, like you said, we are even making our medicine accessible, available to prisoners. I mean, they need medication, and we are able to make it happen. So that is an example that shows you that JD Health is mindshare are having a very good performance in both the 2B and 2C front. And number four, we have to have well-established medical or healthcare service capabilities. Leveraging AI, we can better educate our patients. I mean, we have to equip that with the medicine retail. We need to have a matching service, you know, so as to reduce the barriers to sell the drugs. Number five, we need to be regulatory compliance. We have to be disciplined looking over the long term. You need to be compliant to the regulations, understanding the logic, making contributions to the regulators, pushing the industry to grow healthily. This takes a lot of efforts. So these five factors that I've mentioned, I mean, are areas where we are trying to do the best. Like I said, I mean, traffic alone won't come to deal. I mean, it takes effort, decades of efforts to invest, to accumulate. However, once you are able to possess or build those advantages, they can form very competitive mode for a company. So, that's why we are able to lead the market in our pharmaceutical or medication sales. And we have been continuing to solidify our efforts in these, from these regards. And from the regulations perspective, there will be some short-term fluctuations or headwind, but over the long run, we are very bullish. So for us, who has a robust supply chain and a strong reputation, it positions us in a very good position to go the long run. I mean, if you look at the regulation landscape, I mean, for JD Health, I mean, it has been an industry that has been regulated heavily by the policies or regulators. there have been constant corrections. And we have been a complaint player throughout. So, it's, regulation is here to stay for the long run. So, medium to long run, I mean, it's going to benefit us as a company. So, that's my answer on the medications sales. Now, moving on to nutrition and supplements. Yeah, short term wise, we are seeing some heavy winds. It's performing less than we have expected. But again, we have to look at the long run. We are gaining market share in nutrition and supplement market. So some of the impacts we see first is the fake overseas brands, which has been reported by CCTV and some other programs. And second, the clear defined categories. And there has been some, you know, regulatory efforts going on. But it favors us. Over the past few decades, I mean, looking at how the market grew, we are seeing that marketing getting more increasingly regulated. I mean, this is a process where the two competitive companies will stand out. So there is going to be increasingly more domestic substitution. So some of the domestic employers would like to leverage the reputation of an overseas brand, and they are conducting fraudulent sales, I mean, towards the senior citizens. I mean, this is necessary for the regulators to come in and crack down on such practices. and for us, I mean, we should have a healthy market where the market favors the healthy and compliant players. So, we are seeing the same landscape or same situation for nutrition and supplements. We have to build our fulfillment capabilities, supply chain capabilities. For JD Health, we have a strong reputation and we got the medical and healthcare service capabilities as well as the compliance. So with the better user experience, we can gain further market share and over the long run, we're going to benefit from that regulation. And also, like I said, regulation is here to stay for the long run. If you look at the past few decades, it has been a consistent regulation you know pushing the industry towards a more healthier trajectory so this is an opportunity to have all the players to pursue a more compliant growth and we welcome such kind of policies which will lead an industry towards more healthy trajectories and we definitely expected the performance to improve from the first half of the year. We also expect more visibility into the regulations so that everyone is aware or clear what are those that's going to be put on the blacklist and what are the list of products that can be developed from the domestic suspicion perspective. Outlook wise, we're definitely expecting slower growth in the second half of the year. I will definitely talk about AI where we would like to elaborate more. We definitely have a lot of expectations. For now, it's performing relatively weak. You know, medical equipment has contributed the most. I mean, in the past, if you followed us long enough. However, we are seeing that other segments are growing faster slightly than medical equipment, but nevertheless, medical equipment is still a very promising sector. aging society and also the nursing requirements this is definitely a segment where we can onboard more merchants and introduce more product offerings and also they are getting increasingly more home oriented smaller size oriented but over the long run we have confidence in the outlook for medical equipment so that's an overall that's an overview for these three categories Also, I touched briefly on regulations. Hopefully that answers your question. Your next question comes from Henry from UBS. Please go ahead. Thank you, management. I am Henry from UBS. Got two questions. Number one, in the first half, the adjusted operating profit. We're seeing better growth. What are the key drivers behind that? And what's the profitability outlook for the second half of and over the longer term? Second question is on the repurchase and also an update on companies to share repurchase program. Thank you, Henry. We have been maintaining high-quality growth. Our revenue has been leading the industry. Also, our gross profit and also operating expense ratio have been coming down. Overall revenue is growing faster than our profit over the past three years. It's actually maintained a 30% kicker growth. And looking ahead, we're confident in sustaining the growth momentum. At the moment, there's a significant potential for us to improve the gross margin. For high-frequent products, it's a low-margin product. And for low-frequent purchases, it's a high-margin business. So we have to balance that. So, logic-wise, I mean, it makes sense. For the healthcare sector, which needs a lot of efforts and care, I think there has been significant demand for this sector. And we have been exploring how we can scale up the services in medical care, which will increase the gross margin. And also, the economies of scale is certain, as you can see, that the society is aging. for us if we were able to provide patients and partners with a certain value that's going to solidify our leading position and also translate it into our economies you can see that the gross profit of various segments have been improving so overall we are confident in maintaining the and achieving a high single-digit operating margin for the long run. Your next question is on the share repurchase. So earlier in May, we announced our first ever four-year share repurchase program of up to $1 billion. Over the past quarter, we have repurchased over $114 million. or 110 million U.S. dollars. And we have canceled all of these shares repurchased. So with the continued improvements in profitability and robust cash position, we are well positioned to execute the share repurchase program while continuing to make disciplined investments in our business. We will remain focused on building a healthy and resilient business, actively pursuing opportunities and driving steady and sustained work in both revenue and profitability. for creating long-term value and delivering returns to our shareholders. Your next question comes from Lincoln Kong at Goldman Sachs. Please go ahead. Thank you, management, for taking my question. Congratulations on the excellent results in the first half. My question is on AI. AI Qingyi AI Assistant has been integrated across the full spectrum of your healthcare services. How does management see AI creating value for the company's core business? Also, as mentioned, that AI Dawei's penetration is accelerating. So how do we expect AI to primarily provide cost and efficiency improvements? And how could it also become a new source of revenue? And also, what are some of the differentiated advantages compared with other peers in the market who is also investing in AI? Thank you, Lincoln. I know AI is a key concern for all of you. We also value the investments in AI. Now let me first give you the conclusion. In our view, AI can not only reduce costs and improve efficiency, it can also become a standalone business, creating business of value. That is highly certain conclusion. In our day-to-day practice, reducing costs and improving efficiency is clear. Well, not to be exaggerating AI is integrated in our day-to-day operations and management for each week we have meeting sessions related to AI on a weekly basis we continue taking inventory of the areas or tools products that created by UI could help reduce costs and improve efficiency and then we'll quickly replicate that, integrate that, apply that across our day-to-day situations. That is also true with other companies. I mean, I'm sure that everyone is learning how to use AI. But the key is that it cannot be simply a tool. Particularly in healthcare service sector, it can be a standalone business and that's how we position AI. and this is what we have been working towards. Well, at the moment, can we prove that it has already become a standalone business that yields tangible results? I cannot do that for sure, but I would say we are halfway through. Let me break it down for you. As a standalone business, I mean, we have been maintaining a very pragmatic approach towards AI. When it comes to AI technology, investments, we are being very prudent. We do not invest blindly. We do not spend a lot of money on PR and marketing, contribute a reputation. From day one, it has been clear to us that how we need to create synergies between AI and other existing businesses to create a further value. And if you look at it more on a higher level, for two customer or user facing AI, we have an AI called a Dr. Dawei, which is a male 50 year physician As the persona, it has gradually been replacing the consultations with a human or physician. We're seeing adoptions. Rather than a chit-chat chat robot, we seriously position it as a medical AI assistant who cannot only do chit-chat. And additionally, we have been trying to commercialize Dr. Dawei in the future the online hospital which will be powered by AI physician I mean it will have will gradually grow so AI power the doctor that way or physician will gradually replace those constitutions with physicians and the moment it's free of charge providing foundational informative information or educating purposes or functionality I mean, in some regards, Dr. Dawei could outperform physicians in terms of the technological know-how. So therefore, we have been proactively transitioning from manual consultation towards AI-powered consultation. But again, we're going to have the physicians do the final check to reveal the results. But overall, we are seeing very positive user experience and feedback from the adoption of Dr. Dawei. And for commercialization of these efforts, we have entered some agreements and we are quickly iterating the functionality. So we're seeing some clear runway for commercialization for Dr. Dawei. Number two, for complex consultations that require top-level physicians, this is somewhere that the consultations cannot be replaced. However, we do see some positive results signs in the capabilities of AI assistant in some regards and gradually AI will be able to offer very informative feedback for the physicians to review. So we are seeing clear visibility or runway for user-oriented scenarios. Next, two doctors have been performing really well. We hope that more of the remote, less developed markets, I mean doctors from or physicians from these areas could use this model or assistant because they definitely need more training to help them make more informed decisions. Therefore, this will be an inclusive AI application for all physicians. Also, commercialization has kicked off. I wouldn't tap into the details. Last but not least, two hospital scenarios. to simply put, we want to create the incremental market for the in-hospital business. And that is moving in tandem with the compliance. We have seen significant potential for this segment. Overall, we have been evaluating Where are the ceilings? Right now, 60 to 60% of the market happen within the hospital. For example, I mean, we're thinking about where we can replace or access outside the hospital, for example, the prescriptions and etc., How long will it take to gradually access these opportunities or scenarios? I mean, it's happening, but not at a very fast speed. Other than these I mentioned, we do devise our own plans to develop incremental market or gain more business from those that are happening in the hospital, but it's a very intricate situation. Nevertheless, our two hospital or hospital-oriented animal product is dedicated to this effort. So that's roughly is the product that we have. but nevertheless I mean these three products can also be introduced to pharmaceutical companies which can help better serve their businesses for the we don't see significant contribution from AI in terms of the retail of pharmaceuticals but over the long run we are seeing that more clearly so that's my overview on how AI on what routes are placed in our ecosystem. Hopefully that answers your question. Thank you. That is very thorough. Next question is from Dong Xi from Ascidic. Please go ahead. Thank you Madeline for taking my question. In terms of our core businesses, we're seeing very solid competitive advantages. do notice that competitors are playing a role of innovative products, solutions, and AI to help with marketing. So as the need, demand, and technology continue to iterate, what are some of the competitive factors or variables that could help GD House stand out? Can you manage to ensure some cover on that? Thank you for the question. Like I said, I mean, from what I see, JD Health or JD has a gigantic ecosystem. There's a self-operated platform and then there's our platform. they have been working seamlessly allowing technologies to be integrated into it to allow us to maintain control of the market reducing the cost while improving the operational efficiency and all of our efforts have been toward that goal in terms of the competitive landscape let me let me answer it from this with an example we are now trying to build in JD Health app or application we didn't invest heavily in this application however a month ago back in that time we launched a program called happy joyful loose have become blockbuster. We have ranked the leaderboard of new app downloads thanks to the explosive users. We wanna say that we have many niche applications. We wanna tap into We use AI as the solution to build a platform attracting more users to our platform to manage their health. So that's one of the examples. There are many apps that focus on losing weight or weight loss thing. We have been exploring functionality Other than weighing yourself, we have been tapping into equipment like Raspberry machine or scale. We have been exploring various means to offer a more, like a better visual experience. We are leveraging AI to do the more visible progress for the user's loss, a weight loss and on that app we introduced many other equipment as well as revisited meditations. It has created a significant or greater user sickness for users and users are constantly staying on the app, browsing within the app. So is it a success already? I wouldn't say but it has proved that we have already provided a platform that integrates all of these functionalities onto one platform. So this case alone has showed very promising results for us. Therefore, for us, we are able to leverage the synergies of supply chain fulfillment and AI capabilities and also coupled with our self-operated platform, we are able to make a lot of progress. And this would help us execute our strategic goals, you know, fine-tuning here and there along the way. So I would say we are very confident that we can make innovations in medical services rather than simply selling products. So hopefully this case could help you understand our strategies when it comes to AI investments. That concludes our Q&A session. Now let's move on to the closing remark. Thank you for your questions, everyone. Before we wrap up, I'd like to share a few closing remarks. We delivered solid results in the first half of 2026. We continued to see strong momentum across our core positive categories with growth ahead of the industry. Our market position strengthened further and operating margin improved year over year for the ninth consecutive quarter. These achievements were driven by economic skills, steady gains in operating efficiency, stronger and easier mind share. Now, let me walk you through the three key areas that shaped our performance in the first half. in our long-term growth trajectory. First, JD Health's differentiated supply chain capabilities are its single greatest advantage in capturing the industry's long-term opportunities. The out-of-hospital pharmaceutical market is entering a long-term growth stage. Online penetration is relatively low. Consumers are increasingly seeking more professional healthcare services, which are highly visible long-term industry opportunities. We have have consistently built our capabilities around core pharmaceutical supply chain strengths. And through years of investment in strengthening our digital healthcare ecosystem, we have established clear demonstrated advantages in supply chain reliability, comprehensive and professional services, fulfillment efficiency, and compliance. This foundation will allow us to further strengthen user mindshare and widen our competitive edge, setting us as to capitalize on the industry's long-term growth opportunities from the strongest possible position. Next, we see significant long-term growth opportunities emerging from healthcare services and AI-powered healthcare. Building on our existing capabilities, we are expanding our healthcare services and offline services offerings. while applying AI across healthcare and various other business nodes to create value for both cost consumers and business owners. These efforts go beyond extending our supply chain capabilities. They also create new avenues for long-term growth. Finally, we have clear pathways for sustaining the profitability improvement, cost efficiency from economies of scale and a stronger supply chain. a more favorable business profile driven by the growth of Bay High Power titular services and continued improvements in operating efficiency. With these in place, we are confident in achieving a high single-digit operating margin over the long term. Going forward, we will remain focused on our long-term strategy and execute with a discipline. We'll further strengthen our supply chain capabilities, enhance performance efficiency, refine our service capabilities, and accelerate efficient AI adoption across our business to create a greater value. We believe that staying committed to creating long-term value for our users and industry will automatically translate into sustainable returns for our shareholders. Thank you all for your continued interest and support for JD Health. Thank you for your questions. That concludes today's conference call. If you have further questions, please contact our IR team. Thank you.