Hello and thank you for standing by for JD.com’s First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today’s conference, Ruiyu Li. Thank you please go ahead.

Thank you, operator. And welcome to our first quarter 2020 earnings conference call. Joining me on the call today are Mr. Richard Liu, CEO of JD.com; Mr. Lei Xu, CEO of JD Retail; Mr. Zhenhui Wang, CEO of JD Logistics; Sidney Huang, our CFO; and Jon Liao, our CSO. For today’s agenda, Sidney will discuss highlights in the first quarter 2020 and other management will join the Q&A session. Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. Now I would like to turn the call over to our CFO, Sidney.

Thank you, Ruiyu. Hello, everyone. Thank you for joining us today. 2020 has been unprecedented year for all of us. As we mentioned our last earnings call, JD.com and its heroic 200,000 strong frontline employees have been a unique force in supporting the livelihood of hundreds of millions of consumers. Helping them to adapt to a new normal under the social distancing measures and making notable contributions to productive and sustainable society throughout the COVID-19 crisis. In that process, we’ve also navigated through all the operational difficulties and the disruptions resulted from the COVID-19 outbreak and delivered a solid set of financials for our shareholders in the first quarter of 2020. We accomplished many impossible missions by leveraging our unparalleled supply chain and logistic capabilities that were invested over the past 15 years as well as a strong corporate culture that cares deeply about our frontline employees, who in turn take great care of our valued customers. Our net revenue grew by 20.7% in the first quarter ahead of our internal expectations as we insured the supply and fulfillment of essential products to our consumers amid this tough environment. The strong top line growth was accompanied by even stronger user engagement. Our active customers in the past 12 months reached a total of 387 million, up 25% from a year ago. The highest growth rate in eight quarter. With 25 million net additional customers on top of an already strong peak season net addition in the December quarter. Similar to Q4 last year, over 70% of new customers in Q1 came from lower tier cities. The lower tier city customers contribute over 50% of our fulfill to GMV [ph] in Q1 which has set a new record. In the meantime, our mobile DAU grew 46% in Q1, the fastest in…

Certainly. The question-and-answer session for this conference call will start in a moment. In order to be fair to all callers who wish to ask questions we will take one question at a time from each caller. If you have more than one question please request to join the question queue again after your first question has been addressed. [Operator Instructions]. We have the first question from the line of Ronald Keung from Goldman Sachs. Please go ahead.

I think this is very strong result and congratulations on the first quarter performance and with the first quarter we’re seeing how JD Logistics supply chain and logistics business proved to be exceptionally resilient over COVID and we’ve seen that there’s over 50% revenue growth for the logistics and others revenue line in the first quarter. So would like to hear, can management just outline some of the growth drivers and margin outlook for the logistics business particular and beyond fulfilling the first-party 1P retail orders, are there any plans to fulfill more of your PP marketplace and even CMC [ph] orders and what do we see as other opportunities beyond serving just within the JD Retail Group. Thank you.

Thank you, Ronald. So I’ll start and then maybe Zhenhui can add on. So the logistics business enjoyed great brand recognition amidst the COVID-19 situation. We were widely recognized by the consumers but also by the government. We were awarded multiple actually awards across the region. So very, very strong performance and along with that we absolutely attracted some new customers during the pandemic because of the resilience of our operations. But as B2B business - the impact of the brand enhancement will not come immediately. So there will be lasting effect of that positive impact. But in Q1, we did see pretty strong demand from the existing clients and also new customers outside of the JD ecosystem. And as I mentioned earlier, the productivity of our logistics team was exceptional. In fact the cost per order reached the all-time low during the first quarter because the order volume spiked unexpected daily and our team frontline workers as I highlighted earlier, I used the term heroic because not only they were highly productive. But they’re also very brave to fulfill the orders for consumers amid a lot of uncertainties. We of course also provided all the necessary safety measures to protect our employees, who in the end really didn’t get harm throughout the pandemic situation, that additional productivity helped our overall margin in Q1 on a year-over-year basis. This is the business that build on scale, so as we continue to grow in scale our margin will naturally trend better and the business has been positioned to attract external customers. I did mention earlier, in Q1 our external revenue actually contributed more than 40% this year at this quarter. So it’s another milestone growth for the Group.

[Foreign Language] This is Wang Zhenhui on JD Logistics. I want to add a few things. [Foreign Language] And as Sidney just mentioned the experience actually including our staff experience is always a core of our business and during the very special time. The safety and health of our frontline logistics staff they are the first priority who are to operate and during this time, we provided over 10 million masks and 70,000 gloves and all kinds of protective gears to our logistics staff to ensure they’re working in relatively staff environment. [Foreign Language] And in addition to that we have brought over 70,000 thermometers and over 10,000 disinfectants etc. in all different place to ensure the operational safety at first place. [Foreign Language] And with epidemic situation getting better. JD Logistics is some of the first and actually in some areas is to only logistics company our JD couriers can deliver of a product to door to our customers and the trust us, we manifest trust we have built among other customers, our communities and government and this is also very helpful for us to gain more external orders and increase revenue services to all our clients. Thank you.

[Foreign Language]

Thank you. We have our next question from the line of Alicia Yap from Citigroup. Please go ahead.

Congratulations on the strong results and guidance. My question is, could management elaborate how we should reconcile the strong guidance you provide versus the current macro situation and the consumption sentiment? How much of the outperforms are driven by the consumption stimulus and the consumer wanted to buy more things coming out of the COVID or was that the benefits that we’re seeing from the offline to online shift. How sustainable is this strong momentum into the back half of the year? Do you anticipate the demand to be normalized? Thank you.

Okay, so I’ll - it’s Sidney I’ll give first shot and then maybe Xu Lei can add. Yes so, we have observed is that when the pandemic situation was highly uncertain and social distancing was at the most strict time. There will be a huge spike in orders for fresh products and other daily necessities. And as I mentioned earlier, we’re now the largest omnichannel supermarket in China. So we are here to benefit from the increasing demand from this category essentially people will be cooking at home and so that will increase the overall demand for fresh and supermarket sales. Also online and offline and so that will benefit but it will be some offset by slower growth from the discretionary categories as we have seen. Now that the country is gradually opening up and everyone is resuming to work. We do start to see pent up demand on the slower categories starting in March and particularly in April and May as I mentioned we’re actually seeing accelerating growth over the past three months. So that is in a relatively good scenario. Our strong categories will start to recover and at the same time because of the cautious measures still be undertaken by the majority of the consumers for example, you still don’t see many people in restaurants. So most people still will cook from home. So that will continue to create higher than normal demand for the supermarket product category. So and really depending on the development of the COVID-19 situation in either direction our business because we’re full category retailer and we have - we cover all the major categories particularly the consumer staples. So we are in a position to grow regardless. So that will be my take. A –Lei Xu: [Foreign Language] Xu Lei from…

[Foreign Language]

Thank you. We have the next question from the line of Tina Long from Credit Suisse. Please go ahead.

I want to follow-up on the lower tier of penetration because now as Mr. Xu Lei [ph] just mentioned that. We have [indiscernible] and recently I also noticed that we have [Foreign Language] or JD Lite [ph] and also, we do have probably over 10,000 of JD [Foreign Language] stores in lower tier cities. So and also, we sort of gave the first level access point of WeChat’s to these businesses late last year. So I want to know first of all from each apps we just talked about and also including those offline shops what kind of product offering we tend to acquire those lower tier city users and also the contribution from the newly sort of upgraded access point, how much of our user contribution actually come from the WeChat actually when sort of give access to [Foreign Language] that of JD. Yes, thank you.

[Foreign Language] Let me just share some of our operations and our observations on middle tier market. [Foreign Language] The first off in building different shopping scenarios and places we will not rely on any single shopping scenarios besides JD platform which is targeted to the lower tier customers. We will also use all the paying sites to algorithm to play a role in expanding our shopping scenarios. [Foreign Language] And just to relatively frankly speaking for Q1, the JD platform in February and March was affected by both spring festival and epidemic situation. [Foreign Language] As you can see on the earnings calls result. On JC platform the percentage of our users and our GM [ph] base are going very healthy so we’re also adapting different measures to go down into the lower tier market. [Foreign Language] And with the situation of the epidemic getting back here now the operation of Jhingsi [ph] come back to the normal the level before spring festival. And in the meantime, we also identified several opportunities for Jhingsi [ph] to grow. First of all, due to the epidemic impact actually a lot of factories who originally produced commodities for export now is looking at domestic sales opportunities and Jhingsi [ph] can find good ways to collaborate with them to help the factories to transform their business and at the same time, Jhingsi [ph] had lot of jobs to support the farmers, to sell their agricultural produce and with this and through live streaming and different ways and at the same time with social responsibility we’re performing to help the farmers etc. [Foreign Language] And another second scenario is we have is our offline stores. We have franchise stores of home appliances, consumer electronics and convenience stores etc. and all this physical offline stores are playing a very important part - to go down to the lower tier market. [Foreign Language] There’s just ways to create shopping scenarios we’re also bringing our products down to the lower tier cities with our featured end products and cell phone brands and what’s difference in [indiscernible] to leverage all kinds of resources to collect with the merchants and the makers etc. to meet the need and tailor the need of the local market. But only through building different shopping scenarios and making tailor made products with combined efforts we can achieve the current accomplishment. Thank you for your questions.

Thank you. We have our next question from the line of Jerry Liu from UBS. Please go ahead.

My question is about margins. If we look at the first quarter net margins were quite strong actually reaching a level we saw throughout 2019 despite COVID and earlier we talked about some of the investment areas. Actually maybe improving ahead of schedule, so as we look forward do we see opportunities where we want to step up reinvestments of some of these profits into other areas or do we want to let margins continue to rise a little bit higher. I know management has talked about this long-term target in the past of maybe even high single-digit margin. So just want to get a sense of the appetite for reinvestment of letting the margin come up a little bit. Thank you.

Yes, sure. Jerry. This is Sidney. First of all there are still a lot of uncertainties due to the COVID-19 situation. But clearly, we will act on the increasing customer base the enhanced user engagement will definitely continue to invest as we have always done to seize the opportunities. Should I mention earlier about June 2018’s [ph] festival which will be a great opportunity for us to work with brands, work with suppliers to really make up for the lost sales for everyone in Q1 due to the pandemic. So we will put in our share for sure, not only to drive growth but also to support the recovery of the overall from a society point of view clearly it’s also great opportunity for us to retain the new customers we acquired and also to continue to view consumer behavior for multiple categories that we have gained so much in the past three months. So I guess the short answer is we will as always continue to reinvest. We will continue to keep an eye on the margins as you can see what we did in Q1. It is in uncertain time, we will remain very, very disciplined. But on the other hand, we will never stop investing in our customers. We’ll never stop investing in improving the user experience and to that end, the investment will always continue.

Got it. Thank you.

Thank you. The next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Congratulations on very strong set of results. I have a question, it’s about our supplier. We have quite a lot of supplier to pass through the challenging situations. Can management comment about the environment of the suppliers in China? How long do you think our suppliers will be back to normal? And the support measures that we provide to them, will we step up the efforts to help them improve the situations or do we expect they will recover in the second half. So there is more relating to the free cash flow side, should we expect free cash flow to turn positive in coming quarters. Thank you.

Okay, I’ll first give a shot. Just on the support to new suppliers. It happened mostly in February and maybe in early March when the pandemic was in the most severe situation when the whole country was locked down. But I think fortunately the control is quite effective. So by March there were very few new cases, so many factories and producers had already started to resume work especially for the essential categories. So from our overall assessment on our suppliers because we work with leading brands across the country. So most of them are back to work, their cash flow has resumed somewhat back to normal. So towards the later part of the quarter, there were more prepayments rather than basically just to cure sought after merchandize and is to a less extent just to payable earlier. So I think overall the financial health of the suppliers we work with they’re mostly net to large suppliers and brand owners and financially they’re quite sound. There may be for the small-medium enterprises there maybe issues. So that’s why for our Jhingsi [ph] business Xu Lei that there were some slowdown but we’re also seeing the activities picking up. So overall we’re cautiously optimistic now on our free cash flow we do expect its gradual return to normal. But on the other hand, just stay alert about potential future W shape for example scenarios. So cash flow will remain to be a focus for us as well. Free cash flow should be a function of our overall bottom line but we do expect free cash flow to perform better than our net profit as we did last year.

Thank you, Sidney, for the detailed answer and congratulations again.

Thank you.

Thank you. Your next question comes from the line of Eddie Leung from Bank of America. Please go ahead.

Congratulations on a good quarter amid difficult time for improvement. A bigger picture question given the strategy and aggressive tactics some of our competitors, so do you see a risk to the industries long-term margins, if not, why not? Thanks.

I think we have as I mentioned in my earlier remarks. We have been as aggressive as we could in our right. We have been investing heavily and in all of the categories. Before we subscribe, provide the best value on top of the best service. So that’s why I mentioned also earlier in response to Jerry’s question that we will clearly also step up our own investments given the relatively strong performance basically given back to our consumers as we always do. And when we do that, we also work with brands and in a joint effort in those promotional activities and top of everyday low prices. So the fundamental driver for our margin, I can’t speak for others. The fundamental driver for our business is from the economies of scale because as we continue to grow, we can gain more and more procurement benefits some stay forward as volume base rebates others could be in the form of customized models and private label product. So a lot of those tools will become available once you’re the largest retailer in the category. So we will not be affected by the others in the industry, which is a trend you have been seeing over the past few years because every year if you recall every year there’s the reason to believe the competition is stronger. Every year there is the reason the competition become more fierce. But we continue to perform pretty well and with growth not expirating [ph] and margin expanding.

Thank you very much.

Thank you. We have our next question from the line of Gregory Zhao from Barclays. Please go ahead.

Congratulations to strong quarter. So really quick one, so we know large majority of the products are produced by the local manufactures. So but you still have portion of products are in project for over the market? So as the pandemic is still ongoing in the rest of the world, how shall we think about the impact to our imports and the cross-border business? Thank you.

[Foreign Language] For JD are very fundamental and the highly well-known categories is our electronics and PC segment. [Foreign Language] And for the home appliances categories the supply chain was not heavily affected by this Coronavirus but a select driver is more from the demand side because these products won’t be delivered and in-store next door. [Foreign Language] And so the mobile phone categories it’s development will be not detailed, will not be heavily affected, in the later quarter as well and so major impacts on these category is 5G new products released they’re going to be launched in the first quarter has now been postponed to be launched in this quarter so you will see new products of 5G phones release in April and May. [Foreign Language] And for this IT category, this will be having a more impact from the global supply chain especially if you see some storage pieces, the supplies and the prices are going up, however thanks to our market share online, offline on the Chinese market. We will strengthen our collaborations with our brand partners globally and to cure our leading positions and against all the odds of the Coronavirus. [Foreign Language] And for some categories which may help them are from overseas during to import mom and baby products, cosmetics and all of these their impacting the first and the second quarter is not very big. But there’s uncertainty on the first quarter and this will mainly depend on the epidemic situation in the manufacturer region.

Thank you.

Thank you. We have our next question from the line of Eddy Wang from Morgan Stanley. Please go ahead.

Congratulations on the great results. So I have a question regarding the pricing in the marketplace revenue. Well we understand that in the first quarter because of the COVID-19 they have an activity impact on the part of the revenue in terms of revenue growth. So have you witnessed this strong recover especially in terms of the pricing revenue from the third-party merchant in the second quarter so far? Thank you. A –Lei Xu: [Foreign Language] This is Xu Lei. We received results in 2019 in the advertising market it only achieved single-digit. But the interest advertising has taken a deeper share. [Foreign Language] And in this Q1, the overall Chinese market advertising revenue is negative growth and for those trends advertising also negative growth. [Foreign Language] And what made our JD Advertising business different and first of all, where other advertising services is highly integrated with branding advertising and the sales because we’re very close to the customers shopping. And secondly, among all other advertisers there’s a lot of that are from SME however to just give actual value there’s a very heavy investment from the large and medium size companies. [Foreign Language] And thanks to all these factors, we have seen ROI for our advertisers and our merchants are actually growing up and this in turn has given them much higher up value and during this epidemic special period of time JD has become a very important places for those medium and big size enterprises especially those brands partners favorite place to place their advertisements. [Foreign Language] Hence with COVID session getting better we have seen that the SMEs are being more active on the advertising transactions. And the difference that actually the SMEs they have even higher requirements on their ROI and among all the Chinese ecommerce platforms and JD reach out in providing the ROIs and relatively speaking I believe for some ecommerce platform that is not delivering good ROI results. We’ll have a very big pressure this year. [Foreign Language] So overall we’re satisfied the performance of our advertising business from performance for Q1. Thank you.

[Foreign Language]

Thank you. We have our next question from the line of James Li [ph] from [indiscernible] please go ahead.

Can you give us an update on the state of the regulation for online pharmacy here and help us understand a little bit how you’re working with the government and hospitals to drive the adoption here? And also maybe during your experience of COVID-19, what gives you the confidence that user behavior that you’re seeing will remain and how are you uniquely positioned to take advantage of this category? Thanks. A –Lei Xu: [Foreign Language] Xu Lei. I would like to give you a brief introduction on our JD Health development. [Foreign Language] Because of the epidemic outbreak, it gives us opportunity for such growth of our JD Health. [Foreign Language] And this is such a young team and young business and they have contributed a lot to the society to fight against Coronavirus we have been providing to ensuring the supplies of all kinds of medical materials and to provide free online medicine consultations and do the [indiscernible] spread knowledge about the virus etc. so they’ve really done a lot of great job. [Foreign Language] And besides normal business for providing medicines and drugs. We have also done a lot to provide the health services. We have experienced an explosive growth on the online medical consultations and also, we are the first telemedicine platform to provide the Coronavirus nucleic acid testing services which is very useful workers who are waiting to come back to work. [Foreign Language] And in terms of our customers, so those young customers and the telemedicine is not very easy thing to get used and we’re still in COVID situation it’s very helpful for us to be knowing and used by the senior people over 50, 60 years old. [Foreign Language] On the govern policy side, we’re doing the opening of the online payment of the medical insurance and this will greatly promote the development of telemedicine and online health services. [Foreign Language] With all this assisting those hospitals and pharmacies and all this related players, they’re also actively embracing the internet. [Foreign Language] And develop a position of JD Health is to leverage our core capacities on supply chains and to provide our health services with other technologies to provide a whole life users services for customers. [Foreign Language] And for the next step we’ll continue to strengthen our supply chains on the medicine and drugs and improved all the abilities on health services. Thank you.

And if I could ask a follow-up question maybe to Sidney about the long-term margins, so the aligned pharmacy business how should we think about that in relative to your other categories? Thanks.

Yes, so if you look at when we looked into this space. If you look at the offline pharmacy financials. What’s interesting is that, this sector has roughly 40% gross margin but with very high expense ratio of over 30% and here we actually saw very similar pattern as our electronics home appliance business where I mentioned earlier that our expense ratio is 50% lower than the leading offline players and here for healthcare our expense ratio was also significantly lower probably 10 percentage point advantage versus the offline pharmacy. So this also give us the ability to provide the best value and best service to our consumer so that is why our pharmacy business has been quietly growing tremendously over the past few years and it leverages our, as Xu Lei motioned we have existing customer base, we have the consumer recognition of JD as a trusted platform which is quite essential for healthcare services. So that trust element, the fulfillment reliability, the speed and our value proposition meaning we can provide lowest price. All that combined is a great combination because of our cost structure driven by technology, our cost structure is lower but we can also have a decent margin for this business. So this is where we are already and we’re seeing as I mentioned tremendous growth with this fundamentals economics basically underlying our business model here.

All right, thanks so much.

Thank you. We’re now approaching the end of the conference call. I would now turn the call over to JD.com’s Ruiyu Li for closing remarks.

Thank you, operator. Thank you for joining us. Please don’t hesitate to contact us if you have any further questions. We’re looking forward to talking to you in the coming months. Thank you.