JD Health International Stock

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the JD Health International 2026 Interim Results Conference Call.

[Operator Instructions]

Please note that both management's presentation and the Q&A session will be conducted in Mandrin simultaneous English interpretation will be provided by a third-party interpreter throughout the call via the English channel, which will remain in listen-only mode for the duration of the call.

I 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. Dong 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-IFRS 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 6 months ended June 30, 2026 is issued 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 continuing to advance the quality development of the health care industry. Our total revenue reached RMB 40.9 billion. Our non-IFRS operating profit was -- income was [ RMB 3.5 billion ] up 40.3% year-over-year. Notably, non-IFRS operating margin expanded by 1.5 percentage points to 8.5%, marking 9 consecutive quarters of the year-over-year.

Product revenue increased 15.6% year-over-year, reaching RMB 33.9 billion in the first half of the year with the core [ molecule ] categories maintaining industry-leading growth in pharmacy on top of the faster Q1 growth, we also maintained faster growth in dermatology, oncology, endocrinology, cardiovascular health and [ metabolical ] health. We have leveraged our omnichannel networks and professional forms of operations. We have launched the 65 new drugs on our platform in the period.

So as the first go-to option has deeply been embedded in people's mind share. In supplements, we have been focused on branding coupled with our compliant promotional efforts also competitive advantages. We have created a certain growth runway in medical devices based on our user insights and also direct supply chain, we have customized a few new customer devices and also AI-powered services in at home health management.

Our service revenue in this first half of the year was RMB 7 billion with the share of the total revenue continues 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% year-over-year. We also deepened partnerships with Novo Nordisk, Innovent Biologics, CR and Organon. Innovative collaborations in areas as new drug launches, academic and marketing, intelligent, patient management services.

We'll also continue to expand a new health care service offerings and deepen the integration of online and offline operations as of the end of June, JD Pharmacy had expanded suppressant to more than 450 stores across 10 cities nationwide, working in tandem with the JD Instant Delivery services. We also diversify our payment channels. We have extended that medical insurance payment services to 11 additional cities bring the total to 40 cities. In offline scenarios, we continue to broaden our health care offerings, in Beijing, we actually opened our first integrated health care center, integrating fiscal examination, dental care and medical services also expanded home care and at home rapidly testing. This is further strengthening our end-to-end consultation examination guidances and pharmacal services ecosystem. We also focus on enhancing operational efficiency through a more refining management practices.

Our gross profit was RMB 10.6 billion for the period. Gross margin improved 0.9% year-over-year to 26.1%, marking 9 consecutive quarters of the year-over-year. Procurement cost optimization was constantly increasing. Non-IFS our fulfillment expense ratio was 10%, flat with the same period last year. We have been fulfilling -- making user experience. So we increased the fulfillment costs. However, the economies of scale has been increasing, has been largely offset the social incremental costs and fulfillment.

In first half of 2026, the non-IFRS marketing expense ratio improved by 0.5 percentage points year-over-year to 4.6%, mainly attributed to more targeted marketing strategies and enhanced spending efficiency. Non-IFRS R&D expense ratio was up 0.2%, now at 2.3%, was reflecting our average investment in AI. We are iterating our Qianxun functionality. Also, we are introducing its application across different scenarios and focusing on user experience. The AI agent, Dr. Da Wei continued to gain traction. Its user base has increased by 4x, driving the higher product purchase conversion. Also the JINGDONG Jingyi for doctors has been fully integrated in the JD Health online hospital and embedded in doctors' online clinical workflow supporting decision-making and improving efficiency.

Non-IFRS management improved -- is around 0.7%. Operating efficiency also is leading in the industry. In the first half of non-authorized operating income grew 40.3% in the year to RMB 3.5 billion in the first half of 2026. So the interest or finance income was around [ RMB 840 million ]. That was mainly due to the fluctuations in the fair value changes in the wealth management products. Non-IFRS net margin was up 8.5% at around RMB 3.9 billion. The net cash generated from operating activities was RMB 4.46 billion. As of June 30, cash and cash equivalents, restricted cash term deposits with management products totaled RMB 71.5 billion, an increase of RMB 2 billion from the end of 2025.

We have repurchased shares worth HKD 840 million. We have canceled all of them. thanks to the continuous rise in profit and also robust cash position will continue executing our share repurchase program.

In summary, JD Health deliver high-quality growth with the study enhancements in operating efficiency and profitability. Looking ahead to the next year second half, we are able to maintain and confident to maintain better than industry growth further solidify our position as the largest online pharmacy retail platform. And also, we'll continue to strengthen our AI power supply capabilities and maintain disclaim the investments in AI. And we -- we look forward to return the benefits for our shareholders.

And that concludes my operating remarks. We are now open for questions.

[Operator Instructions]

The first question comes from BofA, Miranda.

I was wondering the growth trends for the 3 key categories, some short-term and near-term factors affecting the growth? And also in Q2, we maintained an accelerated growth in pharmaceutical product 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 deployments, what kind of trends 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 is a prerequisite, selling pharmaceutical product or medication is not an easy feat, far more challenging. I mean, to do it well, there are 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 most up-to-date and comprehensive and they have to be tenured and with better prices. I mean to achieve that, it takes years of efforts. So that's -- it's reflected in the supply chain abilities. 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 through robust supply chain capabilities.

Secondly, you have to prove a strong fulfillment capability. So that means you're nationwide network has to be complete I mean, covering a majority of the regions in China, particularly in those remote and also less developed regions. So we make -- so there are still excess 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 I said, we are even making our medicine accessible, available to prisoners. I mean they need medications, and we are able to make it happen. So that is an example that shows you that JD Health is mind share. We are having a very good performance in both the 2B and 2C front.

And number four, we have to have a well-established medical or health care 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 so as to reduce the barriers to sell the drugs.

Number five, we need to be regulatory [ compliant ]. 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 relators pushing the industry to grow healthily. This takes a lot of effort. So these 5 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 the deal. I mean it takes decades of efforts to invest to accumulate. However, once you are able to possess or build those advantages, they can form a very competitive moat 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 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 this has been an industry that has been regulated heavily by the policies or regulators. There have been constant corrections. And we have been a compliant 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. Yes, short-term wise, we are seeing some headwinds it's performing less than we have expected. But again, we have to look at the long run, we are gaining this share in nutrition and supplement market. So some of the impacts that we see, first is a fake overseas brands, which has been reported by CCTV and some other programs. And second, the clear defined categories, and there has been some regulatory efforts going on, but it favors us. Over the past few decades, I mean, looking at how the market grow, we are seeing that the marketing getting more increasingly regulated. I mean, this is a process where the true, genuine competitive companies will stand out.

So there is going to be an increasingly more domestic substitution. So some of the domestic players would like to leverage the reputation of an overseas brand, and they are conducting fraudulent sales, I mean, towards the senior cities. And 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 competitive players. So we are seeing the same landscape or same situation for nutrition and supplement. And we have to build our fulfillment capabilities, supply chain capabilities for JD Health and we have a strong reputation and we got the medical and health care service capabilities as well as the compliance.

So with a better user experience, we can gain further market share in 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, 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 in the industry towards more healthy trajectory. And we definitely expect 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 black list? And what are the list of products that can be developed from the domestic substitution perspective.

Outlook wise, we are 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. Medical equipment has contributed the most. I mean in the past, if you followed us long enough. However, we are seeing that the other segments are growing faster slightly than medical equipment. But nevertheless, medical equipment is still a very promising sector. Even the aging society and also the nursing requirements, this is definitely a segment where we can onboard more merchants 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 3 categories.

Also I touched briefly on regulations. Hopefully, that answers your question.

Your next question comes from Henry from UBS.

I am Henry from UBS. I got 2 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 and over the longer term?

Second question is on the repurchase. And also an update on the company's 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 has been coming down. Overall revenue is growing faster in profit over the past 3 years. It's actually maintained a 30% CAGR growth. And looking ahead, we are confident in sustaining the growth momentum. At the moment, there's a still great potential for us to improve the gross margin for high frequent products, there's -- it comes with -- 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, it's -- I mean, it makes sense. For the health care sector, which needs a lot of efforts and care, I think there has been a 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 translated into our economies. You can see that the gross profit of various segments have been improving. So overall, we are confident in maintaining the momentum 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 4-year share repurchase program of up to USD 1 billion. Over the past quarter, we have repurchased a over [ RMB 840 million ] or USD 110 million, and we have canceled all of these shares repurchased. So with the continued improvements in profitability and a 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 growth in both revenue and profitability.

Creating long-term value and delivering returns to our shareholders.

Your next question comes from Lincoln Kong at Goldman Sachs.

management for taking my question. Congratulations on the excellent results in the first half sections on AI. Our AI assistant has been integrated across the full spectrum of your health care services. How does management see AI creating value for the company's core business.

Also, as mentioned that AI Da Wei's penetration is accelerating. So how do we expect AI to primarily due by cost and efficiency improvements? And how could it also become a new source of revenue? And also what are some of the different 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 cannot only reduce costs and improve efficiency it can also become a stand-alone business, creating business and 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 to take 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, applying that across our de-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 health care service sector, it can be a stand-alone business, and that's how we position AI internally. And this is where we have been working towards.

Well, at the moment, can we prove that it has already become a stand-alone business that yields tangible results? I cannot say that for sure, but I would say we are halfway through. Let me break it down for you. As a stand-alone 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, trying to build a reputation. From day 1, it has been clear to us that how we need to create synergies between AI and other existing businesses to create further value.

And if you look at more -- on a higher level for customer or user-facing AI. We have an AI called Dr. Da Wei, which is a male, 50-year physician, as the persona, it has gradually been replacing the consultations with the human or physicians. We're seeing adoption. Rather than a chit-chat, chat robot, we seriously position as a medical AI assistant who cannot only do chit-chat.

And additionally, we have been trying to commercialize Dr. Da Wei. In the future, the online hotel, which will be powered by AI agent -- AI physician. I mean we'll have -- we'll gradually grow. So AI powered Dr. Da Wei or physician will gradually replace those consolidations with physicians. At the moment, it's free of charge, providing foundational informative information or educating purposes or functionality?

I mean in some regards, Dr. Da Wei could outperform physicians in terms of the technological know-how. So therefore, we have been proactively transitioning from menu consultation towards AI powered consultation. But again, we're going to have the physicians do the final check to review the results. But overall, we are seeing very positive user experience and feedback from the adoption of Dr. Da Wei.

And for commercialization of this effort, we are -- we have entered some agreements, and we are quickly iterating the functionality. So we're seeing some clear runway for commercialization for Dr. Da Wei.

Number two, for complex consultations that require top level physicians. It this is somewhere that the consolidations cannot be replaced. However, we do see some positive signs in the capabilities of AI systems in some regards. And gradually, AI will be able to offer very informative feedback for physicians to review. So we are seeing clear visibility or runway for user-oriented scenarios.

Next to doctors scenarios which is our AI product is called Zhuoyi. By benchmark score, we 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 decision. Therefore, there will -- 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, 2 hospital scenario. Our product is called [indiscernible]. 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, [ 50% to 60% ] of the market happened -- 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 et cetera, but 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 2 hospitals or hospital-oriented AI remote product, Zhuoyi, is dedicated to this effort. So that's roughly is the product that we have.

But nevertheless, I mean, these 3 products can also be introduced to pharmaceutical companies, which can help better serve their business 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 or what role it plays in our ecosystem. Hopefully, that answers your question.

Next question is from [indiscernible] at Citic.

In terms of our core businesses, we are seeing very solid competitive -- better advantages. Nevertheless, we do notice that competitor competitors are playing a role of innovative product solutions and AI to help with the marketing. So as a need demand and technology continue to iterate. What are some of the competitive factors or variables that could help JD Health stand out. Can management share some color 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 costs, while improving the operational efficiency. And all of our efforts have been towards that goal. In terms of the competitive landscape, let me answer it on this with an example.

We are now trying to build a 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 Weight Losing and gain and has become blockbuster. We have ranked the leaderboard of new app downloads, thanks to the explosive users. We want to say that we have many niche applications. We want to tap into health care management and medical services. We use AI as a 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 are focus on losing weight or weight [ losting ]. We have been exploring functionality other than weighing yourself. We have been tapping into equipment like respiring machine or scale. We have been exploring various means to offer a more -- like a better user experience. We are leveraging AI to be a more visible progress for the user's loss, weight loss journey.

And on that, we introduced many other equipment as well as related [indiscernible]. It has created a significant or greater user stickiness 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 1 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, 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 remarks.

Thank you. for your questions, everyone. Before we wrap up, I would like to share a few closing remarks. We delivered solid results in the first half of 2026. We continue to see strong mote across our core parties 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 user mind share.

Now let me walk you through the 3 key areas that shaped our performance in the first half and our long-term growth trajectory. First, JD Health differentiate the supply chain capability are its single greatest advantage in capturing the industry's long-term opportunities. The out of the hospital pharmaceutical market is entering a long-term growth stage, online penetration remains relatively low. Consumers are increasingly seeking more professional health care services, which are highly visible long-term industry opportunities.

We have consistently built our abilities around the core pharmaceutical supply chain strengths and through years of investment in strengthening our digital health care ecosystem, we have established clear and machined advantages in supplying reliability comprehensive and professional services, fulfillment efficiency and compliance. This foundation will allow us to further strengthen user mind share 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 health care services and AI-powered health care, building on our existing capabilities, we are expanding our health care services and off-line services offerings, while applying AI across health care and various other business or to create value for both consumers and business funders. These efforts go beyond extending our supply chain capabilities. We also created new avenues for long-term growth.

Finally, we have clear pathways for sustained profitability improvement, cost efficiencies from economies of scale and a stronger supply chain, a more favorable business profile driven by the growth of AI Power Digital 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 the discipline will further strengthen our supply capabilities to enhance performance and efficiency within our service capabilities and accelerate efficient AI adoption across our business to create greater value. We believe that staying committed to creating long-term value for our users and in this history will ultimately 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.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Health International Inc. 2025 Annual Results Conference Call. [Operator Instructions].

I will now turn it over to [indiscernible], Head of Investor Relations.

Thank you, operator. Good day, ladies and gentlemen. Welcome to the JD Health 2025 Annual Results Conference Call. Joining us today are JD Health's Executive Director and CEO, Mr. Dong Cao; and CFO, Ms. Deng Hui.

Before we start, we'd like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement. In this discussion, the company does not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and the reconciliation of IFRS to non-IFRS financial results, please refer to the annual results announcement for the year ended December 31, 2025, issued today.

For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management's statements in the original language will prevail.

I would like to turn the call over to Mr. Dong Cao. Please go ahead, sir.

Hello, everyone. I'm Cao Dong, CEO of JD Health. It is a pleasure to share with you our 2025 full year results. In 2025, China's economy maintained a steady and resilient momentum in industrial foundation for company's continued development. The government actively promoted development of new quality productive forces in the health consumption sector and encourage the standard adoption of AI across the health care sector, charting a clear path for long-term sustained growth. 2025 marked the return of JD Health's return and profit to a trajectory of rapid growth, further reinforcing our positioning as a market leader. As industry-leading health care service provider, we continue to deepen our presence across key health care segments through our omnichannel, super pharmaceutical supply chain infrastructure, comprehensive AI-powered online health care service capacities and the full life cycle health care management ecosystem.

We remain committed to delivering accessible, convenient, high-quality and affordable health care products as well as our solutions. In 2025, we continued to capitalize our super pharmaceutical supply chain advantages and industrial direct sales capacity building AI-enabled full-scenario healthcare services ecosystem that supported sustainable high-quality growth.

In fourth quarter, revenue reached RMB 21 billion, representing year-over-year increase of 27.4%. Non-IFRS reached RMB 1.1 billion, up 13.5% year-over-year with margin of 5%. For 2025, our revenue reached RMB 73.4 billion, representing year-over-year about 26.3%. Non-IFRS profit totaled RMB 6.5 billion, up 36.3% year-over-year with our non-IFRS profit margin 8.9%. Notably, we delivered revenue growth of more than 20% year-over-year for 4 consecutive quarters, while our full-year non-IFRS profit margin reached its highest level ever since IPO in the pharmaceutical sector.

Leveraging our supply chain strength, we continue to gain from partnership with pharmaceutical companies as the first online marketplace for new and specialty drug launches. We introduced more than 100 new drugs during the year, a significant growth from 30 in 2024. Taking the DAYVIGO as an example, this flagship collaboration between Eisai and JD Health exceeded 20,000 orders in launch month alone.

At the same time, by working closely with pharmaceutical companies to promote innovative integrated consultation, pharmaceutical and service closed-loop model, we are strengthening those partnerships and establishing a novel health care ecosystem that supports comprehensive collaborative relationship. For instance, we established strategic collaboration with Novo Nordisk, drawing on omnichannel expertise in chronic disease management and treatment solutions together with JD Health [indiscernible] in healthcare service. We jointly established a dedicated public health hub on obesity. This initiative supports a one-stop diagnosis and treatment and medical solution for diabetes and drug [indiscernible].

We also formed a strategic partnership with Eli Lilly to promote the innovative digital health solutions for patients in China who are living with obesity and type 2 diabetes or alopecia areata. Those solutions integrate patient education, live consultation, medical supply and long-term disease management.

In health supplement, we fully harnessed our direct sales capacity, actively engaging in product co-development, supply chain structuring, professional service enhancement and industry standard setting to reinforce our platform central role across our value chain. By focusing on the senior nutrition, child development, beauty supplements and ready-to-consume nutrition products, we have helped the brand partners to achieve sustainable long-term growth.

For instance, while the standard deep-sea fish oil market strategy matured, we identified the growing consumer demand for high-purity, high adoption products with significant untapped potential. Based on this insight, we worked with [indiscernible] to develop a premium fish oil product tailored to market needs to tap the high-end segment, featuring 97% of high-quality EPA. The product garnered over 15 billion impressions on its launch date on JD Health's platform.

In medical device, we fully integrated our supply chain strength to build a seamless online-to-offline service loop, driving industry-wide upgrades through the ongoing technological innovation, for instance, in collaboration with Yuwell Medical, we launched the JD brand continuous glucose monitoring on our platform, which can be connected directly to JD Health's app via Bluetooth to deliver integrated blood glucose management experience, covering monitoring, analysis, intervention and tracking. For users who require device setup or configuration systems, we offer in-home support with health care professionals providing hands-on guidance through the process.

In response to national initiatives to foster new quality productive forces in the health, we provide the capacities and medical AI solutions to a wide range of ecosystems. We aim to enable high quality and sustained development such as the Dr. Da Wei and a suite of multi-role intelligent service agents, AI doctor digital twins, and AI health chatbot, Kang Kang. At the end of 2025, Dr. Da Wei has completed hundreds of millions of interactions.

The JOY DOC 2.0 version comprehensive management solution spanning 3 key areas: clinical nutrition, pharmaceutical services and weight management. This product provides health care institutions with standardized traceable and highly efficient digital intelligent support. We work together with the First Affiliated Hospital of Wenzhou Medical University and Union Hospital of Tongji Medical College to cover 5 million patients in 2025.

Our on-demand retail business also achieved breakthrough through the year. We continued to expand the online medical insurance payment services as well. We have been expanding coverage to 29 key cities. By 2025, we have established more than 300 self-operated pharmacies nationwide. By integrating those stores with our on-demand retail business, we have further differentiated our product offerings and enhanced the overall user experience. Additionally, we continued to strengthen our integrated online and offline medical services.

JDH's at-home rapid testing service maintained strong growth momentum with full year order volume increasing by 81.9%. Our at-home rapid testing service pioneered a hospital-grade home testing service during the year, extending the professional practice of hospital laboratories into the home setting, processing for cities including Beijing and Shanghai. This service exemplifies the deep integration we have achieved across our supply chain and digital platform strength and the professional medical expertise of the public hospitals during the peak respiratory seasons. It effectively eases hospital congestion, shortens patient visit time and lowers the risk of cross infection caused by JD Health service basket and digital coordination system. The process from sample collection to delivery takes an average of 3 hours and can be completed seamlessly with the app.

Looking ahead, we will continue to strengthen our super pharmaceutical supply chain advantages centering on user experience, cost and efficiencies. By capitalizing our direct sales capacities and deepening collaboration with brand and ecosystem partners, we further cement our leadership in the health care retail market and reinforce user awareness of JD Health as a go-to platform for online health product services. At the same time, we will continue to advance technological innovation in AI applications, empowering our integrated consultation, examination, diagnosis, pharmaceutical service, closed-loop through an AI plus supply chain strategy and supporting the high-quality growth and sustained development of the broader health care sector. By steadily expanding our health care ecosystem service scope and consistently enhancing our integrated online and offline medical services, we will share better experiences to the business.

Now please welcome CFO, Ms. Deng Hui, to share details of financial performance.

Good to see you. Thank you for attending and joining the JD Health earnings conference call. This is Deng Hui. It is my pleasure to provide you update on our fourth quarter full year 2025 financial performance. In 2025, China's macroeconomic landscape continued to show a cost recovery trend, showing new development opportunities. For AI-driven health industry, JD Health actively responded to a policy directive of fostering new quality productive forces in the health consumption sector. Achieving sustained and high-quality growth in 2025, the revenue reached RMB 73.4 billion, representing a year-over-year increase of 26.3%.

Non-IFRS profit amounted to RMB 6.5 billion, up 36.3% year-over-year with a profit margin of 8.9%. It's worth noting that our revenue growth rate has maintained above 20% for the consecutive quarters, while our non-IFRS profit margin reached its highest level since its listing. In the fourth quarter of 2025, revenue totaled RMB 21 billion, up 27.4% year-over-year. Non-IFRS profit for the quarter reached RMB 1.1 billion, increased by 13.5% year-over-year with a profit margin of 5%. As of December 31, 2025, our annual active user accounts for the past 12 months stood at approximately 220 million with a net addition of 34 million compared to December 31, 2024.

Among other revenues, direct sales revenue reached RMB 60.9 billion in 2025, representing year-over-year increase of 24.8% and accounted for 82.9% of total revenue. This growth was primarily driven by increased sales of chronic disease related drugs and expanded first launch partnership for innovative drugs as well as health supplements, where we focused on strengthening our direct sales capacities and cultivating growth in high-quality segments and sales of new created medical devices.

Meanwhile, service revenue reached RMB 12.6 billion for the full year of 2025, up 34.1% year-over-year and accounting for 17.1% of our total revenue, an increase of 1 percentage point year-over-year with platform commissions and advertising services maintaining strong growth momentum. During the year, we prioritized the onboarding of emerging brands, significantly increased resource allocation to merchant support, and expanded the merchants access to our omnichannel infrastructure and resources, fostering growth for both the platform and our merchant partners. We continue to advance our on-demand retail business in 2025 to be more efficient and accessible on-demand services to our users by continuously strengthening synergies among supply fulfillment, payment and expertise experiences.

In health care services, we further deepened our Internet plus health care service ecosystem through AI empowerment this year, achieving scaled deployment of AI technologies across consultation, examination, diagnosis, pharmaceutical scenarios. We launched a series of AI-based solutions tailored for users, doctors, hospitals, primary health care institutions, including AI Jingyi and JOY DOC, establishing the industry's most comprehensive AI enhanced health service matrix. Our AI agent, Dr. Da Wei, has completed hundreds of millions of user interactions with a 98% satisfaction rate. Meanwhile, JOY DOC has served over 5 million patients across several hospitals, including the First Affiliated Hospital of Wenzhou Medical University and Union Hospital of Tongji Medical College.

From the profitability level, JD Health's gross margin was 24.8% in 2025, up 1.9 percentage points year-over-year. The improvement highlights the core strength of our supply chain as well as the ongoing enhancement of our direct sales capacity. Our direct sales mode effectively drove gross margin expansion through economies of scale, while empowering our professional procurement and sales teams to identify industrial trends and capitalize high potential subsegments, boosting overall operational efficiency.

At the same time, we encourage a greater resource investment from merchants fulfilling growth in higher-margin business such as advertising services on a non-IFRS basis. Our fulfillment expense ratio was 10.4% in 2025, up 0.2 percentage points. Our selling and marketing expense ratio maintained largely flat at 5.2% in 2025 compared with last year with [indiscernible] hitting the road this year, promoting awareness of our quality standards for nutrition products while helping drive sales growth in the health supplement segment, although selling and marketing expenses rose by 26.9% year-over-year.

Our R&D expense ratio was 2.2% in 2025, up (sic) [ down ] slightly by 0.1 percentage point year-over-year as a result of our ongoing investment in AI technologies. As of the end of December, we had over 880 R&D personnel, increased compared with the previous year. As revenue continued to grow, the proportion of fixed R&D expenses will decline accordingly, while the productivity of our R&D team will also improve. We remain committed to investing in health AI technologies and have launched a suite of AI-powered products, serving users, hospitals and primary health institutions across multiple health care scenarios. Moving ahead, we will continue to deepen our efforts in these areas. The G&A expense ratio was 0.8% for the full year of 2025, flat with 2024. Our back-end staff and operational management efficiency levels continue to lead the industry.

Finance income was RMB 1.5 billion in 2025, attributable to increased cash balance. Other income and gains, net was approximately RMB 1.6 billion (sic) [ RMB 0.77 billion ] in 2025, mainly reflecting fair value changes in wealth management products. Excluding share incentive, our non-IFRS profit for 2025 increased by 36.3% year-over-year to RMB 6.5 billion with a margin of 8.9%, up 0.7 percentage points from last year, reaching its highest level ever since our IPO.

Our cash flow from operating activities reached RMB 10.2 billion for the full year of 2025. As of the end of December, cash and cash equivalents, restricted cash, term deposits and wealth management products measured at fair value through profit or loss at amortized cost totaled RMB 96.5 billion (sic) [ RMB 69.5 billion ], a net increase of RMB 10.1 billion compared to December 31, 2025 (sic) [ 2024 ].

In summary, JD Health delivered high-quality growth in 2025, underpinned by continuously optimized operational capacities and steady profitability growth. Our strong performance highlights our persistence, enhancing user experience, while improving cost and efficiency by developing and refining AI-powered health service scenarios. We broadened our business scope, further validating the distinctive value propositions of our dual-engine business model.

That concludes our prepared remarks. We are now open for questions.

[Operator Instructions] Now we are going to welcome Miranda Zhuang from American Bank.

In 2025, you achieved a faster growth, and you had very good growth momentum with better profit margin. That is great news. I have a question to you. Can you share with us the near term and the 3-year middle-term prospects, what will be the main growing points? And what will be your strategies?

Thank you for the question. You're my old friend, Miranda. I want to share with you the general directions about the track for the future growth. We know that pharmaceutical sector, health products and medical devices are belonging to one community. The market size is around RMB 3 trillion to RMB 4 trillion. This is the size of the total market share, and we have to check different proportions. So you could fully understand, in the entire year, the revenue is RMB 17 billion (sic) [ RMB 73.4 billion ]. Compared to the potential of the market, we are still having a big room to grow, which means that we have a lot of opportunities to grab.

Currently, we could achieve more than one digit growth potential. I believe that this is a huge market. Despite the fact that JD Health is a huge pillar, we could also go faster and we could go deeper. That is our inspiration, and that is our commitment to go deeper and go faster built on our existing advancements and results.

The next point is from the perspective of the users. Currently, around 220 million users were out there and the total number is still growing, and we have a lot of active users, but not as big as the total user base of the JD Group. Because we are JD Health, we could still have a big room to grow. So I'm just sharing with you the size of the sector as well as the users of JD Health. I believe that from both fronts, we could do a lot of things to grow our potential. To be more specific, for the next 1 to 3 years, what will be happening and what will be the key drivers.

To start off, I want to go back to the product portfolio and what will be the growing momentum. I'm going to speak about the pharmaceutical products. For the long run, we are in the leading position and we are growing very fast. We continue to improve our performance in 2025. The new drugs are taking 15%, and we are growing very fast compared to the velocity of 2024. You could feel the change and you could feel the transformation. Built on the mindset of JD Health, more brands, more pharmaceutical companies and more manufacturers will come to us. They will finally realize JD Health is a huge platform. We could help them, we could empower them. We could bring to them additional value. The new products, the special drugs could have very good sales at our platform, driving us to embrace a larger number of new drugs on their first sales. This is a very positive trend and I am very happy to share with you.

I believe that in terms of the pharmaceutical companies, we will continue to grow. I believe that this market will grow, of course. We have the in-hospital and off-hospital market and off-hospital market will be moved to the online setting at even faster manner. Those are the trends we could observe on the market. That's why I'm so confident in sharing with you our growing potential and growing [indiscernible].

In terms of the health supplements, I know that you've followed us for long-term. When we are discussing the pharmaceutical companies and health supplements, you can know we are offering the best quality products. We could offer you very good user experience as well. We go very fast and we are highly efficient in delivering our services and offerings. We are doing more than selling. We are also providing the evidence-based solutions. It's like we are collaborating with GNC. We are jointly releasing the white paper, providing better service and educational resources to the users. We are also providing a premium fish oil, improving the user experiences in the overall manner. We want to add to user experiences, and we want to add user value.

We are not selling products in an efficient manner. We're also helping the users to select the best ever products. And we are also an online platform having huge integrated logistics chain advantages, which means that we are having this pillar and we will grow this as well.

The next topic is about medical devices. I want to give you a case. We're collaborating with Yuwell to offer customized products. The monitoring of the glucose device. It is well set. And for the next step, we have more plans. In terms of the sales, we will provide software, hardware as well as integrated chronic disease management plan. If you tried our products, you can know how well it is. It is very unique and it's very special. If you try the Yuwell glucose monitoring device, you can know how good it is, you could know which food is good for you and what are the foods bad for your health. I believe that is the best collaboration model. You could manage your food, you could manage your diet, and you could complete all those processes for our product.

And we are now promoting AI-empowered health management device. This will be the new ecosystem. AI is keyword, very popular. In 2025, we launched the AI doctor, Dr. Da Wei, completed hundreds of millions of interactions with online users with a high level of satisfaction ratio. The AI matrix includes the 2B, 2C and 2H front with very good performance separately. Those performances are not yet fully matured. They are not translating directly into sales revenues. However, we can safely say that they will be the future drivers, helping JD Health to garner potential profits. In the long run, they will be our long-term drivers. I'm just sharing with you those highlights for reference. Thank you, Miranda. Thank you for the rest of investors.

Now please start your second question.

The next question comes from UBS, Henry Liu.

Thank you for the prepared remarks, the management, and thank you for having my questions. Can you say a few words about the competition landscape of the company. For instance, we have the e-commerce platform, we have the brick-and-mortar physical stores. How you can stay competitive among all those competitors?

For the long term, I'm confident in standing out of all those competitors and market players. If you are watching and following us for the long run, you know we are a company with a lot of pragmatic mindset and behaviors. You know how we check and observe this market landscape, you know how we view our competitors. From the perspective of JD and JD Health, we are good at managing the supply chains. We are good at managing our own brand products, because we want to manage the quality of the products, we want to ensure the best efficiency on this market. In terms of health care market, those elements are maturing. We want to manage the health of the users, and we have a strong mindset. That is why we are standing out compared to other competitors. That is in our DNA, that is in our blood veins, and we are maximizing our DNA.

In the company, the revenue is growing very fast, of course. And our market penetration rate is not as good as we expected. In the future, the market will be highly fierce, of course. But this market is not yet fully competitive. It's not receiving full competition. Every company could have their own proportion and share. You could manage your supply chain, you could play up your strengths and you could do somethings with a lot of pragmatic behaviors and you could improve the health. So we could extend our strength in the long run, and we could further extend our market scale. That is my general impression, and that is my short answer for your question.

Next question, please.

The next question comes from Haitong International, Meng Kehan.

I'm from Haitong International. Congratulations. Thank you for sharing with us the great results in 2025. I have some questions to you. For the next few years, what will be your plan to start the brick-and-mortar stores? And what will be the impact for the online practices? And for the ILC, what will be your future plan? Would there be any change? Would there be any large M&A plans?

I want to take those questions with more elaboration. I believe a lot of investors are very interested in those points. First of all, we don't have the plan to have a large-scale M&A. But it doesn't mean that we don't care about the offline practices and offline maneuvers. The efficiency, the cost of running the brick-and-mortar stores is one of our key strengths, of course. I talked about the medical insurance policy. This is very key in managing the brick-and-mortar store, the pharmacy. 35% of the gross margin will be the bench line. It's not that high, of course. And we have a lot of good chances. We are not relying 100% on the medical insurance, and we could ensure the security of the business. Of course, the gross margin was not as high as we expected when we are running it online, but still very satisfactory, but still satisfied with those results.

When we are running the offline stores, we prioritize. We also care about their practices, because around RMB 2 trillion -- in terms of the market share, RMB 2 trillion belong to the offline practices, and some of them belong to the in-hospital market, around 7% to 8%. It matters. I don't think the online business can 100% replace the offline business. Still, we have to watch closely to the development of the offline business, but how we are going to maximize our strength.

There are 2 sets of practices. The offline pharmacies for one thing. We are running 300 offline pharmacies up to now, 300. Those pharmacies are serving their neighbors. We are consistent in promoting the offline pharmacies. Those offline pharmacies are good at delivering immediate service requirements and demand. In terms of the data, they are accounting for 10% in terms of market share. Some patients want to have immediate medical products.

The size of the pharmacy is not big. Our priority is on B2C business to customer. But this is a very important scenario for us to manage the customer relationship, and we would do a good calculation, how we are going to manage the stores, how are we going to manage the operator or the users. And this is a platform with a lot of openness, and we are collaborating with the chain pharmacies as well. Those are our business patterns and business scenarios to better serve the users, bring them the premium experiences. So I don't think we're going to have a large-scale M&A to cover the offline pharmacies. I don't think so. We may maintain the structure, the size. And offline pharmacies in terms of number is too many. Altogether, 700,000 in totality. I believe that we can do more to improve their overall efficiency.

The next is about the checkup centers. I believe that checkup centers are providing us a new area to grow our business range. We can do a better job improving the quality, and that will be the new entry to collect different dots. I believe that the offline checkup centers will be the entry point to manage the health. Now we have several checkup centers in operation. We're not in a hurry to duplicate the model. We want to maximize the JD DNA, be pragmatic. We'll be patient, we'll be accepting the market changes. We will never go too fast. We are having a long-term vision to be the guardian of the people's health in China, and we want to do a good job. That is our practices for the offline business. We will never do it overnight. We'll not complete all the business over the short term. We will be stable and we'll be cautious. It's a step-by-step manner.

All in all, the business here will be extended and there will be no obvious shock to our core business. So we believe that whatever we are doing, the AI-empowered practices, the offline pharmacies, we will go very steadily, step-by-step, improving the users experiences. Before each step we are marching on, we'll find out what will be the long-term mission, what will be our purposes before we are taking up this step.

Now we are using a lot of AI technologies. We are improving the general efficiencies very positively. The AI nutritionist is also a good practice. The conversion rate is even higher than the real person nutrition practitioner. I believe that the offline pharmacies will also be greater scenario, faster use and to administer the AI practitioners. So don't worry about large M&A from JD Health. We will do everything step-by-step with very good reason.

Next question from Goldman Sachs, Lincoln.

Congratulations for you to have the 2025 outcome. I have a question on the progress of AI+. Please share your opinions about the supply chain, about your practices for the future.

Again, I want to give you our overall planning. There are several directions ahead of us. The first is the 2C, to customer direction. You could check what happens in JD application. On JD Health application, we have the doctor, Kang Kang. We have the JOY DOC. For the 2C side, you have the Jingyi. They are doctors, Dr. Da Wei. We have the pharmacists, we have the nurses. They are AI bots, they are AI twins. A lot of consultation services are out there, the shopping services, the before and after sales services are out there. The conversion rate, the satisfaction rate, the user experiences are very positive. The online consultation is booming, empowered by the AI technologies. Those are the good outcomes from the 2C front. However, it's not right time for us to commercialize all those practices and assets, but still we're in a good position, we're in a good direction to have the commercialization.

Now we have the Jingyi. We have the 2H to hospital front. In the future, I hope that we could get connected to the hospitals. We are speaking about 70% of the resources of the 2 trillion market size will be in different hospitals. We want to expand our market share, rely upon the partnership with different hospitals. The hospitals will help us to manage the patients. For instance, we could do the pre-consultation, helping the patients to check in the right departments. Those are some things we could down before the hospital entry. For the post-operation diet and nutrition, we could also have the AI to help those patients, and we can collaborate with the hospitals.

In the future, we could manage this business with incremental growing momentum. And for the 2B side, the 2B side is operated for the doctors totally free of charge. However, how we are going to set up a good business model, how we're going to have the final commercialization, we are still in the process of pondering on. In China, it's very special for the doctors to pay. Still, I believe that as long as the products and the services are excellent, we could have sort of some method to charge. Still, it's a very complicated value chain in the medical sector. There will be the right payer. That is the question we have to keep thinking. And we have to avoid the homogeneous competition. No matter what, those are the directions we are embarking on, and we are seeing a much more clear directions and light at the end of the tunnel.

In the near future, I believe that we could see more frequent AI application with positive outcome. If there's any feedback, I will let you know, and we will keep a close eye on this market. But please keep it in mind. JD Health has very good AI innovation practices, and we go very steady by collaborating with the stakeholders, and we will continue to promote innovative drugs. When we are checking the market, it looks very dynamic, it looks very popular, but we will be the one who speak deeper to this market, and we will give you good solutions, because all in all, we want to serve the patients, we want to serve the users with good experiences. We are more than observer, we are a practitioner. Thank you.

For time's sake, we are going to close the Q&A session. Now I'm going to welcome you give us the closing remarks.

Thank you once again for joining us today. If you have further questions, please contact the IR team directly. Thank you.