JD Health International Inc

HKEX:6618

Earnings Call Transcript 2022-Q4

[Operator]

Good day ladies and gentlemen, thank you for standing by. Welcome to the JD Health International Incorporated Full Year 2022 Results Conference Call.

At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a Q&A session. Please note that this English simultaneous translation line will be in listen-only mode for the duration of the call, including the Q&A session. If you wish to listen to the management's original statement or ask a question during the Q&A session, you will need to be dialed in to the Chinese language line.

I'll now turn the call over to Ms. [Indiscernible], Head of Investor Relations team at JD Health. Please go ahead [Indiscernible].

[Unidentified Company Representative]

Thank you, operator. Good day ladies and gentlemen, welcome to our full year 2022 results conference call. Joining us today are JD Health Executive Director and CEO, Mr. Jin Enlin and CFO Mr. Cao Dong.

Before we start, we will have 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 and 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 a reconciliation of IFRS to non-IFRS financial results, please refer to the annual results announcement for the year ended December 31st, 2022 issued earlier today.

For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the Q&A 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 case of any discrepancy, managements' statements in their original language will prevail.

I will like now to turn the call over to Mr. Jin Enlin. Please go ahead sir.

[Enlin Jin, Executive Director and CEO]

Hello, everyone. I'm Jin Enlin, CEO of JD Health. It's a pleasure to share our full year results in 2022.

Over the past year, relevant authorities issued a series of policies and regulations, which reaffirmed the value of digital healthcare services. At the same time, we are aware that Internet plus healthcare is playing an increasingly instrumental role in deepening the reform of medical and healthcare system and enhancing primary medical service capabilities.

Looking back on 2022, the administrative measures of Internet diagnosis and treatment services and the administrative measures of supervision of Internet drug sales were officially put in place.

The implementation of the New York regulations has ensured public demand is met for online access to medicine and healthcare services. This is in response to society's longstanding expectations for high quality internet health care services and further promotes the industry's health development.

Over the past year, as leading healthcare enterprise, JD Health has proactively responded to the changes in relevant policies guided by our business philosophy of trust-based value creation centered on customers' health, we have continued to open up our capabilities within the retail pharmacy plus healthcare services ecosystem to meet people's pressing needs.

These efforts have generated substantive growth and high quality development that has transcended typical growth cycles as evidenced by revenue increase, user based expansion, and the enhanced user stickiness. Throughout the evolving process, we have maintained our focus on user health needs and worked to establish an integrated online/offline healthcare service ecosystem.

Next, let me walk you through the progress in our business segment in the past year. I'd like to begin with an update of our healthcare supply chain business. In 2022, we forged new strategic partnerships and upgraded our existing collaborations with dozens of pharmaceutical and healthcare brands with innovations in collaboration models.

For example, we helped brand partners accelerate the launch of new and specialty drugs on our platform, provided C2N reverse customization services and integrated healthcare solutions to healthcare product suppliers.

We also provide the various brands with value-added services that as innovative digital marketing tools and omnichannel sales solutions. We aim to explore greater market and development opportunities with our partners.

I'm pleased to share that as the largest online/offline pharmaceutical retail channel in 2022, JD Pharmacy's growth exceeded the industry average by four times for the seventh consecutive year.

Our medical device users in 2022 amounted to over 10 million, making us the primary contributor of online sales upside for many medical device brands.

In the health supplements market, we work in concert with brand partners to advance the precision nutrition pilot program realized a 92% year-over-year increase in brand numbers GMV.

Second, in our healthcare services segment, we have been accelerating the creation of an integrated online/offline healthcare service system. JD Online Hospital continued to improve its healthcare service offerings, including adding expert consulting, instant consultation with JD doctors, and night-time consultation, all of which provide higher quality services and a better user experience.

Notably, our full year consultation volume surpassed 100 million with the highest daily consultation volume exceeding 1.14 million and 98% of positive patient feedback.

Meanwhile, we improved the quality control and standards of Internet healthcare services by releasing expert consensus on online diagnosis and treatment for our psychiatric and endocrine specialties and out-of-hospital hypertension management, as well as 201 diagnosis and treatment standards.

Third, in the past year, we continued to promote innovative businesses and created new brands by integrating mature businesses. As an example, we acquired the pet health-related assets of JD Group, which enabled us to form an online close-loop business that provide users with both veterinarian services and healthcare products.

We successfully launched the JD Pet Health platform, a brand upgrade of our pet health business to provide an all-scenario, full lifespan, one-stop pet healthcare services to users.

In terms of Great Hill Pharmacy, we continue to optimize user experience by accelerating the deployment of our omnichannel initiatives. Moreover, in the past year, we have accelerated the digital transformation of healthcare services through technological upgrades and opening access to our customized healthcare service solutions.

We debuted our enterprise health strategy and employee health service solutions to better serve our corporate customers. We also launched our digital and smart medical services system, the facility to high quality development of medical services. This promoted the integration of diverse medical scenarios across the entire medical journey.

Fourth, in the past year, we steadily fulfilled our social responsibilities and served people pressing need. Notably, fighting the pandemic and ensuring supplies is a significant manifestation of the social and user value created by JD Health.

For example, under the guidance of the Ministry of Industry and Information Technology, we launched and customized the COVID-19 medication purchase platform for our 21 provinces to insure the stable provision of anti-pandemic supplies experiencing shortages. We also partnered with more than 100 regional governments and media and jointly launched the Visual Online Medical Services platform to serve local residents.

Meanwhile, we rapidly deployed anti-pandemic supplies and medical resources to nearly 160 villages, catering to their anti-pandemic medication need through a joint program with the National Rural Revitalization Administration and [Indiscernible].

On top of that, we cooperated with various partners to implement public wealth programs, donating money, healthcare supplies, and services, which totaled over RMB10 million in 2022.

We also worked with nearly 50,000 third-party merchants in our charity donation programs, Aixindongdong, making more than RMB46.21 million donations to different healthcare public welfare programs.

Looking back on the past year, with support from diverse partners, we have built up three leading capabilities, namely the industry's most comprehensive healthcare product offering, the market's most efficient omnichannel distribution network, and full life cycle product marketing capabilities. These competencies have made JD Health the number one gateway to online healthcare consumption for users.

At the same time, our progress during the pandemic demonstrated that the pandemic provided unprecedented health mindset education to consumers, noticeably strengthened their trust in online spending for healthcare. We believe their trust will endure particularly in the post-pandemic era.

Going forward, as a positive policy environment and consumer demand drives more usage of online healthcare services, we'll continue to protect user experience on our platform. By adopting a user health-centric approach, we are transforming JD Health from the number one gateway to online healthcare consumption to the number one gateway for all omnichannel healthcare consumption.

At the same goal, as long and difficult as the journey may be, sustained actions would take us to the destination. Specifically, we'll take action on the forefront. First, will maintain an open ecosystem. We'll continue opening up our ecosystem to various merchant partners. The only way to better meet users' needs is through an open and integrated merchant ecosystem with rich product offerings.

Second, to expand our model. We will persistently advance online/offline integration of ecosystem, facilitating customer acquisition through omnichannel marketing.

Third, service integration. We'll firmly deploy remote diagnosis and treatment and services to become the most professional healthcare consumption platform.

Fourth, providing inclusive access. We'll make our products and service more easily available to a broader user base through innovative payment tools, public aid programs, and enabling medical insurance payments. This is the social responsibility incumbent upon us as an industry leader.

Lastly, I'd like to emphasize that as we face numerous uncertainties, health is an unconditional requirement for us all. I sincerely hope that every user, employee, and friend would have good health.

I hope our partners from all corners of society will achieve healthy growth and development along with us, inspiring confidence throughout the health and wellness industry.

[Indiscernible] card as always, but firmly grounded in our strategic positioning, create a technology-driven platform that centers on the supply chain of pharmaceuticals and healthcare products and is strengthened by healthcare services, encompassing the users' full lifespan. By adhering to our business philosophy, trust-based value creation centered on customers' health, for empowered to better serve our users, facilitate industry development, reward our shareholders, and give back to society.

Thank you. I'll turn the call over to our CFO, Mr. Cao Dong to discuss the details of our financial performance.

[Dong Cao, CFO]

Thank you, Mr. Jin. Hello everyone. Thank you for joining JD Health's earnings conference call. It's my pleasure to provide an update on our performance in the full year of 2022.

2022 was a crucial year for China in implementing its 14th five-year plan. Digital, medical, and healthcare services epitomized by Internet plus healthcare are playing an increasingly important role in promoting health for all, as well as the development of the healthcare industry.

In particular to address the new pandemic prevention and controls situation in December 2022, the Joint Prevention and Control Mechanism of the state council issued a circular on the provision of the Internet healthcare services for COVID-19, which clearly stated that Internet hospitals are allowed to issue online prescription to treat COVID-19-related symptoms. This proved again the tremendous social value of digital healthcare services and safeguarding people's health and elevating the accessibility of healthcare services.

As an industry leading healthcare service enterprise, JD Health has catered to consumers' holistic personalized health service needs by accelerating our overall deployment and investments in real economy related businesses in the health and wellness market.

As well as our cooperation with upstream and downstream enterprises in the industry chain to build a complete health and wellness ecosystem, aiming to deepen the integration of the digital and real economies in the health and wellness industry.

Against this backdrop, we achieved robust overall performance in 2022. Our total revenue reached RMB46.7 billion, up 52.3% year-over-year. For the past year, we continued to adhere to our strategic positioning, created technology driven platform that centers on the supply chain of pharmaceutical and healthcare products and is a strengthened by healthcare services, encompassing a user's full lifespan for all healthcare needs.

Guided by the business philosophy of trust-based value creation centered on customers' health, we focused on retail pharmacy, healthcare services, smart healthcare solutions, and digital health to offer our users more comprehensive, better quality, affordable healthcare services, while creating value with our partners.

We further strengthened users' mindset by enriching our pharmaceutical and healthcare product offerings and optimizing healthcare service procedures and product experiences, realizing high quality growth in our active user accounts.

As of December 31st, 2022, our annual active user accounts reached 154.3 million, representing a net addition of 31 million from 2021.Our share of JD Group's annual active users continue to increase. Meanwhile, the consumption frequency and total consumption of annual active users continue to grow year-over-year and quarter-over-quarter, demonstrating that users' willingness and habits with respect to consuming pharmaceutical products and medical and health services online are gradually solidifying.

In 2022, we continue to expand our pharmaceutical and healthcare product selection, deepen our cooperation with pharmaceutical companies and healthcare products suppliers, and consistently strengthened our pharmaceutical and healthcare supply chain network for full usage scenarios.

At the same time, we further enhanced our supply chain management efficiency by leveraging JD Group's digital and intelligent infrastructure, allowing us to gain further users track with affordable pricing.

In 2022, direct sales revenue increased by 54.2% year-over-year to RMB40.4 billion, accounting for 86.4% of total revenue. As of December 31st, we have utilized JD Logistics' 22 drug warehouses and over 500 non-drug warehouses across China and our directly operated cold chain networks covered more than 300 cities across China.

Moreover, as we continue to harness supply chain and technology capabilities to provide better operational and marketing tools to our business partners, service revenue reached RMB6.4 billion in 2022, up 41.4% year-over-year and accounting for 13. 6% of total revenues, slightly lower compared with 2021. Meanwhile, the proportion of digital marketing and medical services revenue to total revenue continued to rise.

With respect to healthcare services, we have built an innovative healthcare service ecosystem that integrates online medical consultations and services family health management and consumer healthcare services, while continuously iterating our online/offline service capabilities.

During the reporting period, we continue to optimize our user-oriented service process, further expand our service offerings by launching instant consultation with JU Doctors, as per consulting, night-time consultation, consulting renowned doctors, and other products and services.

We also strengthened the service capabilities of JD Online Hospital and expanded specialist service offerings, providing professional and precise online and medical experience to users.

As of the end of 2022, we have established specialist medical centers with top experts as academic leaders as well as more than 150 secondary clinical departments with the average daily online consultation volume exceeding 300,000.

In December 2022, following the optimization and adjustment of COVID-19 policies, JD Health immediately launched a people [ph] clinic service to provide 24x7 medical services, including consultation, prescription, drug purchase, and sanitation guidance. The highest daily consultation volume exceeded 1.14 million during peak infections.

We also partnered with more than 100 regional government media to launch official online medical service platforms to serve local residents, which greatly alleviated pressure on offline medical institutions.

We have found that users of our healthcare services generates above average GMV with an elevated shopping frequency, an indication that healthcare, healthcare services can boost user stickiness and become a key component of JD Health ecosystem.

In addition, we are convinced that as long as our product and service can bring value to the industry and users on a sustained basis, our business model will generate returns to our shareholders in a long run.

Our Pet Health business was rooted in online pet medical services and acquired JD Group's pet health-related assets in 2022 as such forms a closed loop model, integrating physical products and veterinarian services, providing a one-stop service experience for users. We continued to enrich our pet health product offerings via JD Pet Health, which features, three categories including pet medicine, pet nutrition health and healthcare, as well as pet medical equipment.

Next, due to changes in business composition, our product mix in the promotion season, our gross profit margins declined 230 basis points year-over-year to 21.2%, while pharmaceutical products maintained high growth in 2022 and pharmaceutical products as special subscription drugs currently had a lower gross profit margin than non-pharmaceutical products.

Regarding non-pharmaceutical products, the gross profit margin of medical devices and health supplement increased slightly, fully demonstrating efficiency improvements in our supply chain operations.

Going forward, we'll continue to provide high quality products at affordable prices to offer a large share of the benefits from our efficient operations to users and partners, so users can enjoy extremely cost-effective products and services, while we expand our market share and gain users' mind share.

At the same time, we continue to increase investments in online healthcare services and cultivate user's habit of conducting online health consultations. In this way, we can assist the government's promotion of a hierarchical diagnosis system to alleviate the pressure on offline medical services.

Looking ahead, we will persist and explore new territories to boost our supply chain capabilities and presence in the industry. In terms of non-IFRS measures, our fulfillment expense ratio in 2022 was 9.7%, essentially flat compared with 2021. In addition to COVID-19, this is primarily due to optimizing turnover and improving unit cost as well as enhanced efficiency from economies of scale.

In 2022, our selling and marketing expenses ratio was 4.7%, slightly lower than 7% in 2021, mainly thanks to our more refined marketing and advertising strategy. As we've previously disclosed, we'll continue to promote our brand and core products to enhance future awareness and industry influence.

Meanwhile, we'll invest in marketing activities through diverse channels and improve our popular health content. We also paid close attention to the ROI of our marketing investments.

And in 2022, our R&D expense ratio was 2.3%, down 0.6 basis points compared with 2021. As of the end of December, we had a total of 532 R&D personnel, slightly lower than 2021.

Our R&D personnel's efficiency has further improved with ongoing optimization of the middle and infrastructure. In addition, owing to the fast growth of our business, we had a higher utilization efficiency of fixed R&D expenses such as servers, which lowered the R&D expense ratio excluding the remuneration of R&D personnel. In a short to medium term where we still expect the R&D expense ratio to remain steady or increased slightly due to our plan to acquire more talent in data and AI.

Our G&A expense ratio was 4.6%, flat compared with 2021. Other net revenue in 2022 was approximately RMB82.5 million, growing significantly year-over-year as a result of higher income from financial assets.

To reward our core management team members, we incurred RMB2.1 billion of share incentive expenses in 2021. Excluding the share incentives, non-IFRS net profit in 2022 amounted to RMB2.6 billion, up 86.6% compared with 2021. Non-IFRS net profit margin was 5.6%, rising 100 basis points year-over-year.

Our cash flow from operating activities reached RMB5.9 billion in 2021. As of the end of December, the combined amount of cash and cash equivalents featured cash and term deposits/short-term financial assets at fair value through profit and loss was RMB47 billion.

To sum up, JD Health's robust financial performance was as evidenced by accelerated revenue increase, higher profit, ample cash flow, and faster user growth through the advantages of our dual engine closed-loop business model. It also stems from our pursuit of a compelling customer experience. Our empowerment of upstream and downstream partners and our efforts to motivate our teams continue with innovation.

As always, we believe firm commitment to value creation is a driver of the company's long-term development. 2023 marks the first year that the guiding principles from the 20th National Congress will be put into action. As well as a crucial year to build on the past success in implementing China's 14th five-year plan and make further advancement.

As always, we'll adhere to the business philosophy of trust-based value creation centered on customer health. With one hand, we'll focus on building the innovative integrated online/offline health care service system, offering users easily accessible convenient, high quality, yet affordable, pharmaceutical and healthcare products and services empowered by our digital and smart technologies.

With the other hand, we'll continuously open up our healthcare supply chain and our service capabilities, focused on satisfying users' health needs and collaborate with partners. By doing so, we'll achieve value creation and accelerate the implementation of the Health China 2030 vision.

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

[Operator]

Now, we'll start the Q&A session. [Operator Instructions]

The first question comes from Bank of America/Merrill Lynch.

[Unidentified Analyst]

Thank you. Good morning. Thank you for giving me this opportunity. And I completely agree with management that against the many uncertainties, health is the utmost unconditional requirement.

And I have two questions. Firstly, regarding the pandemic, you mentioned that the latest round of pandemic outbreak improved users' health consumption mindset. So, I was wondering what are the short-term and long-term impact of the pandemic on the company and how will the company see this opportunity?

And the second question is regarding the company's plan in 2023. What will be your priorities? And due to the excellent performance in 2022 and the high base number, what will be the growth drivers of the company's business in 2023? Thank you.

[Enlin Jin, Executive Director and CEO]

Thank you for your questions. Regarding the pandemic impacts on us, I want to answer with two words, trust and reliability. The pandemic did provide an opportunity for market education and gave us an opportunity to gain you their trust.

We did meet users' pricing needs for our healthcare products and services and this gained their trust. We have continued to enrich our product offerings, while providing efficient health services -- providing on demand services to users. And this will improve users' trust in us and this will be for the long-term.

The pandemic proved our value and helped us open up more market possibilities. That's why we have strengthened our capabilities and also give us more confidence. During the pandemic, our user penetration strengthened significantly. We have gained more recognition from the users.

And also during the pandemic, the authorities relaxed rules on online healthcare services. So, we have gained the support and recognition from the authorities as well. And this has provided a great practice opportunity for us, strengthening our capability. We achieved many breakthroughs and all of this has given us confidence to confront all the challenges. Confidence is even more precious than gold and now we are full of confidence.

Based on our existing advantages in 2023, we have three priorities; first, continue to maintain high speed growth. After years of development, we have strengthened our service capabilities for full user lifespan services and marketing abilities and we will continue to work hard to achieve sustainable high quality growth.

Secondly, innovation and breakthrough. After years of incubation, our health management services have grown rapidly and we have validated our model. And we know what users expect of us. So, in 2023, we'll continue to make investments and innovation to achieve more development.

And third, open up our ecosystem. We need to work with partners to make progress together. In 2023, we hope to cooperate with more partners through strategic partnerships investments, for instance, to achieve joint progress.

With the high base from 2022, the growth drivers for 2023 include three; first, user -- our user base. As I said, we need trust from users, which will spread even more broadly. And we are still only starting and there is still a lot of room for improvement. And I believe that we'll continue to make investments in 2023 to further improve user experience.

And second, from the industry perspective, technology progress, user's choice, and change economic landscape will promote our development and the development of the merchant.

And third, we'll continue to strengthen our capabilities. We already have an industry-leading business. Our rich product and service offerings will be the foundation of further growth. In our technological capabilities and our robust teams, they are also the foundation for further growth.

[Dong Cao, CFO]

Thank you for your questions. But Mr. Jin already made some very good points and I just want to add a few words regarding our plan in 2023. In 2022, indeed, we had a high base with our excellent performance. And many people would be wondering how our business will go in 2023?

Again, there are so many uncertainties. In 2023, we said we wanted to achieve over 40% of growth rate and as you can see the actual number far exceeded that 40%. So it looks like we were too conservative, but that's not really the case.

Optimized pandemic control happened earlier than we expected. So, if that really had been the case, then we may only just exceeded 40% growth rate. So, I mentioned there are so many factors beyond our forecasting capabilities and because pandemic control measures were optimized pretty earlier, far earlier than we expected, we would be under a lot of pressure this year to achieve further growth.

But again, we have confidence like Mr. Jin mentioned. Internally, we do have medium and long-term plan like a 10-year plan. We hope our sales revenue would reach RMB50 billion at some point into the future. I won't give you the specifics, but in general, we are confident to grow our sales revenue beyond RMB60 billion.

I'll give you some numbers. Last year, the forecast was RMB4.5 billion and this year, I'm thinking probably RMB3.5 billion. So, we won't reach the RMB60 billion target in 2023 just yet. So, we hope to at least exceed RMB3 billion in 2023. That is above the current market consensus. This is revenue.

And the second point is regarding gross profit margin. Our gross margin in 2023 followed a downward trend due to the market environment. If we look at Q4, you can see the downward trend slowed. And so we're expecting this may be a slight increase in 2023. We have achieved economies of scale in our direct sales in particular and that will drive growth in our gross margin.

We have yet to strengthen our platform ecosystem to drive more business growth. So, with these efforts, we believe in 2023, our gross margin will be less affected by structural factors, so we'll recover.

From a financial perspective, that will help with our bottom-line, there, we believe, will be a slight increase in our bottom-line. So, even though we'll be under a lot of pressure in 2023, the entire management team is fully confident about further gaining market share and our gross margin will improve as well.

[Unidentified Analyst]

Thank you.

[Operator]

Next question comes from Goldman Sachs.

[Unidentified Analyst]

Hi, I'm from Goldman Sachs. I have two questions. First, could you share with us in 2023 in the post-pandemic era how should we view the potential of online sales of drugs and non-drug sales, including medical devices and health supplement? What is the growth potential? And now there are some new players on the horizon, how do you view the competition with them such as [Indiscernible]?

[Enlin Jin, Executive Director and CEO]

Thank you for your questions. We believe that we are still in the early stage of online drug sales. You mentioned both drugs and non-drugs and I will address each point. Regarding our drug sales, we have this formula, drug sales equals accessibility, multiplied by the sum of existing patient number and new patient number, then further multiplied by patient compliance.

Specifically through building an omnichannel supply chain, we are selling drugs with online and offline and through the OTO [ph] format. And that has improved drug accessibility and through building user mindset about buying drugs on our platform as well as data-driven, targeted screening and patient education, we have increased user number and we've also improved patient compliance through professional pharmacist services.

Now, the market consensus is that the collective procurement of drugs will make it more difficult for new drugs to enter hospitals. But it is the industry's consensus that there must be innovation in the go-to-market channel and marketing formats for drugs. And we will continue to work on our digital marketing solution and try to place more products on our platform, for example through agent sales.

In terms of medical devices, our user base is very big. And different usage scenarios such as in-home use have not only made our services more professional, but they are also becoming more comfortable.

And we have a strong advantage in health monitoring and in-home self-test. Besides continuing to work with more brands and placing more product categories on our platform based on our professional service capabilities, we'll explore more business format. For instance, we opened our first offline hearing center in 2022.

Exploring our service foundry, while providing more services and value to our users. Meanwhile, we'll continue to strengthen our user operations to improve the value per user.

In terms of health supplements, I really like to say that everyone is a primary person responsible for their own health. During the past three years of pandemic outbreaks, the people's demands for health supplement have been relieved. And we can see there is a deepening online concentration of health supplement sales that more and more people are buying these products online.

And I believe there is further potential in expanding both the breadth and depth of industry. In terms of breadth, we will penetrate into more age groups, promoting nutrition for all. And in terms of depth, we will penetrate into more products category to meet people's needs for precision nutrition.

And our advantage lies in more professional and specialized products, such as food for special medical purposes and health supplements will have national certification. In 2023, we'll continue to look for growth opportunities in pan-health products. Over the past few years, the health supplements market has been growing very fast. And we believe that speaks to their huge potential.

Besides different product categories like I mentioned before, we have yet to expand our product categories, but so far it's still on a shelf-based approach. And we need to improve and increase the tools available to us as well as technology to help us improve our services. I think the most important competitor for us is ourselves and we'll keep strengthening our abilities to become a better self.

[Operator]

Next question comes from CICC.

[Unidentified Analyst]

Thank you for taking my questions and congrats on excellent performance in 2022. I have a question regarding JD Group's RMB10 billion subsidy. With this subsidy, how will JD Health participate in the subsidy program? And what impact will it have on revenue and profitability?

[Enlin Jin, Executive Director and CEO]

Thank you for your question. First of all, it will not have a big impact on our profitability. We've always called for affordable and high quality products and services. This has always been our philosophy and that's why we've been optimizing continuously our costs and efficiency. This has always been the same.

So, with or without this subsidy program, we'll continue to maintain affordable pricing and good quality. And as to why it will not have much impact on our profitability, here's why. First, like I said, we have always maintained affordable prices. Most of our products are standard products. So, we have been placing that emphasis on pricing from the very start using all kinds of [Indiscernible] and tools and methods to keep our affordable prices.

And secondly, low cost is preconditioned on high efficiency, not low quality. And we have been optimizing our efficiency, keeping our operating expenses at a reasonable level to maintain our affordable prices and a decent profitability.

And we don't think that price is the only factor of retail. There is also service and product. The price is only part of the equation. We always champion retail with professional services. In the healthcare industry, because of information asymmetry, given how highly specialized the industry is, providing professional services is always lacking in the industry. But we have a whole team of professionals like pharmacists and physicians that have participated in the retail process and this allows our users to make more rational purchase decisions.

And in some way, this could prevent pure price wars. Of course, we believe all these initiatives are good for us and it will be beneficial for us to achieve long-term sustainable growth. And as to the subsidy program, we will take a part, but no need to be nervous. It will not have a big impact on our profitability.

[Operator]

Next question comes from CLSA.

[Unidentified Analyst]

I have a question regarding regulation. Now, online pharmaceutical sales is conducted on a national scale and what impact will this have on your business? And do you expect more regulatory measures this year in the industry?

[Enlin Jin, Executive Director and CEO]

Thank you for your question. As we said in 2022, the administrative measures of Internet diagnosis and treatment services and regulation on the supervision of international drug sales were both released.

So, now we have rules and regulations to follow in our services. And this is really a historic progress and now we know our boundaries. So, these regulations have a positive effect on our business. And as we said we will follow all regulations in the industry.

And before the launch of these regulations, the authorities, they had an open mind and they already asked industry players' opinions. So, I'm really grateful for their understanding and support.

As to the regulations this year, we believe the regulators would be cautiously optimistic. After all, online healthcare services is still a new thing. And we will make our aspiration in the industry with caution as well.

And secondly, we are optimistic. After the launch of these regulations, we already have a regulatory framework. And based on our communication with the regulatory authorities, they haven't opened mind about Internet drug sales and healthcare services.

And our excellent performance, together with our industry partners, have received the recognition from the authorities. That's why we are optimistic about future regulations.

[Unidentified Analyst]

Thank you.

[Unidentified Company Representative]

Thank you for management's answers. Due to time constraints, that concludes today's Q&A session. I'll turn the conference back to Jin Enlin for any additional remarks.

[Enlin Jin, Executive Director and CEO]

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