20181114-招商证券_香港_-E-commerce__where_to_find_increments_38页_5mb

E-commerce: Where to Find Increments

Core Content

The report from China Merchants Securities (HK) Co., Ltd. provides an in-depth analysis of the Chinese e-commerce market, focusing on growth drivers, market size projections, and key players. It emphasizes that e-commerce will continue to be a major GDP driver in China, despite macroeconomic pressures.

Market Size and Growth

• Market Size: China is the world's largest e-commerce market, with online retail sales reaching RMB 7.2 trillion in 2017.
• Growth Rate: The market grew at a CAGR of 41% from 2012 to 2017.
• Future Projections: The market is expected to double by 2021E, reaching RMB 14.5 trillion, with a CAGR of 19%.
• Penetration: China's e-commerce penetration is over 20%, significantly lower than the 90% in the U.S., indicating substantial growth potential.

Key Growth Drivers

1. Customer Coverage Expansion

• New Scenarios: Social networks, offline retail, and rural markets are the three main sources for expanding customer coverage.
• Social Networks: WeChat and other platforms have a 92.9% penetration among mobile netizens, offering a vast untapped customer base for e-commerce.
• Offline Integration: Offline retailing, which covers 80% of social retailing volume, is a critical area for e-commerce expansion.
• Rural Markets: Despite current challenges in Internet and delivery coverage, rural areas are seen as a long-term growth opportunity with significant potential.

2. Customer Value Exploitation

• Focus Areas: Expanding product categories, leveraging content, and refining customer management are key to increasing customer value.
• Conversion and Spending: Enhancing conversion rates and average spending per customer through better data utilization and improved shopping experiences.
• Strategies: Major players like Alibaba and JD are focusing on these areas to improve their platforms' performance.

Major E-commerce Players

• BABA, JD, PDD, and VIPS: These companies can co-exist in the short to medium term, each covering different customer segments.
• Alibaba (BABA US): Expected to grow topline by 51% in FY19E to RMB 377 billion, with a Non-GAAP net profit of RMB 92 billion.
• JD.com (JD US): Expected topline growth of 27% in 2018E to RMB 461 billion, with a Non-GAAP net profit of RMB 3 billion.
• Pinduoduo (PDD): A rising star, leveraging social networks for customer acquisition with a 300 million registered user base in 2.5 years.
• Vipshop (VIPS): Still exploring within WeChat, focusing on non-acquaintance scenarios to reach mature e-shoppers.

Valuation and Investment Outlook

• Alibaba (BABA US): Maintained as a BUY with a target price of US$201, implying a 29x FY20E P/E.
• JD (JD US): Maintained as a BUY with a target price of US$40, implying a 79% upside.
• Overall Outlook: The e-commerce sector is expected to benefit from both customer coverage expansion and value exploitation, with new retail initiatives playing a crucial role.

New Retail Initiatives

• Integration of Online and Offline: Both Alibaba and JD are integrating online and offline retail to improve efficiency and user experience.
• Examples: Alibaba's Hema and JD Home provide hybrid shopping experiences, combining physical and digital elements.
• Data Utilization: New retail focuses on leveraging data to enhance operational efficiency and personalize customer experiences.

Strategic Collaborations

• Alibaba: Collaborates with traditional retailers like Sun Art to enhance delivery capabilities.
• JD: Partners with brands like MeadJohnson to improve its supply chain and market reach.

Conclusion

The Chinese e-commerce market is expected to grow significantly over the next few years, driven by customer coverage expansion and value exploitation. Key players are adapting to new scenarios and integrating with offline retail to enhance their market positions. The report highlights the potential of social networks, rural markets, and new retail as the main growth areas.