20171122-交银国际证券-Need_partners_to_accelerate_market_share_gain__further_TP_cut_5页_1mb

Vipshop (VIPS US) Summary

Core Content

Vipshop (VIPS US) is a key player in the Chinese consumer sector, focusing on online retail, particularly in the apparel category. The document outlines the company's financial performance, strategic outlook, and valuation analysis as of the time of the report.

Main Points

• Current Price and Target:

  • Last Close: US$9.25
  • Upside: +24%
  • Target Price: US$11.50 (lowered from US$14.00) based on a 15.2x 2018E P/E ratio, which is a 10% discount to its three-year median.

• Financial Highlights (Y/E 31 Dec):

  • Net Revenues (RMBm): Increased from 40,203 in 2015 to 107,662 in 2019E.
  • Revenue YoY Growth: Declined from 73.8% in 2015 to 20.7% in 2019E.
  • Operating Margin (%): Dropped from 6.6% in 2015 to 4.3% in 2019E.
  • Net Profit (RMBm): Increased from 2,199 in 2015 to 3,821 in 2019E.
  • Net Margin (%): Decreased from 5.5% in 2015 to 3.5% in 2019E.
  • Diluted EPS (RMB per ADS): Increased from 3.66 in 2015 to 6.09 in 2019E.
  • EPS YoY Growth: Declined from 78.2% in 2015 to 19.8% in 2019E.
  • P/E (x): Decreased from 16.9 in 2015 to 10.2 in 2019E.
  • P/B (x): Decreased from 10.3 in 2015 to 3.1 in 2019E.
  • P/S (x): Decreased from 0.9 in 2015 to 0.4 in 2019E.

• 3Q17 Performance:

  • Revenue: Increased by 28% YoY to RMB560m, at the top end of guidance.
  • Gross Margin: Contracted by 1.6ppts YoY to 22.9%.
  • Non-GAAP Fulfillment Cost: Surged by 63% YoY to 10.8% of revenue.
  • Marketing Expenses: Reduced by 23% YoY to 3.1% of revenue.
  • Non-GAAP Operating Margin: Declined by 1.5ppts YoY to 4.6%.
  • Non-GAAP Net Margin: Declined by 1.3ppts YoY to 3.7%.
  • Net Operating Cash and Capex: RMB905m and RMB2.7bn for the 12 months ended Sep 2017.

• Outlook:

  • Vipshop faces intensified online competition.
  • Strategic partnerships are needed to accelerate market share growth and user monetization.
  • The company's revenue guidance for 4Q17E was 20%–25%, below expectations and JD.com's guidance of 35%–39%.
  • M&A activities are expected to help in market share expansion.
  • Downside risks include slower user growth, larger margin contraction, and consumer habit change.

• Earnings Forecast Revision (2017–19E):

  • Non-GAAP Net Profit CAGR: Projected at 10%.
  • Revenue CAGR: Projected at 24%.
  • Earnings estimates for 2017–19E were lowered by 6%–14% due to higher fulfillment costs.

Key Things to Watch

• User Growth and Monetization: Key to sustaining revenue and improving margins.
• Gross Margin Trend: Indicates cost control and pricing power.
• Efficiency in Fulfillment: Crucial for maintaining profitability as the company expands its logistics network.
• Customized and Self-Label Products: Expected to drive product differentiation.
• Strategic Partnerships: Likely to be a major factor in future growth and market share gain.

Stock Data

• 52-Week Low-High (US$): 7.79–15.49
• Market Cap (US$m): 5,458
• 3M ADTV (US$m): 71
• Number of ADS (m): 590
• Number of Shares (m): 3,147
• Free Float (%): 89
• 1-Month Change (%): 12
• YTD Change (%): -16
• 14-Day RSI: 61
• Auditor: Deloitte

Analyst Certification

• The authors of the report declare that the views expressed reflect their personal opinions and that they have no financial interest in the subject securities, except for one analyst who holds shares of Shimao Property Holdings Limited.
• No part of their compensation is directly or indirectly related to the recommendations in the report.
• No insider information was used to form the views.

Research Team

• Consumer Sector: Summer Wang, CFA (summer.wang@bocomgroup.com, Tel: +852 3766 1808)
• Other Sectors: Includes multiple analysts covering different areas such as Banks, Property, Technology, etc.

Disclosure of Business Relationships

• BOCOM International has investment banking relationships with several companies.
• Certain entities hold more than 1% equity in related companies, including Orient Securities, Everbright Securities, Guolian Securities, and Guotai Junan Securities.

Disclaimer

• The report is strictly confidential and intended for private circulation to BOCOM International clients.
• It does not constitute an offer, recommendation, or solicitation to buy or sell any securities.
• BOCOM International Securities Ltd may have financial interests in the companies discussed.
• The information is based on data believed to be accurate but is not guaranteed.
• The report is general in nature and does not consider the specific needs of individual investors.

Conclusion

Vipshop is navigating a challenging competitive landscape in the Chinese e-commerce market. While it has shown revenue growth and user engagement improvements, it is under pressure on margins and faces risks of losing market share to larger competitors. The target price has been lowered, reflecting the increased competition and operational costs. Strategic partnerships and M&A are seen as key to accelerating growth and maintaining profitability. Investors should monitor user growth, margin trends, and fulfillment efficiency closely.