蓝莲花-宝尊电商研究报告（英文）-2018.10.25-29页-2mb

Baozun Inc. (BZUN US) – Initiation with SELL

Core Content

Baozun Inc. (NASDAQ: BZUN) is a leading digital technology and solution company in China, specializing in e-commerce services for global brands. The report initiates BZUN with a SELL rating and a Target Price (TP) of US$30, citing concerns over the company's declining pricing power, worsening working capital, and rising fulfillment costs. The report argues that BZUN has not demonstrated the ability to successfully upgrade its business model despite opportunities in digital marketing and smart logistics.

Main Points

• Pricing Power Concerns:

  • BZUN's take rate has declined for ten consecutive quarters.
  • Service take rate and service fee take rate have also been declining for six quarters.
  • Adjusted gross margin (gross profit less fulfillment cost) has remained flat, indicating no real margin leverage.
  • Working capital has deteriorated since the IPO, with account receivable, inventory, and account payable worsening.

• Industry Challenges:

  • Commoditization of the e-commerce services industry is a significant headwind.
  • Brand store hosting is a niche market, accounting for only 5% of the total e-commerce service market, with growth ceilings.
  • BZUN must compete with specialists in digital marketing and logistics, as well as Alibaba (BABA), which is likely to push for more specialized and automated solutions.

• Financial Performance:

  • BZUN's revenue is expected to grow from RMB 3,390 mn in 2016A to RMB 7,563 mn in 2019E.
  • Non-GAAP operating profit is projected to increase from RMB 124 mn in 2016A to RMB 901 mn in 2019E.
  • EBIT margin has increased from 6.2% in 2017A to 9.0% in 2019E.
  • Free cash flow yield has been negative in recent years, indicating financial strain.

• Valuation Concerns:

  • BZUN is currently trading at a 32x 2019 non-GAAP P/E, which is considered overvalued.
  • The report suggests that margin improvement is not sustainable and has been driven by operational changes and the spin-off of its flash sale business, not by genuine efficiency gains.

• Key Catalysts for Change:

  • If BZUN improves its position in Alibaba's brand databank ranking.
  • If it acquires significant capabilities in performance marketing or logistics.
  • If it develops a viable Pinduoduo business, which could provide a short-term boost.

• Risks and Uncertainties:

  • BZUN's market share in brand store hosting is 17.3% in 2017, which is twice that of its next competitor.
  • Alibaba may encourage competition and specialization, which could reduce BZUN's value in its ecosystem.
  • US-China trade war and domestic competition may hurt US consumer brands, which are BZUN's primary clients.

Key Financial Data Summary

Summary of Key Concerns

• Declining Pricing Power: BZUN's take rate, gross margin, and working capital have all worsened.
• No Earnings Leverage: Profit growth is primarily due to GMV growth, not margin expansion.
• Scale Diseconomy: BZUN's business model may not scale efficiently due to increasing fulfillment costs and worsening working capital.
• Competition: BZUN faces competition from specialists and Alibaba itself.
• Valuation: The current valuation is seen as too high given the lack of margin leverage and financial performance.

Key Changes in Recommendation

• BLRI Recommendation: SELL
• BLRI Target Price: US$30
• 2017A EPADS (US$): 1.02
• 2018E EPADS (US$): 1.22
• **2020E EPADS (US$)****: 1.64

Conclusion

The report concludes that BZUN's business model is not scalable and that its pricing power is diminishing, making it a SELL recommendation. The company's financial performance and working capital issues suggest that it may not be able to sustain growth in the face of industry commoditization and increased competition.