20181203-东英亚洲证券-中国有赞-08083.HK-December_foresight_bears_fruit_7页_1mb

China Youzan (8083 HK) Summary

Core Content

China Youzan is a leading e-commerce SaaS service provider in China, targeting small-to-mid-sized online and offline merchants. The company leverages mainstream mobile social platforms like Tencent WeChat to support O2O (Online to Offline) operations.

Key Highlights

• Stock Performance:

  • Close price: HK$0.61 (as of 30/11/2018)
  • Target Price: HK$1.29 (+111%)
  • 12 Months High: HK$1.25
  • 12 Months Low: HK$0.33
  • 3M Avg Daily Volume: 20.46 million shares
  • Issue Share: 13,442.53 million shares
  • Market Cap: HK$8,199.94 million
  • Fiscal Year: 12/2017

• Recent Developments:

  • Product Upgrades: On its 6th anniversary in late November 2018, Youzan launched several SaaS product upgrades and debuts.
    • WeiMall 9.0: Subscription fee increased by 42% to RMB6,800/yr, effective 1st Dec 2018. It includes extended functions such as mini-programs, group purchase plugins, and coupon plugins.
    • Youzan Education Beta: Launched on 5th Dec 2018, with over 40 functions tailored for the education sector. Xueersi (an online education brand) is one of the beta customers.
    • Youzan Beauty 4.0: Launched on 12th Dec 2018, with enhanced features like franchised store management, app store integration, and precise marketing.
  • Youzan Retail: Evolving on track, with around 2,000 paid users. It is expected to launch commercially in early 2019, providing omni-channel retail solutions from front sales to backstage control.

Reiteration of Investment Recommendation

• Rating: BUY
• Target Price: HK$1.29
• Valuation Rationale:
  • Based on 12x FY19E P/S for the cloud business, in line with peers.
  • Based on 10x FY19E P/E for the third-party payment business.
• Note on GMV Concerns: The analysts highlight that GMV growth in Q3 2018 may be understated due to the increasing frequency of O2O purchase conversions, which are not fully captured in current GMV calculations.

Risks

1. Slower-than-expected ramp-up of the paid merchant base.
2. Faster-than-expected growth in operating expenses.
3. Deceleration in China's economic growth.

Financial Summary (FY16-FY20E)

Peer Group Comparison

| Company | Ticker | Price (HK$) | Mkt Cap (US$ million) | 3-Month Avg Turnover (US$ million) | P/E FY1 (x) | P/E FY2 (x) | EPS FY1 YoY% | EPS FY2 YoY% | P/B FY1 (x) | EV/EBITDA Hist | Net Margin (%) | Gross Margin (%) | ROE (%) |
|-----------------|----------|------------|-----------------------|------------------------------------|------------|------------|-------------|-------------|------------|----------------|----------------|----------------|-----------------|--------|
| China Youzan | 8083 HK | 0.61 | 1,048.40 | 1.50 | (21.4) | 122.6 | 38.3 | (117.5) | 3.4 | 0.0 | Net cash | (10.8) | 12.6 | (9.3) |
| HSI | - | 26,506.75 | - | - | 10.0 | 11.1 | (9.9) | 10.7 | 1.4 | - | - | - | - | 1.0 |
| HSCEI | - | 10,621.74 | - | - | 8.0 | 8.2 | (3.3) | 10.5 | 1.1 | - | - | - | - | 1.3 |
| CSI300 | - | 3,172.69 | - | - | 11.7 | 11.1 | 5.7 | 14.2 | 1.9 | - | - | - | - | 1.0 |
| Kingdee Intl Sft| 268 HK | 7.80 | 3,287.90 | 26.18 | 62.7 | 59.7 | 5.1 | 31.0 | 5.0 | 28.0 | 0.0 | 0.0 | 0.0 | 8.5 |
| Salesforce.Com | CRM US | 139.72 | 106,885.80 | 978.80 | 776.2 | 55.1 | 1,307.8 | 7.9 | 9.8 | 91.9 | 370.1 | 0.0 | 0.0 | 6.9 |
| Shopify Inc - A | SHOP US | 149.04 | 15,909.14 | 232.03 | N/A | 487.1 | N/A | 209.6 | N/A | (535.6) | N/A | N/A | N/A | N/A |
| Alibaba Grp-Adr | BABA US | 156.28 | 405,106.56 | 3,393.07 | 43.3 | 30.9 | 40.0 | 28.9 | 8.8 | 37.0 | 57.2 | 0.0 | 25.6 | 16.2 |
| Jd.Com Inc-Adr | JD US | 20.97 | 35,168.76 | 499.74 | N/A | 88.2 | N/A | 43.2 | 6.0 | 94.5 | 14.0 | 0.0 | 0.0 | 2.4 |

Adjusted Sector Average

Recent Reports

• 30/11/2018: 3Q18 results in line with expectations
• 07/11/2018: 3Q18 results wide off mark
• 04/09/2018: 1H18 results beat
• 06/09/2018: 1H18 earnings off on GPM
• 31/08/2018: 1H18 results in line with expectations
• 27/08/2018: 1H18 results clean beat
• 23/08/2018: 1H18 results up to expectations
• 23/08/2018: 1H18 results in line
• 12/10/2018: 1H18 results beat on strong turnover
• 04/09/2018: 1H18 results beat on the margins

Historical Recommendations and Target Price

Disclaimer

This report is intended for institutional investors only. It is not directed at, or intended for distribution to, any person or entity who is not an institutional investor. The information provided is for informational purposes only and is not an offer or solicitation to buy or sell any securities or investment products.