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Vipshop Holdings:Margin pressure to continue

文章作者:股票基金 上传时间:2019-09-19

    Investment in fulfillment a weight on margin. Fulfillment expense surged 63%YoY to Rmb1.7bn in 3Q, and fulfillment expense as a percent of revenueincreased 1.5ppts QoQ and 2.4ppts YoY to 10.9%, due to continuous investmentin the logistic business and the addition of 7k delivery staff in 9M17. As of theend of September 2017, the company had a total of 14local warehouses and2.4million square meters of warehouse space, up from 11warehouses and2.2million sq.m at end-June. As Vipshop has guided that it will continue to investin its last-mile delivery network, we expect continuous margin pressure andproject non-GAAP NPM of 3.6% in 4Q17and 3.8% in FY18and FY19.

    Margin set to improve. CEO Richard Liu is confident in delivering meaningfulmargin expansion on a full-year basis over the next few years. Meanwhile,JD.com will continue reinvesting excess return for future growth, mainly intechnology, logistics and branding. We are cautious on JD’s 4Q17margin andforecast a 4Q non-GAAP NPM contraction of 0.5ppts YoY to 0.5% givenheavy promotional efforts. We project a full-year non-GAAP NPM expansionof 0.6ppts YoY to 1.4% in 2017and of 0.6ppts YoY to 2.0% in


    We trim our FY17/18 revenue by 1%/4% on regulatory impacts, and cut non-GAAP earnings by 11%/5% due mainly to higher tax expense. We lower ourTP to US$64 on 1.0x PEG and 37% FY18-21 earnings CAGR (unchanged.)Price catalyst

    We are lowering our FY17/18EPS estimates 7%/9% on prolonged marginpressure. We are cutting our target price from US$10.5to US$9on a 12xFY18E PER (13x previously).

    Maintain Outperform.

    12-month price target: US$90.00based on a PER methodology. Catalyst: Margin expansion, jobs growth

    Catalyst: Margin recovery, and synergies with SkyscannerAction and recommendation

    Internet finance. Vipshop had 3.8million consumer financing users in 3Q17.Credit outstanding to customers reached Rmb3.4bn in the quarter (up fromRmb3.3bn in 2Q), customer loans accounted for 20% of GMV and creditoutstanding to suppliers increased to Rmb1.2bn in the quarter (up fromRmb820m in 2Q). Vipshop plans to spin off its internet finance unit in 1Q18.

    100% logistics network coverage. As of end-September, JD operated 405warehouses with gross floor area of 9m sq.m (up from 335warehouses and7.1sq.m as of end-June.) By the end of this year, JD’s logistic network will beexpanded to every county and village in China. We believe this will providesthe company with the advantage in rolling out its Xintonglu business (新通路)and ZGB app (掌柜宝), which connects mom-and-pop shops in China.Earnings and target price revision

    Earnings and target price revision

    2Q17 revenue and non-GAAP net profit beat consensus by 3%/26% on solidrevenue growth and better-than-expected margin expansion – with non-GAAPGPM and OPM expanding 10ppts/14ppts YoY to 82%/18, respectively. Stronginternational business growth stood out and accounted for c.40% of Ctrip’s 2Q airticket revenue while user traffic from lower-tier cities sharply improved. We believestrong execution of its international expansion and lower-tier city penetration willhelp mitigate short-term regulation risk. Factoring in the negative regulatory impact,Ctrip guides to 35–40% YoY revenue growth in 3Q17, in line with consensus. Wereiterate our OP rating, and trim our TP to US$64 from US$67 on 1.0x PEG and37% FY18-21e earnings CAGR, as we cut FY18 EPS by 4%.


    Strong earnings beat on margin expansion. 3Q17revenue increased 39%YoY to Rmb83.7bn, in line with our and the consensus estimates. Grossmargin improved 1.2ppts YoY and 1.9ppts QoQ to 15.5%, ahead of our andthe market’s expectations. As GPM expansion trickled down, non-GAAPoperating profit grew 171% YoY to Rmb1.5bn, 40% above our forecast. Non-GAAP net profit came in 130% above our estimate, at Rmb2.2bn, up by asubstantial 359% YoY. During the 1–11Nov promotion, JD generated anRmb127bn GMV, up 50% YoY; the company is guiding to 4Q revenue ofRmb107–110bn (up 35–39% YoY), in line with consensus.

    3Q results and 4Q guidance strong beat. 3Q17revenue increased 33%YoY to Rmb2.7bn, beating our/consensus by 3%/7%, on the back of strongerjob category revenue growth. The number of paying accounts increased 26%yoy to 2.6m in 3Q17. Non-GAAP OPM improved 11ppts yoy to 24%, primarilyattributable to the control over S&M expenses. Non-GAAP net incomereached Rmb479bn, 98% higher than consensus estimate of Rmb241m. Thecompany guides 4Q17revenue to increase 25-30% YoY to Rmb2.63-2.73bn,3-7% above consensus estimate of Rmb2.56bn.

    2Q17 earnings beat. Net revenue increased 45% YoY to Rmb6.4bn, 2%/3%ahead of MQ/consensus on strong transportation growth. Transportation revenuegrew 49% YoY to Rmb3.0bn, driven by Skyscanner consolidation and triple-digitgrowth in train/bus/car rental. Accommodation increased 30% YoY to Rmb2.3bn ona rise in reservation volume; and corporate travel growth accelerated to 36% YoY,ahead of the company’s 15-25% YoY guidance. Non-GAAP net profit came in atRmb855m, 26% above consensus on improving efficiency.

    3Q earnings decline, missing consensus. Revenue for 3Q increased 28%YoY to Rmb15.3bn, 1% ahead of MQ/consensus estimates. This wasattributable to a 23% YoY increase in total orders and 4% growth in averageticket size. Non-GAAP OPM contracted 0.5ppts QoQ and 1.5ppts YoY to4.6% due to promotional efforts and increased fulfillment costs. Non-GAAPnet profit decreased 6% YoY to Rmb560m, 3% below consensus. Thecompany reported another quarter of negative OCF and FCF, at Rmb360mand Rmb575m, respectively. Management guided to 4Q revenue growth of20–25% YoY to Rmb22.8–23.8bn, in line with consensus.


    11ppts yoy to 24% as the advertising expense was prudently controlled andthe synergies of the merger with Ganji kicked in. In addition, 58’s customerare becoming more online self-served and customer services becoming moreautomated. Despite an increase in R&D personnel being expected in 2018,we believe 58will further cut sales headcount in 2H18onwards. We estimatenon-GAAP OPM to expand from 10% in 2016to 21%/24% in 2017/18.



    3Q17non-GAAP net profit for JD.com came in at Rmb2.2bn, 130% ahead ofour estimate, primarily on robust margin expansion. Management is promisingto continue improving margin on a full-year basis over the next few years, andwe project FY17/18non-GAAP NPM improvement of 0.6ppts YoY each yearto 1.4%/2.0%. While JD is currently facing headwinds in the apparel business,with 100 domestic brands leaving the platform, the company is determined torevamp the business, supported by the growing female customer base. Afteryears of investment, the company’s logistic network is to cover 100% ofChina’s counties and villages by end-2017, which should facilitate the rolloutof its Xintonglu/ZGB. We maintain our OP rating and target price of US$51,which is based on 1.0x FY18E EV/sales.

    Action and recommendation

    Earnings and target price revision

    Earnings and target price revision

    Furthermore, equity loss related to 58Home will be largely removed in 2018and help non-GAAP net margin to expand from 15% in 2017to 21% in 2018.We estimate Rmb679m equity loss in 2017.

    Strengthen lower-tier city penetration. Ctrip targets to further gain market sharein lower-tier cities through a branding campaign and comprehensive productoffering. As of June-17, Ctrip covered 570k domestic hotels, up 25% YoY; and thecompany reported accelerating growth in lower tier city hotel bookings – room nightbookings in lower-tier cities reached 20m in July. User traffic of lower tier cities rose50% YoY in the quarter. For better penetration of lower-tier cities, Ctrip is buildingup its franchised offline network, and aims to have 6,500 offline stores by end-FY17, up from the current 5,500. Ctrip and Qunar had opened 400 offline storesby the end of 2Q, and targets 600 stores by year-end.

    Vipshop’s 3Q17revenue came in 1% above consensus, but non-GAAP net profitmissed by 3%, primarily on increased fulfillment expenses. The company reportedits second consecutive quarter of negative OCF and FCF, with the amount ofoutflow increasing QoQ. We expect to see prolonged margin pressure frompromotional efforts and the continuous expansion of the company’s last-milelogistic network, and we are cutting our FY18/19non-GAAP net margin forecaststo 3.8%/3.8% from 4.1%/4.2%. We are lowering our FY18/19EPS estimates7%/9% and cutting our TP from US$10.5to US$9, based on a 12x FY18E PER(13x previously). We maintain a Neutral rating.

    Price catalyst

    Margin expansion should continue. 3Q17non-GAAP OPM improved

    Reiterate Outperform

    12-month price target:


    Price catalyst


    High-quality customer base with rising repeat customer ratio. While thegrowth of active customers decelerated to 15% YoY from 22% in 2Q, thecompany is seeing an improvement in customer quality for both existing andnew users. The number of repeat customers increased 20% YoY to 20.1million, with the repeat customer ratio improving 5ppts QoQ and 4ppts YoY to84.4%. Orders placed by repeat customers accounted for 95% of total orders,up 1.8ppts QoQ and YoY.

    Uphill battle in apparel. With more than 100domestic apparel brands leaving JDMall in 2Q–3Q17, JD saw stagnant apparel GMV growth in 3Q. While JD.comexpects the negative impact to continue into 4Q, management is confident inreaccelerating the apparel business in 1H18, driven by the growing femalecustomer base. In 3Q17, annual active customers increased 34% YoY to 266m,driven by increasing female users and customers from lower-tier cities.

    3Q17earnings came in nearly 100% higher than both MQ and consensus dueto the strength in job revenue and lower than expected S&M expenses. Jobrevenue growth accelerated from 50% in 1H17to 60 % yoy in 3Q17, whilehousing revenue grew 20 % yoy amid a housing market cool-down. We retainour long-term bullish view of 58’s local ecosystem and expect 58to continueto show operating leverage in 2018-19. We maintain our FY17-19revenueforecast but raise our 2018-19earnings estimates due to non-operating items.We maintain our Outperform rating and US$90TP based on 35x 2018PE.

    12-month price target: US$64.00 based on a PER methodology.

    Price catalyst

    We are raising our FY18/19non-GAAP EPS 16%/9% on robust marginimprovement. We maintain a target price of US$51, which is based on anunchanged 1.0x FY18E EV/sales (unchanged).

    We raise 2018/19EPS by 13%/9%, largely due to non-operating items, andmaintain our TP of US$90based on a lower FY18E PER of 35x from 40x dueto the lower earnings CAGR.

    International ticketing to mitigate regulatory risk. While Ctrip expects to see anegative impact from the recent CAAC regulation on bundle sales, we believe itsinternational business – which now accounts for c.40% of air ticket revenue – willhelp mitigate the regulatory impact on domestic ticketing. In 2Q, Ctrip’s internationaltransportation revenue outperformed domestic – achieving greater than 50% YoYgrowth, much higher than the 2% YoY growth for international air travel reported byTravelsky. Following consolidation, Skyscanner launched direct booking, and theconversion rate of its mobile traffic rose by 50%. Skyscanner contributed a mid-tohighsingle digit of Ctrip’s total revenue.

    US$9.00based on a PER methodology.

    Catalyst: Improving profitability, O2O, JD Logistic, and M&A.Action and recommendation

    Job growth accelerated and housing was better than expected. Jobrevenue growth accelerated to 60 % YoY in 3Q17from c.50% YoY in 1Q17.We expect an expansion of job revenue by c.50% in 2018. 58in the samecounty achieved 1m DAU and now covers 3,000counties. The company istargeting an increase of coverage by 10times to 30k counties in 2018.Despite the high base in 3Q16and soft transaction volume in the housingmarket, the housing vertical generated better-than-expected 20 % yoyrevenue growth in 3Q17. Looking to 2018, we expect revenue to grow 27% toRmb12.7bn.

    Margin expansion ahead of expectation. GPM rose 10ppts YoY and 2ppts QoQto 82%, ahead of MQ and consensus. This was due to 1) margin lift fromSkyscanner, 2) rising revenue contribution from high-margin small business units,and 3) improving efficiency with automation and AI assisted chat-box, which forexample handles over 40% of booking inquires. We see further profitability gainsand forecast non-GAAP OPM to rise to 19%/25% in FY17/18 from 10% in FY16.

    Catalyst: User base growth, margin recovery, internet finance spin-off.

    12-month price target: US$51.00based on an EV to sales methodology.

    Reiterate OP.


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