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1、Deutsche BankResearchAsiaChinaTechnologySoftware & ServicesIndustryChina E-commerceDate27 May 2019Initiation ofCoverageHan Joon Kim Research Analyst +852-2203 6157| Key Changes CompanyTarget PriceRatingBABA.N197.00 to 220.00ID CQ-to 29.40-to HoldPDD.OQ-to 26.20-to BuyVIPS.NSource: Deutsche Bank二拉 9.
2、30-to BuyIMaria Ma Research Associate +852-2203 6242|Companies featuredAlibaba (BABA.Nk USD156.00Buy2019A2020E2021EPfE (x)29.722.716.5EVfEBITDA (x)21.716.611.6EVfFCF (x)3529.121.4JD (JD.OQ), USD26.70Hold2018A2019E2020EPfE (x)69.735.725.0EVfEBITDA (x)42.921.914.9EVfFCF (x)42312J7Pinduoduo (PDD.OQ), U
3、SD20.53Buv2018A2019E2020EPfE (x)-30.3-35.140.7EVfEBITDA (x)-40.9-20.735.4EVfFCF (x)18321.57.2ViDshoo (VIPS.N), USD7.50Buv2018A2019E2020EPfE (x)12.911.28.3EVfEBITDA (x)43EVfFCF (x)13.518.210.0Source: Deutsche BankA tale of two camps - and we favor the one with strong growth prospectsWe have a growth
4、biasinthe China e-commerce landscape and hence favor Alibaba andPinduoduo(PDD).WealsolikeVIPSasaGARP stock. We reiterate Buy on Alibaba, initiate coverage of PDD as a Buy, VIPShop (VIPS) as a Buy, andJD (JD) as a Hold. We adjusted Alibabas valuation in synchronizing all our e-commerce stocks, which
5、lifts its target price to US$220 from US$197. In this report, we look at the key themes reverberating across the China e-commerce landscape, which we have put together after our interviews with companies, industry experts and merchants. We look at the evolution of the FMCG segment and the demographi
6、c and geographic penetration in China, along with a comparison of the key metrics and market positioning of leading companies.We favor the growth-oriented campAt the risk of oversimplifying a dynamic and complex market, we see two camps emerging in the Chinese e-commerce landscape. One camp comprise
7、s companies with a meaningful TAM (total addressable market) outlook but a weaker near-term profit momentum as they invest in operations. We include Alibaba and PDD in this growth-oriented camp. The other camp consists of companies with slower top-line growth but which are transitioning towards a fo
8、cus on sustainable profit rather than revenue growth. JD and VIPS are in this camp. Both camps are equally viable as investable stocks but we favor the growth-oriented camp for two reasons. 1) We are not paying for a significantly higher valuation of these stocks* underlying core operations. Forexam
9、ple, Alibaba istrading at17x EV/EBITDAvs. JDat22x in CY19Eand PDD istrading at 7x EV/FCFvs. VIPS at 10x in CY20E. 2) The latter camp has shifted to a profit-focused strategy in the past few quarters and we are not yet sure whether this strategy will be sustained and executed on a multi-year basis. A
10、fter all, China has a dynamic e-commerce scene that is prone to new competitive and regulatory risks.KPI comparison across e-commerce platforms, including a merchant ROI analysis Given the notoriously different disclosure metrics and definitions across the companies and data sources, we spent a mean
11、ingful amount of time curating the data shown herein . We compare and contrast key KPIs such as the GMV, fuelled order volume and average ticket size, fulfillment cost and user acquisition efficiency of leading e-commerce players. We took time to interview merchants and analyzeDeutscheBankAG/HongKon
12、gDeutsche Bankdoes and seeks to do business with companies coveredin its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this re恻*科令用 央涮%？用% as only a single factor in making their investment decision. DISCLOSURES A
13、ND AnKN坪色砰自欢节国旨 ARE LOCATED IN APPENDIX 1. MCI (P) 066/04/2019. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLES REPUBLIC OF CHINA (nTHE PRC) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU.7T 2se3rOOt6kwo PaFig
14、ure 12: Number of paying customers by key platformBABAJDPDDVIPS# of active customers, mn2016443227na522017515293245582018636305419612019E725318523631,395 as of 2018China total population, mnSource: Company data, NBS, Deutsche Bank estimatesIAlso, while commerce olavers have been scalina ud users in
15、lowe Jtier cities, PDD appears to be shifting its focus to gaining more higher-tier city consumers as well, as evidenced by the sharp pick-up in total users as well as higher-tier city users recently. Although PDDs mix between higher- and lower-tier cities does not appears to be shifting significant
16、ly, we do note that PDD appears to be gaining traction with higher-tier city consumers as well. Based on comments made by the managements of leading e-commerce players coming into 2019, we expect the fight for new users will continue to be a major driver of revenue and profit outlook for the coming
17、quarters.Figure 13: Indexed MAU in tier 1-2 cities (assuming Tao- bao MAU in Jan18 as 100)Figure 14: Indexed MAU in tier 3 cities and below (assuming Taobao MAU in Jan18 as 100)Figure 15: Indexed tier 1-2 cities new added users by Tao- bao and PDD (assuming Taobao May18 as 100)250200150May 18 Jul 18
18、 Sep Ifl Nov 18 Jan 19 Mar 19 May 19 TaobaoPDCFigure 16: Tier 3 cities and below new added users by Taobao and PDD (assuming Taobao May18 as 100)0TTTTTT May 18 Jul 18 Sep If Nov IS Jan 19 Mar 19 May 19TaobaoPDCsource: jiguang, ueutscne tianKsource : jiguang, uewsc/ie bankFigure 17: New users added i
19、n tier 3 cities and below as 吆 of total new usersMay 18 Jul 18 Sep 18 Nov 18 Jan 19 Mar 19 May 19 TaobaoPDDSource : Jiguang, Deutsche BankDemographic balance is slightly better than geographic balanceDemographic segmentation across age and gender is more balanced than geographic mix. China has a rel
20、atively equal gender mix (male:female: 51 %:49%), but moste-commerce players have more female users than male users. Webelievethis phenomenon is somewhat expected given the cultural backdrop. JD is an exception with 54% male, given its product focus on electronics categories. VIPS has 65% female use
21、rs as it has more apparel-related products on its platform. Taobao and PDDs users have a relatively similar gender mix with 59% female users for Taobao and 56%female users for PDD. Regarding user age distribution, Taobao/PDD have more young users under 25 (40% of total users), compared to JD/VIPS wh
22、ich have 35% of users under 25 years-old. On a relative basis, we do not see e-commerce players focusing as much on demographic user shift in their new user acquisition strategies, relative to geographic shift. In general, we believe Taobao and PDDs cohorts are slightly better positioned than peers*
23、 in terms of ability to scale and consume more overtime, as they tend to have a younger age distribution vs. peers.China tQtal TaobaoJRPDDVIPSpopulation Malen Femaleure 19: Age distribution by MAU across platformSource : NBS, Jiguang, Deutsche BankSource: NBS, Jiguang, Deutsche BankThe difference in
24、 user profile results in a meaningful discrepancy between platforms, as indicated by frequency of purchase and average ticket size of purchases, as shown below.BABAJDPDDVIPS# of active customers, mn2016443227na522017515293245582018636305419612019E72531852363Net add in active customers, mn20163672na1
25、620177266na620181211317432019E89121053Orders per customer, mn201653.47.8na5.2201750.58.017.65.8201842.29.726.57.22019Ena11.1na8.5Annual ARPU per customer, RMB20164,4722,092na1,31820174,8802,3765771,51620184,8162,9181,1271,6772019E5,0753,4441,7302,214Average order size, RMB201684267na2552017972963326
26、22018114300422322019Ena310na261# of merchants20169,500,000107,500nana201710,000,000145,000152,000na201810,500,000187,5002,075,0001,000Source : Company data, Deutsche Bank estimatesNote: 1) all data based on calendar year. 2) ARPU and average order size based on fulfilled GM V, which we estimate is 5
27、5% of total GM V reported by Alibaba and 50%-54 % for JD, 60% for PDD and 77%-81 % for VIPS.Focal points for key e- commerce stocks in 2019Profit margin trend to stabilize in 2019E; signs of a rising margin a key criterion for stock rallyAs discussed above in the industry section, the e-commerce ind
28、ustry in China has seen aggressive investment against a backdrop of robust TAM and growth prospects in terms of both category and user geographic expansion. The end result has been a decline in profit margin over the past few years. While multi-year growth prospects are rich, we believe the time val
29、ue of money is an important criterion to consider in relation to investing in the Chinese e-commerce sector. Identifying turnarounds in investment or a turn in profit trends will be key to generating alpha in Chinese e-commerce.To that extent, we believe 2019 represents a year in which we see profit
30、 margin potentially stabilize from heavy investment in 2018. None of the e-commerce players appear to be disavowing the long-term growth prospects, but they have started to moderate spending as weaker macroeconomic conditions and reduced return on investment are tempering the outlook. In general, we
31、 believe stocks have recovered from troughs earlier in the year, as there have been signs of improving margins coming into CY19. If companies can sustain the margin recovery outlook into CY20, we believe there may be further room for upside. However, if the companies engage in aggressive growth camp
32、aigns again, we feel stocks may not perform as richly.Figure 21: BABA non-GAAP EBITA marginSource : Company data, Deutsche Bank estimatesSource : Company data, Deutsche Bank estimatesFigure 23: PDD non-GAAP net marginSource: Company data, Deutsche Bank estimatesFigure 24: VIPS non-GAAP net marginSou
33、rce : Company data, Deutsche Bank estimatesFor Alibaba, we anticipate non-GAAP EBITAmargin to furtherdrop year-on-year, as the mix shifts increasingly towards low-margin New Retail business from high-margin online marketplace. We expect underlying core e-commerce marketplace business to grow stably
34、with estimated non-GAAP EBITA growth of 26% yoy and stable margins in FY3/20. To a large extent, we believe Alibabas margin decline is stabilizing, relative to the sharp drop between FY18 and FY19. We hope for and anticipate a recovery in FY21.JD has been investing heavily into its logistics and new
35、 initiatives in 2018, resulting in a sharp drop in net margins. The company has been recalibrating its focus back to its core capabilities and streamlining business lines, which has resulted in a bet- ter-than-expected margin recovery in 1Q19 and there is room for further margin uplift if it can con
36、tinue to scale back and focus on profitability.For PDD, the key remains in stabilizing and improving its cohort. Currently, it is growing its GMV and users by 92% and 25% yoy in 2019, growing fastest among e-commerce players. What remains to be seen is whether the company can help merchants generate
37、 positive ROI and sustain consumer repeat purchases beyond sporadic cherry-picking behavior. We discuss merchant economics as a key factor to monitor for PDD further below. But the key to its financial forecasts lies in it reducing its marketing to sales ratio, which stands at 108% of sales as of 1Q
38、19. With marketing cost still exceeding revenues, we would need to see whether it can start to generate improving sales from its existing cohort and progressively drive down marketing cost as a % of sales.For VIPS, the company is retrenching and focusing back on an inventory-clearing discounted mode
39、l from a prior effort to move into in-season goods. The repositioning back to an inventory-clearing business model provides more clarity on its value proposition and thus, profit margin. The end result is that they may continue to see growth in order volume, while average ticket size may not grow si
40、gnificantly. The rising cost of fulfillment would thus weigh on margins over time. The company plans to focus on optimizing its cost structure to improve fulfillment cost (9% of sales). If successful, we may see improving net margin over the coming years.Below, we highlightthe two key variables that
41、 we believe investors should focus on as we think through the profit margin profile and sustainability of recovery.Driver of profit margin #1: User acquisition costOne critical variable in e-commerce platforms profit outlook relates to marketing and user acquisition cost. We believe 2018 saw a rapid
42、 rise in marketing cost, as platforms competed to gain new users, particularly in lower-tier cities. Not every business saw a similar efficacy in user acquisition. For a simplistic comparison, we have looked at marketing cost against net addition in new paying users as a metric for comparison. It sh
43、ows that JD had one of the worst conversions in 2018, despite an increase in marketing cost.| Figure 25: User acquisition cost comparisonBABAJDPDDVIPSNet add in active customers,mn20163672na1620177266na620181211317432019E89121053S&M cost, RMBmn201614,84310,1591692,838201723,99014,9181,3452,979201837
44、,77219,23713,4423,2402019E49,05422,47624,7833,427Paying customer acquisition cost (CAC), RMB2016412142na1832017333226na52320183121,503771,2002019E5511,8402361,358Source: Company data, Deutsche Bank estimatesAs a result, we believe JD has the most to benefit from rationalizing its marketing spend. We
45、 see PDD still gaining users at a reasonable acquisition cost and believe it can continue to gain users at an accelerated pace. As a result, we do not expect PDD to curb user acquisition-related marketing spend in the near future.Driver of profit margin #2: Compare unit economics among merchantsWhil
46、e PDD has a stronger user acquisition cost, it also has among the lowest user purchasing behavior as well. The key focal point for PDD is merchant economics.To illustrate, we simulated merchant ROI based on market benchmark data. Based on a sample of 552 consumer-related companies, we estimate that
47、COGS ratio for an average brand or merchant is 60% of its revenue. We then looked at average fulfillment cost, taking into consideration: a) data from listed logistics companies and their pricing table for average parcels, b) discussions with companies on the average cost of parcel delivery, c) our own estim