Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Equity Bottom-Up

The Chinese eCommerce sector has been affected by increased regulatory scrutiny from the State Administration for Market Regulation (SAMR) which has been a headwind to most companies in the sector. However, during this time, <a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a> has meaningfully outperformed peers, driven by an acceleration in active user numbers. <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, in turn, has significantly underperformed peers, driven by an overhaul of regulation affecting, not only, its 33%-owned <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a>, but also its core Chinese marketplace operations. Having previously explored the prospects for Alibaba Group in more detail (<a href="https://www.smartkarma.com/insights/alibaba-a-detailed-look-at-the-sotp-and-what-that-tells-us-about-the-ant-group-and-core-commerce" target="_blank" data-smartkarma-citation="insights:47981" rel="noopener">Alibaba: A Detailed Look at the SOTP, and What that Tells Us About the Ant Group and Core Commerce</a> ), in this insight, I take a closer look at the comparative valuations between Chinese niche apparel flash sales company, Vipshop Holdings, and Chinese marketplace behemoth, Alibaba Group, as it relates to their regulatory challenges, competitive positioning, and medium-term growth outlook.

The Chinese eCommerce sector has been affected by increased regulatory scrutiny from the State Administration for Market Regulation (SAMR) which has been a headwind to most companies in the sector. However, during this time, Vipshop Holdings (VIPS US) has meaningfully outperformed peers, driven by an acceleration in active user numbers. Alibaba Group (9988 HK), in turn, has significantly underperformed peers, driven by an overhaul of regulation affecting, not only, its 33%-owned Ant Financial Services Group (6688 HK), but also its core Chinese marketplace operations. Having previously explored the prospects for Alibaba Group in more detail (Alibaba: A Detailed Look at the SOTP, and What that Tells Us About the Ant Group and Core Commerce ), in this insight, I take a closer look at the comparative valuations between Chinese niche apparel flash sales company, Vipshop Holdings, and Chinese marketplace behemoth, Alibaba Group, as it relates to their regulatory challenges, competitive positioning, and medium-term growth outlook.

Long/Short: Alibaba/Vipshop, a Comparative Valuation

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

<a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> recorded a banner year in 2020 with GMV and active buyer growths re-accelerating from the slower 2019 (see our results highlights). JD too has been a beneficiary of the online consumption burst in 2020.  The stock price more than doubled from 2019 but its valuations do not appear to be stretched unlike some of its peers.  We believe JD's margin expansion story is unwinding.      We are positive on JD’s operating improvements, and we forecast a continued – albeit slightly muted – operating momentum in 2021. Interestingly, <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> IPO sucked up all the oxygen today. Given the similarity between the two business models, we believe Coupang’s rich valuations make a compelling argument for JD shares, in our view.  We favor JD.com even on growth-adjusted valuations.  In our previous report, <a href="https://www.smartkarma.com/insights/coupang-cpng-us-going-mano-e-mano-with-jd-com" target="_blank" data-smartkarma-citation="insights:49065" rel="noopener">Coupang (CPNG US): Going Mano E Mano with JD.com</a>, we compare JD’s historical valuations with Coupang.  Based on our estimates, JD trades at 0.3x ‘21e EV/GMV, 0.9x EV/Revenue, and only 6.1x Gross Profit as well as 23.2x ‘21e earnings (excluding net cash).  These are attractive valuations, in our view.

JD.com Inc (ADR) (JD US) recorded a banner year in 2020 with GMV and active buyer growths re-accelerating from the slower 2019 (see our results highlights). JD too has been a beneficiary of the online consumption burst in 2020.  The stock price more than doubled from 2019 but its valuations do not appear to be stretched unlike some of its peers.  We believe JD's margin expansion story is unwinding.      We are positive on JD’s operating improvements, and we forecast a continued – albeit slightly muted – operating momentum in 2021. Interestingly, Coupang (CPNG US) IPO sucked up all the oxygen today. Given the similarity between the two business models, we believe Coupang’s rich valuations make a compelling argument for JD shares, in our view.  We favor JD.com even on growth-adjusted valuations.  In our previous report, Coupang (CPNG US): Going Mano E Mano with JD.com, we compare JD’s historical valuations with Coupang.  Based on our estimates, JD trades at 0.3x ‘21e EV/GMV, 0.9x EV/Revenue, and only 6.1x Gross Profit as well as 23.2x ‘21e earnings (excluding net cash).  These are attractive valuations, in our view. 

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div><a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> plans to raise around US$3bn in its secondary listing in Hong Kong. I have covered most aspects of the deal in my earlier note, <a href="https://www.smartkarma.com/insights/baidu-secondary-listing-early-look-will-be-one-of-the-largest-secondary-listings-this-year" target="_blank" rel="noopener">Baidu Secondary Listing Early Look - Will Be One of the Largest Secondary Listings This Year</a>.</div><div>In this note, I'll only touch upon the updates since my last note.</div>

Baidu (BIDU US) plans to raise around US$3bn in its secondary listing in Hong Kong. I have covered most aspects of the deal in my earlier note, Baidu Secondary Listing Early Look - Will Be One of the Largest Secondary Listings This Year.In this note, I'll only touch upon the updates since my last note.

Baidu Secondary Listing - Smaller than Expected, Doing the Bare Minimum

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

<ul>
<li>The revenue growth rates accelerated in 4Q20 and 2020.</li>
<li>The operating margins improved in 2020.</li>
<li>Operating cash flow increased 72% in 2020.</li>
<li>Pinduoduo (PDD US) is more likely to compete with Alibaba Group (BABA US)’s Taobao, but not JD.</li>
<li>We believe there will an upside of 15.6% by March 2021.</li>
</ul>


The revenue growth rates accelerated in 4Q20 and 2020.
The operating margins improved in 2020.
Operating cash flow increased 72% in 2020.
Pinduoduo (PDD US) is more likely to compete with Alibaba Group (BABA US)’s Taobao, but not JD.
We believe there will an upside of 15.6% by March 2021.


JD.com (JD): Main Business Accelerated in 4Q20

<a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US) </a>is set for IPO on 11 March 2021 at a revised-up range of USD32-34.  This is one of the blockbuster listings among the Korean companies and thrusting Coupang to the five largest companies in Korea.  There have been healthy debates on this IPO with a consensus that the valuation is very expensive, yet, Coupang appears to be set to fetch close to USD50 billion valuation.We are on the “expensive” camp and willing to wait for a better entry price. We arrived at this conclusion by focusing on direct head-to-head growth and valuation comparisons with its peer, JD.com, instead of comparing with a broad base of peers. Simply put, would you rather have JD.com or Coupang shares?  They are both mostly online retailers with nearly 90% of revenues from retail.     Coupang’s market value is priced at 67% premium to JD.com’s market value in 2015 when the latter was in a similar growth stage but with higher upside potential for online consumption outlook.  The only explanation is the outlook for better growth and other considerations we discuss in this report.   In this report, we highlight the following:<ol>
<li>How does Coupang stack up against JD.com at the past similar growth stage?</li>
<li>Is Coupang expensive?  Yes, on most multiples including EV/Sales and EV/Gross Profit.</li>
<li>How can the market justify paying such a premium? High growth expectation.</li>
<li>Is Coupang’s growth in 2020 sustainable?  Unlikely.</li>
</ol>

Coupang (CPNG US) is set for IPO on 11 March 2021 at a revised-up range of USD32-34.  This is one of the blockbuster listings among the Korean companies and thrusting Coupang to the five largest companies in Korea.  There have been healthy debates on this IPO with a consensus that the valuation is very expensive, yet, Coupang appears to be set to fetch close to USD50 billion valuation.We are on the “expensive” camp and willing to wait for a better entry price. We arrived at this conclusion by focusing on direct head-to-head growth and valuation comparisons with its peer, JD.com, instead of comparing with a broad base of peers. Simply put, would you rather have JD.com or Coupang shares?  They are both mostly online retailers with nearly 90% of revenues from retail.     Coupang’s market value is priced at 67% premium to JD.com’s market value in 2015 when the latter was in a similar growth stage but with higher upside potential for online consumption outlook.  The only explanation is the outlook for better growth and other considerations we discuss in this report.   In this report, we highlight the following:
How does Coupang stack up against JD.com at the past similar growth stage?
Is Coupang expensive?  Yes, on most multiples including EV/Sales and EV/Gross Profit.
How can the market justify paying such a premium? High growth expectation.
Is Coupang’s growth in 2020 sustainable?  Unlikely.


Coupang (CPNG US): Going Mano E Mano with JD.com

China

Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

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Alibaba Group Holding (BABA US)

Long/Short: Alibaba/Vipshop, a Comparative Valuation

In this insight, I take a closer look at the comparative valuations between Chinese niche apparel flash sales company, Vipshop Holdings, and...

Wium Malan, CFA

JD.com (JD US): The Better-Looking Twin?

We remain positive on JD's accelerating growth and its margin expansion story. In this report, we make a compelling argument for JD's value by...

Mitchell Kim

Baidu Secondary Listing - Smaller than Expected, Doing the Bare Minimum

Baidu plans to raise around US$3bn in its secondary listing in Hong Kong. I have covered most aspects of the deal in my earlier note. In this note,...

Sumeet Singh

JD.com (JD): Main Business Accelerated in 4Q20

The revenue growth rates accelerated in 4Q20 and 2020. The operating margins improved in 2020. Operating cash flow increased 72% in 2020.

Ming Lu

Coupang (CPNG US): Going Mano E Mano with JD.com

Coupang (CPNG US) is set for IPO on 11 March 2021 at a revised-up range of USD32-34. Our unique one-on-one comparison with JD.com should help...

Mitchell Kim

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