Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

As one of the rare comeback stories among the Asian Internet platforms, <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> share price rose 3x in the last 12 months (Figure 1). While the skeptics questioned whether the WeChat synergy would be sustainable, VIPS has answered the critics with robust results in the last three quarters, including the impressive 4Q20 results (Figure 3). There is no argument about the fundamental argument thus far for VIPS shares’ resurgence considering the strong customer acquisitions partly due to the power of the WeChat and margin improvement as the management refocused on its core strength in apparel and shed the margin dragging logistics unit. However, chasing the stock at this price level is not for the faint-hearted. We noted that the stock is now trading at the highest forward P/E multiple based on FY2021 GAAP EPS since July 2018 (Figure 2).       Having said that positive sentiment on the stock will likely persist in the near-term.  The management’s guidance of 45-50% revenue growth for 1Q21 (the guidance implies 19% YoY growth normalized) should provide the momentum and revenue growth will continue to be compared against the COVID-19 lockdown quarters.  The real growth test will come in 3Q21 when VIPS’ growth will be compared with the high customer growth which started in 3Q20. Decelerating growth could trigger a potential pullback, in our view.

As one of the rare comeback stories among the Asian Internet platforms, Vipshop Holdings' (VIPS US) share price rose 3x in the last 12 months (Figure 1). While the skeptics questioned whether the WeChat synergy would be sustainable, VIPS has answered the critics with robust results in the last three quarters, including the impressive 4Q20 results (Figure 3). There is no argument about the fundamental argument thus far for VIPS shares’ resurgence considering the strong customer acquisitions partly due to the power of the WeChat and margin improvement as the management refocused on its core strength in apparel and shed the margin dragging logistics unit. However, chasing the stock at this price level is not for the faint-hearted. We noted that the stock is now trading at the highest forward P/E multiple based on FY2021 GAAP EPS since July 2018 (Figure 2).       Having said that positive sentiment on the stock will likely persist in the near-term.  The management’s guidance of 45-50% revenue growth for 1Q21 (the guidance implies 19% YoY growth normalized) should provide the momentum and revenue growth will continue to be compared against the COVID-19 lockdown quarters.  The real growth test will come in 3Q21 when VIPS’ growth will be compared with the high customer growth which started in 3Q20. Decelerating growth could trigger a potential pullback, in our view.

VIPS US: 4Q20: Commendable Reincarnation but Fully Priced

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>, the largest e-commerce company in South Korea with $12.0bn in annual revenue and 14.9m in quarterly active customers, filed for an NYSE IPO under the ticker “CPNG” with a placeholder value of $1.0bn.In our two previous insights on the IPO; <a href="https://www.smartkarma.com/insights/coupang-ipo-not-worth-subscribing-at-rumoured-50-0bn-valuation" target="_blank" rel="noopener">Coupang IPO: Not Worth Subscribing at Rumoured 50.0bn Valuation</a>, <a href="https://www.smartkarma.com/insights/coupang-ipo-lacks-margin-upside" target="_blank" rel="noopener">Coupang IPO: Lacks Margin Upside</a>, we looked at the company’s business model, future prospects, and revenue and earnings estimates. In this insight, we assess the fairness of the company's rumoured $50.0bn valuation.

Coupang (CPNG US), the largest e-commerce company in South Korea with $12.0bn in annual revenue and 14.9m in quarterly active customers, filed for an NYSE IPO under the ticker “CPNG” with a placeholder value of $1.0bn.In our two previous insights on the IPO; Coupang IPO: Not Worth Subscribing at Rumoured 50.0bn Valuation, Coupang IPO: Lacks Margin Upside, we looked at the company’s business model, future prospects, and revenue and earnings estimates. In this insight, we assess the fairness of the company's rumoured $50.0bn valuation.

Coupang IPO: Initial Thoughts on Rumoured $50.0bn Valuation

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Thematic (Sector/Industry)

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:<a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a>, <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>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/bytedance-technology" target="_blank" data-smartkarma-citation="entities:27936:1" rel="noopener">ByteDance (1460967D CH)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Baidu (BIDU US), Vipshop Holdings (VIPS US), TSMC (2330 TT), ByteDance (1460967D CH), Tencent Holdings (700 HK)

Global Emerging Markets Weekly: 12 February 2021

Alibaba Group Holding  / Equity Bottom-Up

Given the significant uncertainty surrounding 1) the impact that a regulatory-induced restructuring could have on the eventually listed <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a>, and 2) the full final impact of increased anti-monopoly regulatory efforts from the State Administration for Market Regulation (SAMR) on the <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, it has been difficult to assess a fair valuation level for the company. Following the indefinite suspension of Ant Group’s IPO, in November 2020, we witnessed a c.30% sell-off (or $260bn!) in Alibaba Group’s share price, before starting its recovery back to current levels, triggered by the reappearance of Jack Ma and a solid earnings report for the quarter ended December 2020. The net result, however, has been a roughly 17% (or $140bn) decline in Alibaba’s listed value. In this insight, I take a deep dive into Alibaba’s Sum-of-The-Parts valuation to assess what implied value is currently priced in for their equity holding in Ant Group, and what can be deduced from the current valuation for their Core Commerce operations.

Given the significant uncertainty surrounding 1) the impact that a regulatory-induced restructuring could have on the eventually listed Ant Group (6688 HK), and 2) the full final impact of increased anti-monopoly regulatory efforts from the State Administration for Market Regulation (SAMR) on the Alibaba Group (9988 HK), it has been difficult to assess a fair valuation level for the company. Following the indefinite suspension of Ant Group’s IPO, in November 2020, we witnessed a c.30% sell-off (or $260bn!) in Alibaba Group’s share price, before starting its recovery back to current levels, triggered by the reappearance of Jack Ma and a solid earnings report for the quarter ended December 2020. The net result, however, has been a roughly 17% (or $140bn) decline in Alibaba’s listed value. In this insight, I take a deep dive into Alibaba’s Sum-of-The-Parts valuation to assess what implied value is currently priced in for their equity holding in Ant Group, and what can be deduced from the current valuation for their Core Commerce operations.

Alibaba: A Detailed Look at the SOTP, and What that Tells Us About the Ant Group and Core Commerce

Alibaba shares have significantly underperformed its peers over the last twelve months due both to the share overhang stemming from both China’s trade conflict with the US and internal risks related to China’s own anti-monopoly investigations as well as concerns over the cancellation of Ant Financial’s IPO. Its share price has partially recovered YTD as some of the share overhang concerns were allayed, but the share overhang lingers, in our view. However, in the current market where the majority of the tech stocks have nearly doubled or more in the last twelve months, we believe this underperformed stock offers an attractive risk-return proposition at current levels.  If the bulls were looking for an outstanding December quarter to trigger a rebound, it did not happen, even though the Dec quarter results were solid.  What we took away from the results is that the operating fundamentals are strong and there are positive signs of loss-making segments turning the corner:   <ul>
<li>Highest quarterly revenue growth in 2020 (37% YoY). </li>
<li>Historic high adjusted EBITA for Core Commerce and highest quarterly operating profit in history. </li>
<li>The cloud segment has turned profitable for the first time.</li>
<li>Cainiao has recorded positive operating cash flow. </li>
</ul>The key risk for the company is higher than expected margin erosion from investments in new businesses.

Alibaba shares have significantly underperformed its peers over the last twelve months due both to the share overhang stemming from both China’s trade conflict with the US and internal risks related to China’s own anti-monopoly investigations as well as concerns over the cancellation of Ant Financial’s IPO. Its share price has partially recovered YTD as some of the share overhang concerns were allayed, but the share overhang lingers, in our view. However, in the current market where the majority of the tech stocks have nearly doubled or more in the last twelve months, we believe this underperformed stock offers an attractive risk-return proposition at current levels.  If the bulls were looking for an outstanding December quarter to trigger a rebound, it did not happen, even though the Dec quarter results were solid.  What we took away from the results is that the operating fundamentals are strong and there are positive signs of loss-making segments turning the corner:   
Highest quarterly revenue growth in 2020 (37% YoY). 
Historic high adjusted EBITA for Core Commerce and highest quarterly operating profit in history. 
The cloud segment has turned profitable for the first time.
Cainiao has recorded positive operating cash flow. 
The key risk for the company is higher than expected margin erosion from investments in new businesses. 

Alibaba (BABA US): Unloved but Undeterred

China

Vipshop Holdings Ltd. retails branded products at discount over the Internet. The Company retails through flash sales, in which limited quantities of an item are sold at deep discount for a specified period of time.

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Vipshop Holdings (VIPS US)

VIPS US: 4Q20: Commendable Reincarnation but Fully Priced

4Q20 results proved VIPS' rejuvenated growth is more sustainable than we thought. But the expected growth deceleration in 2H21 and expensive...

Mitchell Kim

Coupang IPO: Initial Thoughts on Rumoured $50.0bn Valuation

Coupang is fundamentally different from other e-commerce platforms as it generates over 92% of revenue from own inventory retail. Therefore a EV...

Oshadhi Kumarasiri

Global Emerging Markets Weekly: 12 February 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

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 deep dive into Alibaba’s Sum-of-The-Parts to assess the implied value for their equity holding in Ant Group, and what can...

Wium Malan, CFA

Alibaba (BABA US): Unloved but Undeterred

Alibaba shares underperformed its peers significantly in the last 12 months. We reviewed the company's FY21Q3 results which prime the stock for an...

Mitchell Kim

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