In this briefing:
- JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018
- Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?
- Global Bottoming Process Continues; Remain Overweight China
1. JD.com (JD): The Real Main Business Grew 46% YoY, and Not 20% YoY in 4Q2018
- We believe the real main business line is service (commission), but not product (direct sales).
- In 4Q2018, service revenues grew by 46% YoY, but nominal main business line, product, grew only 20%.
- JD raised its commission rate in 2018, as demonstrating that the company still has the bargaining power over retailers.
- Historical GMV numbers suggest significant upside.
2. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?
- The biggest positive surprise from Sea Ltd’s (SE US) conference call is strong 2019 adjusted sales guidance: 82%-97% YoY growth for Garena (digital entertainment division) and 117-127% YoY growth for Shopee (e-commerce arm).
- Management expects first positive quarterly EBITDA for Shopee Taiwan operations in 1Q19, indicating there is a path to profitability for Shopee’s business model.
- Another great news: management expresses high confidence that Shopee’s S&M expenses in terms of absolute dollars would trend down in 2019, vs. 2018.
- After a 35% daily share gain on 27 Feb, SE trades at 4.1x 2019E P/adjusted revenue excl. 1P sales, yet still a whopping 49% discount to Pinduoduo’s (PDD US) 8.1x P/S.
3. Global Bottoming Process Continues; Remain Overweight China
The MSCI ACWI and ACWI ex-US have managed to break above their respective 200-day moving averages, and are now bumping up against overhead resistance. Supportive of a bottoming global market, cyclical Sectors are emerging as leadership. We examine the technical state of major developed and EM markets and highlight in today’s report and highlight attractive and actionable stocks within the Materials, Manufacturing, and Technology sectors.
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