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Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

In June, I turned more constructive on <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> as a rare value play among the online shopping platforms after the stock price fell more than 50% from the peak in March.  Since then, the stock price fell another 26% as the Chinese tech selloff continued even though VIPS faces relatively lower regulatory risk. Considering the continued operational improvements (even though the profits missed consensus expectations, margins remained stable). I believe the stock offers an attractive risk-return proposition.   I find VIPS more attractive at this point because of the following three reasons:<ol>
<li>
Vipshop is subject to relatively lower regulatory risk.  VIPS was penalized just a small fine thus far. VIPS is relatively immune from the new Data Security Law (DSL) to be adopted on 1 September.    </li>
<li>
Vipshop is trading near historic low valuations. VIPS shares trade at 8.6x FY21 and 7.4x FY22 consensus earnings and at the historic low P/E band.  This level is similar to when the company recorded 9% revenue growth and a 3.5% operating margin.  This is a whole new company with substantially higher revenue and profit growth. </li>
<li>
Weak 2Q21 results provide a better entry point. VIPS' 2Q21 showed resilient top-line growth but margins took a hit, indicating the higher cost of acquisitions.  But VIPS is a different company than the weaker 2018-2019 self.      </li>
</ol>

In June, I turned more constructive on Vipshop Holdings (VIPS US) as a rare value play among the online shopping platforms after the stock price fell more than 50% from the peak in March.  Since then, the stock price fell another 26% as the Chinese tech selloff continued even though VIPS faces relatively lower regulatory risk. Considering the continued operational improvements (even though the profits missed consensus expectations, margins remained stable). I believe the stock offers an attractive risk-return proposition.   I find VIPS more attractive at this point because of the following three reasons:

Vipshop is subject to relatively lower regulatory risk.  VIPS was penalized just a small fine thus far. VIPS is relatively immune from the new Data Security Law (DSL) to be adopted on 1 September.    

Vipshop is trading near historic low valuations. VIPS shares trade at 8.6x FY21 and 7.4x FY22 consensus earnings and at the historic low P/E band.  This level is similar to when the company recorded 9% revenue growth and a 3.5% operating margin.  This is a whole new company with substantially higher revenue and profit growth. 

Weak 2Q21 results provide a better entry point. VIPS' 2Q21 showed resilient top-line growth but margins took a hit, indicating the higher cost of acquisitions.  But VIPS is a different company than the weaker 2018-2019 self.      


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