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/dingdong-maicai" target="_blank" data-smartkarma-citation="entities:33461:1" rel="noopener">Dingdong Maicai (DDL US)</a>, an on-demand fresh produce and grocery delivery platform in China with RMB 11.3bn in annual revenue and 6.9m in monthly active customers, raised about $96.0m in its US IPO on Tuesday after slashing the size of the IPO <a target="_blank">to almost a fourth of its earlier target.</a> The shares were priced at $23.50 per ADS, at the lower end of the proposed IPO price range. If exercised, the overallotment option could increase the gross proceeds to the company by another $14.0m.

Dingdong Maicai (DDL US), an on-demand fresh produce and grocery delivery platform in China with RMB 11.3bn in annual revenue and 6.9m in monthly active customers, raised about $96.0m in its US IPO on Tuesday after slashing the size of the IPO to almost a fourth of its earlier target. The shares were priced at $23.50 per ADS, at the lower end of the proposed IPO price range. If exercised, the overallotment option could increase the gross proceeds to the company by another $14.0m.

Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Thematic (Sector/Industry)

The latest sales data from the 6.18 (running from June 1st to June 18th) Festival by Syntun suggests potential revenue upside for online shopping platforms but particularly more for the larger market shareholders, Alibaba and JD, and Vipshop as apparel and shoes categories showed the highest sales growth.    I am positive on <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, <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>, and <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 they provide an attractive balance of growth and value.  I have recently turned more bullish on Vipshop because of its cheap value and the continued improving operating metrics.  I remain cautious on PDD US because of the risk associated with the company’s profit model. Three takeaways from my analysis of the 6.18.21 sales data (some 2020 data):<ol>
<li>Alibaba remains the king of promotions.  The company maintained its top-selling platform position.  Alibaba is particularly strong in personal and beauty care and snack foods.   </li>
<li>Apparel and shoes were the top two growth categories during the 6.18 Festival.  This bodes well for Vipshop and Alibaba. </li>
<li>JD maintains its strong position in appliances and electronics as well as dairy products (based on 2020 detail data for select categories).  JD also leads in New Retail – grocery delivery and supermarkets. </li>
<li>PDD appears to be a distant third on 6.18 sales (based on 2020 detail data breakdown – 2021 is unavailable).         </li>
</ol>

The latest sales data from the 6.18 (running from June 1st to June 18th) Festival by Syntun suggests potential revenue upside for online shopping platforms but particularly more for the larger market shareholders, Alibaba and JD, and Vipshop as apparel and shoes categories showed the highest sales growth.    I am positive on Alibaba Group (BABA US), JD.com Inc (ADR) (JD US), and Vipshop Holdings (VIPS US) as they provide an attractive balance of growth and value.  I have recently turned more bullish on Vipshop because of its cheap value and the continued improving operating metrics.  I remain cautious on PDD US because of the risk associated with the company’s profit model. Three takeaways from my analysis of the 6.18.21 sales data (some 2020 data):
Alibaba remains the king of promotions.  The company maintained its top-selling platform position.  Alibaba is particularly strong in personal and beauty care and snack foods.   
Apparel and shoes were the top two growth categories during the 6.18 Festival.  This bodes well for Vipshop and Alibaba. 
JD maintains its strong position in appliances and electronics as well as dairy products (based on 2020 detail data for select categories).  JD also leads in New Retail – grocery delivery and supermarkets. 
PDD appears to be a distant third on 6.18 sales (based on 2020 detail data breakdown – 2021 is unavailable).         


China E-Commerce: 6.18 Festival Getting Bigger - Good for Alibaba, JD, Vipshop

Equity Bottom-Up

<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> fell more than 50% from the peak in March 2021 despite the company delivering on rejuvenated revenue growth and margin improvements.  I have been cautious on the stock as I believed the market was overpaying for the company's restructuring success.  However, with the share price down sharply, I now believe risk-return is favorable and the stock offers attractive value.  I flagged my upgraded positive view in my last Vipshop report, <a href="https://www.smartkarma.com/insights/china-online-retail-sales-tracker-april-and-may-sales-growth-slows-on-unfavorable-comps" target="_blank" data-smartkarma-citation="insights:53557" rel="noopener">China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps</a>, dated 24 June 2021. Three reasons why investors should revisit the stock: <ul>
<li>The stock is trading at the lowest forward P/E band (except for the single-digit revenue growth year 2018).   </li>
<li>The company is structured to deliver a growth similar to the pre-2018 period and better margins, yet it is valued as if the company is entering the low growth stage. </li>
<li>Evidence of new customer conversion to repeat buyers will lead to a longer customer life cycle and longer sustainability of double-digit revenue growth.  With top-line growth acceleration, I estimate Vipshop to deliver on historic high profits. Consensus estimates operating profit growth of 29% YoY in 2021.    </li>
</ul>

Vipshop Holdings (VIPS US) fell more than 50% from the peak in March 2021 despite the company delivering on rejuvenated revenue growth and margin improvements.  I have been cautious on the stock as I believed the market was overpaying for the company's restructuring success.  However, with the share price down sharply, I now believe risk-return is favorable and the stock offers attractive value.  I flagged my upgraded positive view in my last Vipshop report, China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps, dated 24 June 2021. Three reasons why investors should revisit the stock: 
The stock is trading at the lowest forward P/E band (except for the single-digit revenue growth year 2018).   
The company is structured to deliver a growth similar to the pre-2018 period and better margins, yet it is valued as if the company is entering the low growth stage. 
Evidence of new customer conversion to repeat buyers will lead to a longer customer life cycle and longer sustainability of double-digit revenue growth.  With top-line growth acceleration, I estimate Vipshop to deliver on historic high profits. Consensus estimates operating profit growth of 29% YoY in 2021.    


Vipshop (VIPS US): Tantalizing Value for China's Discount Brand Retailer

China online physical goods retail sales growth for April and May is tracking well below the 1Q21 level.  While this is largely an optics phenomenon due to unfavorable comparisons with the COVID fueled 2Q20, the upcoming 2Q21 earnings are unlikely to provide a catalyst for ecommerce platforms, in my view. However, with a sharp share price fall in the last 3 months, Vipshop shares now stand out as a value play. <h3>Key takeaways from the China retail sales data for May: </h3><ul>
<li>China overall retail sales growth YoY for May drops to 12.4% from 34% in 1Q21, but it is at near par with 1Q21 on a two-year CAGR basis.     </li>
<li>Online physical goods sales growth YoY for April and May combined is 7.3% YoY, well below the 26% in 1Q21 but at a similar 15% 2 YR CAGR rate.  </li>
<li>The apparel category sales showed relatively stronger growth in April and May.</li>
<li>Overall, Chinese online shopping platform share prices are down 11% to 60% in the last 3 months.  <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>is now back in the value category with the stock trading at 9-10x FY21 earnings (based on consensus EPS and my own estimate). </li>
<li>Consensus estimates for VIPS are likely to continue to fall to rationalize the share price drop.  I see potential value emerging once the revision is complete. </li>
<li>I estimate Vipshop's 2Q21 revenue growth to be 29% YoY, beating consensus estimate and the company's upper range guidance.  <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a>, <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, and <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> will see revenue growth deceleration as well with PDD likely to see largest growth deceleration (excluding direct sales).   </li>
</ul>

China online physical goods retail sales growth for April and May is tracking well below the 1Q21 level.  While this is largely an optics phenomenon due to unfavorable comparisons with the COVID fueled 2Q20, the upcoming 2Q21 earnings are unlikely to provide a catalyst for ecommerce platforms, in my view. However, with a sharp share price fall in the last 3 months, Vipshop shares now stand out as a value play. Key takeaways from the China retail sales data for May: 
China overall retail sales growth YoY for May drops to 12.4% from 34% in 1Q21, but it is at near par with 1Q21 on a two-year CAGR basis.     
Online physical goods sales growth YoY for April and May combined is 7.3% YoY, well below the 26% in 1Q21 but at a similar 15% 2 YR CAGR rate.  
The apparel category sales showed relatively stronger growth in April and May.
Overall, Chinese online shopping platform share prices are down 11% to 60% in the last 3 months.  Vipshop Holdings (VIPS US)is now back in the value category with the stock trading at 9-10x FY21 earnings (based on consensus EPS and my own estimate). 
Consensus estimates for VIPS are likely to continue to fall to rationalize the share price drop.  I see potential value emerging once the revision is complete. 
I estimate Vipshop's 2Q21 revenue growth to be 29% YoY, beating consensus estimate and the company's upper range guidance.  Pinduoduo (PDD US), Alibaba Group (BABA US), and JD.com Inc (ADR) (JD US) will see revenue growth deceleration as well with PDD likely to see largest growth deceleration (excluding direct sales).   


China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps

<ul>
<li>A pioneer in China’s online discount retail, <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> is currently trading at US$ 17.52 per share, down 62% from the March 2021 peak. Vipshop’s share price momentum unraveled in March 2021 as investors started shifting from growth to value stocks. Vipshop’s decline was further aggravated by the fall of Archegos (held an outsized long position) and weaker than expected Q2 guidance.</li>
<li>At 0.44x FY+2 EV/Sales (past five-year median 0.62x) with around 13.5% revenue CAGR, we think further downside to Vipshop is limited. Moreover, at 6.9x FY+2 EV/EBIT with 19% EBIT CAGR and 8.9x FY+2 PE with 42% EPS CAGR, Vipshop seems to offer more value than most value names in the market.</li>
</ul>


A pioneer in China’s online discount retail, Vipshop Holdings (VIPS US) is currently trading at US$ 17.52 per share, down 62% from the March 2021 peak. Vipshop’s share price momentum unraveled in March 2021 as investors started shifting from growth to value stocks. Vipshop’s decline was further aggravated by the fall of Archegos (held an outsized long position) and weaker than expected Q2 guidance.
At 0.44x FY+2 EV/Sales (past five-year median 0.62x) with around 13.5% revenue CAGR, we think further downside to Vipshop is limited. Moreover, at 6.9x FY+2 EV/EBIT with 19% EBIT CAGR and 8.9x FY+2 PE with 42% EPS CAGR, Vipshop seems to offer more value than most value names in the market.


Vipshop: A Summer Bargain After Archegos Caused a Long Squeeze

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)

Dingdong Maicai IPO Trading Update

It is somewhat strange that Dingdong Maicai’s share price closed marginally above IPO price, especially considering that the company downsized the...

Oshadhi Kumarasiri

China E-Commerce: 6.18 Festival Getting Bigger - Good for Alibaba, JD, Vipshop

The latest data from the 6.18 Festival suggests potential revenue upside for online shopping platforms. Find out who is strong by category and why...

Mitchell Kim

Vipshop (VIPS US): Tantalizing Value for China's Discount Brand Retailer

Vipshop is down 50% from the peak in March 2021 despite the rejuvenated revenue growth and margin improvements. As I flagged my upgraded positive...

Mitchell Kim

China Online Retail Sales Tracker: April and May Sales Growth Slows on Unfavorable Comps

Online retail sales growth for April and May is tracking well below the 1Q21 level. This is due to optics, but 2Q21 earnings are unlikely to be a...

Mitchell Kim

Vipshop: A Summer Bargain After Archegos Caused a Long Squeeze

Vipshop’s share price momentum unraveled in March 2021 as investors started shifting from growth to value stocks. Vipshop’s decline was further...

Oshadhi Kumarasiri

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