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Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

<p>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. </p><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"><strong>Vipshop Holdings (VIPS US)</strong></a><strong>is now back in the value category with the stock trading at 9-10x FY21 earnings (based on consensus EPS and my own estimate)</strong>. </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