27May2019DeutscheBankResearchAsiaChinaTechnologySoftware&ServicesIndustryChinaE-commerceDateInitiationofCoverageAtaleoftwocamps-andwefavortheonewithstronggrowthprospectsWehaveagrowthbiasintheChinae-commercelandscapeandhencefavorAlibabaandPinduoduo(PDD).WealsolikeVIPSasaGARPstock.WereiterateBuyonAliba-ba,initiatecoverageofPDDasaBuy,VIPShop(VIPS)asaBuy,andJD.com(JD)asaHold.WeadjustedAlibaba'svaluationinsynchronizingalloure-commercestocks,whichliftsitstargetpricetoUS$220fromUS$197.Inthisreport,welookatthekeythemesreverberatingacrosstheChinae-commercelandscape,whichwehaveputtogetherafterourinterviewswithcompanies,industryexpertsandmerchants.WelookattheevolutionoftheFMCGsegmentandthedemographicandgeographicpenetrationinChina,alongwithacomparisonofthekeymetricsandmarketpositioningofleadingcompanies.Wefavorthegrowth-orientedcampAttheriskofoversimplifyingadynamicandcomplexmarket,weseetwocampsemergingintheChinesee-commercelandscape.OnecampcomprisescompanieswithameaningfulTAM(totaladdressablemarket)outlookbutaweakernear-termprofitmomentumastheyinvestinoperations.WeincludeAlibabaandPDDinthisgrowth-orientedcamp.Theothercampconsistsofcompanieswithslowertop-linegrowthbutwhicharetransitioningtowardsafocusonsustainableprofitratherthanrevenuegrowth.JDandVIPSareinthiscamp.Bothcampsareequallyviableasinvestablestocksbutwefavorthegrowth-orientedcampfortworeasons.1)Wearenotpayingforasignificantlyhighervaluationofthesestocks'underlyingcoreoper-ations.Forexample,Alibabaistradingat17xEV/EBITDAvs.JDat22xinCY19EandPDDistradingat7xEV/FCFvs.VIPSat10xinCY20E.2)Thelattercamphasshiftedtoaprofit-focusedstrategyinthepastfewquartersandwearenotyetsurewhetherthisstrategywillbesustainedandexecutedonamulti-yearbasis.Afterall,Chinahasadynamice-commercescenethatispronetonewcompetitiveandregulatoryrisks.KPIcomparisonacrosse-commerceplatforms,includingamerchantROIanalysisGiventhenotoriouslydifferentdisclosuremetricsanddefinitionsacrossthecom-paniesanddatasources,wespentameaningfulamountoftimecuratingtheda...
