[Blue Lotus Flagship Research]: The tide is still rising, upgrade China eCommerce to BUY

 2020-05-19

(15 Pages, 27 graphs and tables)
Listen to analyst’s audio summary

  • We see more competition ahead in eCommerce and logistic sectors, including those between Ant/Baba and Meituan, social eCommerce and traditional eCommerce, Tongda Logistics, and new players like Zhongyou and J&T.
  • But we suggest more competition is a positive sign because companies see potential growth opportunities. The whole China eCommerce sector is going to be benefited from: 1) Chinese consumers’ resiliencies after the epidemic; 2)brand merchants moving business from offline to online; 3) continuous price war in logistic sector.
  • We raise China eCommerce sector to BUY and suggest investors could consider owning all relevant stocks. We cut EPS estimation of Baba, JD, VIPS, Baozun, and ZTO because of the epidemic and competition. We raise PDD to HOLD because we see low ASP products are going to be more popular.
Data Shows the resiliency of China eCommerce
We estimate that the China eCommerce sector could still have 19% YoY growth amid impact from the epidemic. Recent NBS data shows that China eCommerce outperformed total social retail: from Jan. to Feb., China’s total social retail experienced 20.5% YoY decrease while online retail only has 3% YoY decrease. By March 8, total parcel volume of China logistics already reached about 160 mn per day, which is about 80% compared with the number before the epidemic, according to China’s State Post Bureau. Our tracking data of 56 major brands on Tmall shows that most brands recorded their weakest weekly sales in the week of Feb. 3-9, and by the week of March 2-8, more than 60% of the brands had seen weekly sales rebound to the normal level in January.
 
Online penetration continues to increase
We estimate that online sales penetration rate of total social retail will increase from 2019’s 24.2% to 2020’s 26.3%. 1) Some matured categories like apparel and footwear, beauty, and personal care still have further upside room because of the rapid growth of social eCommerce. (to be continued)

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