Research published by Blue Lotus Research on December 19, 2023

 

(4 Pages, 3 graphs and tables)
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Amid demand by consumers for cost effective items, we expect that demand for discounted apparel will sustain into 2024. We expect that VIPS will be the continued beneficiary of this trend despite growth of Douyin and PDD; Industry apparel sales grew 18% yoy in November, per NBS. We expect high levels of apparel sales continued in December, as VIPS reported double-digit GMV growth for various types of winter related apparel items during 12/12; China’s cost-conscious spending environment favors VIPS, in our view. We maintain BUY and raise TP to US$ 18.1, implying 7x FY24 non-GAAP P/E;   Cost-effective offerings still have a niche despite competitors We estimate VIPS GMV will grow 17% this year, faster than the apparel industry’s 11%. Given the weak economy, China consumers are increasingly cost-conscious but would rather not sacrifice product quality. In our view, VIPS is best positioned to capture this demand trend, as Douyin apparel lacks cost-effectiveness while PDD’s is inconsistent on apparel quality. Given the lack of consumer confidence catalyst, we expect demand for cost-effective products will persist. Thus, we expect VIPS’ will maintain outperformance in 2024, with GMV growing 12% vs 7% growth for the apparel industry.   November apparel demand should persist in December NBS reported November apparel sales grew 18% yoy vs. just 5% in October. We expect that apparel sales remained strong in December based on Douyin and VIPS data for the 12/12 sales event. Both platforms highlighted winter apparel, including higher ASP items such as domestic down jackets, which is also positive to domestic brands such as Bosideng (3998 HK, NR). Our 4Q23 revenue and net profit estimate are 3% and 16% higher than consensus mean.   Shein-esque branding in China is an untapped opportunity In addition to being positioned to grow in the current consumption downgrade environment, VIPS is also a value play. VIPS has US$ 2.66 in net cash on its books (29% of market cap) and a 12.2% TTM FCF, trading 3.8x FY24 EV/Earnings. In our view, VIPS next growth opportunity will be to emulate Shein’s model domestically but given the management’s gradual approach to investment we believe VIPS won’t build such a business in the near-term.

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