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1、6.4,6.0,5.6,5.2,1,2,Deutsche BankMarkets Research,RatingBuyAsiaChina,CompanyVipshop,Date14 August 2012Forecast Change,TechnologySoftware&Services,Reuters,Bloomberg,Exchange Ticker,Price at 13 Aug 2012(USD)Price target-12mth(USD)52-week range(USD),5.457.836.15-4.26,VIPS.N,VIPS US,NYS,VIPS,HANG SENG I
2、NDEX,20,081,Nearing the break-even pointAlan Hellawell IIIResearch Analyst,Strong revenue growth drives margin improvement.Buy.Vipshop reported Non-GAAP OM of-3%in 2Q12,an improvement from-7%in1Q12 and-17%in 2Q11.We attribute the margin improvement to 1)strongrevenue growth(+234%YoY in 2Q)and 2)the
3、introduction of a regionaldistribution center in late-2011.We expect Vipshop to break even in 2013.Thestock currently trades at 6x our 2013 Non-GAAP PE,which we view asattractive.Intensifying competition in Chinas online retail market introduces new riskCompetition in Chinas online retail market has
4、 intensified from early 2012.,(+852)2203 Alex YaoResearch Analyst(+86)21 2080 Key changes,Although competition is mainly centered around non-apparel categories suchas consumer electronics and books,further aggressive pricing couldcannibalize consumers online apparel budgets(c50%of Vipshops rev).2Q b
5、eat on sales volume2Q GAAP EPS was negative US$0.11,vs.DBe of-US$0.25.The earningssurprise was mainly due to higher-than-expected net revenue,driven by anincrease in active customers&total orders.2Q top line was US$135.3m,18%above DBe and 12%above consensus.GM rose to 22%in 2Q from 18%in 1Q,Price ta
6、rgetSales(FYE)Op profmargin(FYE)Net profit(FYE)Price/price relative,11.05 to 7.83 551 to 597-8.0 to-4.1-43.5 to-24.0,-29.1%8.3%-48.7%-44.9%,driven by volume growth and improved bargaining power with brand partners.Maintain Buy but cut target price to US$7.83TP is based on our 2013 non-GAAP EPS of US
7、$0.87 and a 2013 PE of 9x.We,cut our target multiple from 13x to 9x due to recent sector de-rating andintensifying competition in Chinas online retail market.Our TP implies 0.5x2012E EV/revenue vs.Amazon at 1.6x and Dangdang at 0.2x.Downside risksincl possibility that B2C giants T-Mall and 360Buy en
8、ter flash sales,risks inimplementing logistics expansion,and ability to manage return rates.,4.84.44.0,3/12,VipshopHANG SENG INDEX(Rebased),Forecasts And Ratios,Performance(%),1m,3m,12m,Year End Dec 31,2010A,2011A,2012E,2013E,2014E,Absolute,-8.4,0.9,Sales(USDm),32.6,227.1,596.9,1,143.6,1,678.1,HANG
9、SENG INDEX,5.2,0.6,2.4,EBITDA(USDm)Reported NPAT(USDm)Reported EPS FD(USD)DB EPS FD(USD)OLD DB EPS FD(USD)%ChangeDB EPS growth(%)PER(x)EV/EBITDA(x)DPS(net)(USD)Yield(net)(%),-8.2-8.4-0.35-0.35-0.35-0.0%-505.90.00,-105.5-156.5-6.76-1.44-1.440.0%-311.60.00,-20.9-24.0-0.54-0.37-0.79-52.5%74.00.000.0,41
10、.737.20.730.870.87-0.1%6.34.30.000.0,77.172.41.421.581.64-3.4%81.73.41.10.000.0,Source:Deutsche Bank estimates,company dataDB EPS is fully diluted and excludes non-recurring itemsMultiples and yields calculations use average historical prices for past years and spot prices for current and future yea
11、rs,except P/B which usesthe year end close_Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompani
12、es.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their in
13、vestment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,2,0,14 August 2012Software&ServicesVipshop,Model updated:13 August 2012,Fiscal year end 31-Dec,2009,2010,2011,2012E,2013E,2014E,Running the numbers,Financial Summary,AsiaChinaSoftware&ServicesVipsho
14、p,DB EPS(USD)Reported EPS(USD)DPS(USD)BVPS(USD)Weighted average shares(m)Average market cap(USDm),-0.06-0.060.00-0.124na,-0.35-0.350.00-0.424na,-1.44-6.760.000.823na,-0.37-0.540.001.544277,0.870.730.002.251277,1.581.420.003.851277,Reuters:VIPS.N,Bloomberg:VIPS US,Enterprise value(USDm),na,na,na,208,
15、181,83,Valuation Metrics,Buy,P/E(DB)(x)P/E(Reported)(x),nmnm,nmnm,nmnm,nmnm,6.37.5,3.43.8,Price(13 Aug 12)Target Price52 Week rangeMarket Cap(m),USD 5.45USD 7.83USD 4.26-6.15EURm 224USDm 277,P/BV(x)FCF Yield(%)Dividend Yield(%)EV/Sales(x)EV/EBITDA(x)EV/EBIT(x),0.00nananmnmnm,0.00nananmnmnm,0.00nanan
16、mnmnm,3.67nm0.00.3nmnm,2.519.70.00.24.35.0,1.4535.30.00.01.11.2,Company Profile,Income Statement(USDm),Online flash sale website,which sells a limited quality ofitems within a specified period of timePrice Performance6.46.05.65.24.84.44.0,Sales revenueGross profitEBITDADepreciationAmortisationEBITNe
17、t interest income(expense)Associates/affiliatesExceptionals/extraordinariesOther pre-tax income/(expense)Profit before taxIncome tax expenseMinoritiesOther post-tax income/(expense)Net profitDB adjustments(including dilution)DB Net profit,30-100-10000-1000-10-1,333-800-80000-8000-80-8,22745-10510-10
18、70000-10700-49-156123-33,597134-2140-24100-1-24000-247-17,1,14428042603610003700037744,1,67840977707020007200072881,Mar 12,Jun 12,Cash Flow(USDm),Cash flow from operations,-1,-7,1,32,61,115,VipshopMargin Trends150-15-30-45,HANG SENG INDEX(Rebased),Net CapexFree cash flowEquity raised/(bought back)Di
19、vidends paidNet inc/(dec)in borrowingsOther investing/financing cash flowsNet cash flowChange in working capital,0-1000200,-2-800091-1,-10-851013-124431,-60-286600-142445,-342700002711,-179800009827,-60,Balance Sheet(USDm),09,10,11,12E,13E,14E,Cash and other liquid assets,0,1,45,69,96,194,EBITDA Mar
20、ginGrowth&Profitability7006005004003002001000,EBIT Margin,6040200-20-40-60-80,Tangible fixed assetsGoodwill/intangible assetsAssociates/investmentsOther assetsTotal assetsInterest bearing debtOther liabilitiesTotal liabilitiesShareholders equityMinoritiesTotal shareholders equity,003044-20-2,1001417
21、02727-100-10,9001131671313614918018,6500145279021321366066,940024743603263261110111,1040036265904684681910191,09,10,11,12E,13E,14E,Net debt,0,-1,-32,-69,-96,-194,Sales growth(LHS),ROE(RHS),Key Company Metrics,Solvency0-50-100-150-200,Sales growth(%)DB EPS growth(%)EBITDA Margin(%)EBIT Margin(%)Payou
22、t ratio(%)ROE(%)Capex/sales(%)Capex/depreciation(x)Net debt/equity(%),nmna-47.8-49.2nmnm3.32.2nm,nm-505.9-25.2-25.7nmnm4.79.9nm,597.1-311.6-46.4-47.0nmnm4.27.0-176.3,162.874.0-3.5-4.1nm-56.810.016.7-104.0,91.6na3.73.20.042.13.06.0-86.6,46.781.74.64.20.048.01.02.5-101.3,09,10,11,12E,13E,14E,Net inter
23、est cover(x),nm,nm,nm,nm,nm,nm,Net debt/equity(LHS)Alan Hellawell III+852 2203 6240,Net interest cover(RHS),Source:Company data,Deutsche Bank estimates,Nearing the break-even pointResults review2Q resultsVipshop reported 2Q GAAP EPS of negative US$0.11,vs.our forecast of negativeUS$0.25.The earnings
24、 surprise was mainly due to higher than expected net revenue.Vipshops 2Q top line was US$135.3m,up 234%YoY and 34%QoQ,18%above DBeand 12%above consensus.The top line growth was driven by an increase in activecustomers and total orders,while the sequential increase was largely due to seasonality.GM r
25、ose from 21%in 1Q12 and 18%in 2Q11 to 22%in 2Q,as Vipshops sales volumerose and its bargaining power grew.Operating losses totaled US$5.4m,animprovement over losses of US$19.3m in 2Q11 and US$8.7m in 1Q12,due to abroadening scale of operations,better gross margin and decreased costs.In terms ofreven
26、ue mix,about 50%sales were generated from apparel with GM of 24-25%.Othersincluded Sportswear(25-26%),Home goods(28%)and Cosmetics(20%)On the expenses front,fulfillment expenses(US$20.5m)decreased as a percentage oftotal revenue from 17%in 1Q12 and 21%in 2Q11 to 15%in 2Q12,due to increasingutilizati
27、on of regional distribution centers.Both marketing and G&A expenses saw adecrease as percentages of total revenue due to operation leverage and word of moutheffect of online discount sales.Figure 1:Quarterly Earnings Review,Unit:(US$m),2Q12(A),DB 2Q12(F)Dif.(F vs.1Q12(A)QoQ Chg 2Q11(A)YoY Chg,Net Sa
28、lesGross ProfitsOperating ProfitsNet Non-Op IncomePBTNet IncomeGAAP EPADS,13530(5)(0.34)(6)(6)(0.11),11424(13)0.17(12)(12)(0.25),18%24%57%-300%53%53%53%,10121(8.7)0.09(9)(9)(0.33),34%38%37%-488%33%33%66%,417(19.3)(0.19)(19)(19)(0.85),234%298%72%-74%70%70%87%,Margins,Gross MarginOperating MarginNet N
29、on-Op MarginPBT MarginNet Income Margin,22%-4%0%-4%-4%,21%-11%0%-11%-11%,21%-9%0%-8%-8%,18%-48%0%-48%-48%,Source:Deutsche Bank,company dataOperating highlightsActive customers totaled 1.5m in 2Q,up 227%YoY,while the number of total ordersgrew 242%YoY to 4.7m.Factors that helped increase Vipshops ope
30、rational efficiencyinclude:more transactions from regional sub-sitesenhanced product selectionincreased sales events and SKUsgreater utilization of regional distribution centers,rd,Customer return rate decreased to 20.8%in 2Q,according to management.About 40%of traffic came from organic hits to the
31、site,followed by navigation sites(38%)andother channels such as search(22%).,In terms of warehouse capacity,the company now has four logistic centers underoperation,in Shanghai,Beijing,Chengdu and Guangzhou.We estimate that theGuangzhou center has a utilization ratio of 80-90%,while the other three
32、centers sawratios close to 50%.Vipshop is now in talks with the Shanghai government for a pieceof land of approximately 100,000 square meters.The cost of the land is likely to beUS$50m.Meanwhile the company plans to lease an 80,000 square meter facility inGuangzhou in 4Q12.,Business Development,Appo
33、intment of CTO,Vipshop announced in June that it had appointed Daniel Kao,a former executive fromeBay,as the companys Chief Technology Officer.Kao has worked at leading e-commerce and internet companies in the U.S.and China,and has rich industryexperience.He was a director of site operations and qua
34、lity engineering at eBay.,Application for courier license,As Tang Yizhi,a company executive in charge of Vipshop logistics and customer service,revealed in 2Q,Vipshop had already tendered application for a courier license in China.The company has launched a trial of a self-operated express service(w
35、ith a 10 peopleteam)in Shanghai.At present most of Vipshops orders are delivered by 3 party carrierssuch as S.F.Express,EMS,Fedex,etc.Management revealed during the earnings callthat it would be conservative in its approach in expanding a self-delivery service on anationwide basis.,Outlook,Expecting
36、 Vipshop to break even in 2Q13,Vipshop reported Non-GAAP OM of-3%in 2Q12,a clear improvement from-7%in1Q12 and-17%in 2Q11.We attribute the margin improvement to 1)strong revenuegrowth(+234%YoY in 2Q)and 2)the introduction of a regional distribution center sincelate 2011.,We expect Vipshop to break e
37、ven in 2Q13.Our forecast is premised on,Volume growth which should continue to improve bargaining power withbrand partners and lead to gross margin improvement,Utilization of regional distribution centers continuing to expand,which shouldincrease the usage of local carriers and decrease variable ful
38、fillment costs.,Marketing efficiency continuing to improve due to the word-of-mouth effectpopularly associated with online discount sales.,For 2013,we expect gross profit,fulfillment cost and marketing cost to represent 24%,15%and 2%of total revenue respectively.,3Q guidance implies a subtle balance
39、 between top-line growth and marginimprovement,In our view,the companys 3Q revenue guidance of US$145-150m implies a subtlebalance between top-line growth and margin improvement.Vipshop could grow fasterat the expense of lower profitability.The guidance demonstrates managements,determination to achi
40、eve break-even in the near future,instead of land grabbing andmarket share gain.,Intensifying competition in Chinas online retail market introduces new risk,Competition in Chinas online retail market has intensified further since early 2012.Although the competition is mainly centered around non-appa
41、rel categories such asconsumer electronics and books,any further step-up in an already aggressive pricingwar could exhaust consumer budget for online apparel,which represents c50%ofVipshops revenue.,The companys 3Q revenue guidance of US$145-150m implies a sequential growth of7-11%,vs.30%in 3Q11.We
42、attribute the slower sequential growth rate to:,A larger revenue base,The indirect impact from intensifying competition in ecommerce categoriessuch as consumer electronics and books.We view this pressure as temporary.,Slower growth in marketing spend.Vipshops revenue grew 50%sequentiallyin 1H12 from
43、 2H11 while marketing costs increased by only 12%.AlthoughVipshop has a 60%+repeat customer purchase rate and 90%+of its orderscome from repeat customers,the current marketing spend strategy is likely tohave a certain degree of impact on revenue growth.,Valuation and risks,We maintain our Buy rating
44、 but cut our target price to US$7.83 from US$11.05.Ournew target price is based on our 2013 non-GAAP EPS estimate of US$0.87 and a2013E PE of 9x.We adopt a PE-based valuation methodology instead of our primaryvaluation methodology,PEG,used across most of the China Internet space,as:,Vipshop is still
45、 at an early growth stage.Short-term earnings growth wouldresult in an inordinately high and non-representative valuation.Moreover,itsearnings growth rate in the mid to longer term(i.e.normalized growth rate)isdifficult to gauge.,We expect the company to generate its first whole year profit in 2013,
46、remaining loss making 2012.,Vipshop currently trades at 6x 2013 PE,which translates to a PEG of 0.1x on our 2013-15 EPS CAGR of 52%.This compares favorable to Amazon(AMZN.OQ,$232.75,Buy)at1.0 x.,We improve our 2012 Non-GAAP EPADS forecast from-US$0.79 to-US$0.37 due tobetter-than-expected revenue gr
47、owth and margin improvement.Our 2013 Non-GAAPEPAS remains unchanged at US$0.87.,We cut our 2013E PE multiple from 13x to 9x due to recent sector de-rating andintensifying competition in Chinas online retail market.For instance,Dangdangs stockprice has dropped by 38%in the past three and a half month
48、s.Although thecompetition in Chinas online retail market is centered largely around non-apparelcategories such as consumer electronics and books,a persistent and aggressive pricingwar in these categories could exhaust consumer online budgets for apparel,whichrepresents c50%of Vipshop revenue.,The fo
49、llowing PE and PS charts demonstrate a sector de-rating since Apr 2012.We notethat sector leader Baidu is seeing its valuation gradually recover lately but valuation ofmost of other Internet names,especially ecommerce names remains under pressure.,Figure 2:Baidu fwd PE band,Source:Deutsche Bank,Bloo
50、mberg Financial service LLP,Figure 3:Sina fwd PE band,Source:Deutsche Bank,Bloomberg Financial service LLP,Figure 4:NetEase fwd PE bandSource:Deutsche Bank,Bloomberg Financial service LLPFigure 5:Dangdang fwd P/S bandSource:Deutsche Bank,Bloomberg Financial service LLPWe derive our 9x 2013E PE multi
