Vipshop Holdings Ltd (VIPS) is China’s leading online discount retailer. Through flash sales, the company sells products at deeply discounted prices for limited periods over its websites (vipshop.com, vip.com, and lefeng.com), mobile applications, and offline stores.
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Vipshop offers over 30 thousand domestic and international brands, including apparel for women, men and children, fashion goods, cosmetics, home goods, and other lifestyle products. The focus on premium and popular brands, quality products, and excellent customer service have given Vipshop a good reputation among consumers. The company’s membership program, Super VIP, has managed to breed high customer loyalty by offering exclusive deals. Vipshop is one of the top five e-commerce sites in China and is on Forbes’ list of Asia’s Fab 50 and Growth Champions companies, as well as on BrandZ’s list of the Top 100 Most Valuable Chinese Brands.
Vipshop’s over 60m active customers placed over 437m orders in 2018. Both customers and orders continued to grow by 13 and 31 percent respectively over the first six months of 2019. Furthermore, the company offers Internet finance services, such as consumer and supplier financing, and microcredits. But this segment still contributes less than one percent of the total revenues.
Vipshop was founded in 2008 and is headquartered in Guangzhou, China. The company is listed on New York’s stock exchange since March 2012. Its shares can also be traded in Germany, Mexico, and the UK. Major shareholders are the two active co-founders, Eric Ya Shen and Arthur Xiaobo Hong, with ownership of together around 20 percent, followed by Tencent Holdings with an ownership of about 9 percent. Seventy-four percent of the shares are in public hands.
With a workforce of over 57 thousand employees, Vipshop reported revenues of 44.1bn RMB (6.2bn USD) and profits before tax of 2.1bn RMB (299m USD) over the first half-year 2019. This is an increase of 9 and 47 percent respectively compared to the same period a year ago. For the full year 2018, revenues and profits increased by 16 and 8 percent respectively, mainly driven by the growing number of active customers. The operating margin (TTM) of around 15 percent is well above industry average. Vipshop’s cash reserves dropped by 28 percent to 6.8bn RMB (967m USD), while debts and lease obligations increased by 20 percent to 1.6bn RMB (229m USD) over the first half-year 2019.
The company shows a stable balance sheet with good profitability and financial strength. The equity ratio is at 49 percent and the gearing, defined here as total liabilities to total equity, at acceptable 103 percent. Moody’s current rating of Vipshop is Baa1 (medium grade, with some speculative elements and moderate credit risk) with a stable outlook. Next earning results will be announced in mid-November 2019.
After a period of a sharp decline in 2018, Vipshop’s shares are gaining momentum again and are up more than 150 percent since its low in October 2018, a 103 percent increase alone this year. The company is currently priced at 20 times earnings, 2.8 times book value, and at 25 times operating cash flow. Vipshop does not pay a dividend so far. 16 out of 27 analysts have a ‘strong buy’ or ‘buy’ recommendations on the stock.
Our conclusion: Vipshop shows a healthy balance sheet with good profitability and financial strength. The valuation is high for a company with a compounded annual growth rate for revenue and profits of 19 and 3.4 percent, respectively, over the last three years. Vipshop’s management expects to grow at up to five percent during the third quarter of 2019.
The outlook for China’s online B2C market is very positive, with an expected growth rate of roughly 25 percent over the next two years. China’s e-commerce landscape has grown in leaps and bounds over the past decade. Ten years ago, China accounted for less than one percent of the global e-commerce market. Today it is more than 40 percent.
As a leading discount retailer, Vipshop is well-positioned in an intensely competitive environment. The company could benefit from tougher times as consumers become more price-conscious and focus more on bargains. Under the current economic uncertainties and improving technical chart signals, we expect the share price to increase another 15 to 20 percent over the next six months.
AIS Rating: ★★★★☆
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 H1 only |
|
|---|---|---|---|---|---|---|
| EPS (RMB) | 7 | 13.2 | 16.9 | 15.9 | 15.6 | 12.4 |
| Change (%) | 152 | 89 | 27 | (5) | (2) | 40 |
| DPS (RMB) | n/a | n/a | n/a | n/a | n/a | n/a |
| P/E | P/E INDUSTRY |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 21 | 17 | 2.8 | 25 | 49% | 15% | 103% | n/a |
* Equity / Total Assets, ** Total Liabilities / Equity
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