Baozun Inc. (BZUN) is the leading e-commerce solutions provider in China. The company helps its now 200 multinational brand customers to execute their e-commerce strategies in China. The company’s one-stop services cover all aspects of the e-commerce value chain, such as IT solutions, store operations, digital marketing, customer services, warehousing, and fulfillment in China.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
Baozun caters to various product categories from apparel and accessories, appliances, electronics, home and furnishings, food and health products, beauty and cosmetics, FMCG, mother, and baby care products to insurances and automobiles. With that the company plays a crucial role for many Western brands to enter China’s large and fast-growing online-retail market. Baozun’s customers include well-known names such as Nike, Microsoft, Starbucks, and Levis. Furthermore, the company offers value-added services such as anti-counterfeit code protection and tailor-made packaging. Baozun operates seven warehouses with together more than 103 thousand sqm in Guangzhou, Suzhou and Hong Kong. The company has gained a dominative market advantage in China and is ranking, with a market share of 25 percent, first in the industry.
Baozun was founded in 2006 and is headquartered in Shanghai. The company is listed on the US Nasdaq exchange since May 2015. Its shares can also be traded in Germany, Mexico, and the UK. Major shareholder is Alibaba Investment Ltd, with ownership of around 15 percent, followed by Tsubasa Corporation, a Softbank company, with an ownership of about 12 percent. Approximately 90 percent of the shares are in public hand.
With a workforce of more than 5,100 employees, Baozun reported revenues of 1.3bn RMB (186m USD) and operating profits of 46m RMB (6.6m USD) over the first quarter of 2019. This is an increase of 40 and 61 percent respectively compared to the same period a year ago. For the full year 2018, revenues and profits increased by 30 and 39 percent respectively. The increase was due to the acquisition of new brand partners, the increased popularity of brand partners’ products, Baozun’s increasingly effective marketing and promotional campaigns, as well as steady growth in digital marketing services. Nevertheless, the operating margin of around 4 percent ranges well below the industry average. Baozun’s cash reserves increased by 14 percent to 522m RMB (75m USD), while debts also increased by 31 percent to 659m RMB (95m USD) over the first quarter of 2019.
Nevertheless, the company shows a healthy balance sheet with good profitability and financial strength. The equity ratio is at 52 percent and the gearing, defined here as total liabilities to total equity, at 91 percent. Moody’s daily credit risk score for Baozun is 5, indicating a medium risk, based on the day-to-day movements in market value compared to the company’s liability structure. Next earning results will be announced at the end of August.
Baozun’s shares saw highs in June 2018 and lost more than 30 percent in value since. For this year the stock is up again more than 50 percent already. From its IPO opening price, the share is up more than 330 percent so far. The company is currently priced at 62 times earnings and eight times book value. No dividend has been paid in the past. 7 out of 9 analysts have a ‘buy’ or ‘outperform’ recommendations on the stock.
Our conclusion: Baozun shows a healthy balance sheet with good profitability and financial strength. The valuation is high but comes with a compounded annual growth rate for revenue and profits of 25 and 99 percent respectively over the last three years. For the current quarter, Baozun expects revenue to grow between 34 to 38 percent. Baozun’s future looks bright. The company grows fast in a fast-expanding market. Technology is the essence of future retailing. By integrating cloud computing, big data, and AI technology, Baozun continuously invests in its leading e-commerce technology platform.
Ranking first in the whole industry with a size nearly three times larger than the company ranking the second, Baozun is well positioned in a strong competitive environment. Analysts forecast a p/e-ratio of 22 for the next year. Assuming a stable global economy, an end of the US-China trade tensions, and a continuous dynamic private consumption in China, we expect the share price to see old highs at 66 USD again within the next twelve months.
AIS Rating: ★★★★☆
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 Q1 only |
|
|---|---|---|---|---|---|---|
| EPS (RMB) | (5.3) | (0.03) | 0.5 | 1.2 | 1.5 | 0.2 |
| Change (%) | (60) | 99 | 1867 | 125 | 26 | 138 |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 62 | 21 | 8 | n/a | 52% | 6% | 91% | n/a |
* Equity / Total Assets, ** Total Liabilities / Equity
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