Vipshop Holdings Limited

VIPS Details

Vipshop Holdings Limited (NYSE: VIPS) is an online discount retailer for brands in China. The company’s operating segments are 1) Vip.com, which offers high-value and trendy branded products to customers through flash sales via vipshop.com and vip.com online platforms, 2) Shan Shan Outlets, which operates offline retail locations in China. As of December 31, 2020, VIPS operated approximately 240 Vipmaxx offline stores and 310 Vipshop retail stores in this segment. 3) Others, including VIPS’ other two divisions, i.e., internet finance and offline shop. The company derives the majority of its revenues from the Vip.com segment. Each of the company’s American Depositary Shares (ADS) represents 0.2 Class A ordinary shares. As of August 02, 2021, the company’s market capitalization stood at USD 11.44 billion.

Strong Ratings Affirmed: On June 17, 2021, Fitch affirmed VIPS' long-term issuer default rating and senior unsecured rating at 'BBB+'. Ratings given by Fitch are based on the company's excellent financial profile, cautious financial policy, and strong recovery since the coronavirus pandemic. Since VIPS focuses on discount retail, it is more defensive and resilient in the wake of a downturn in the economic environment.

Q1FY21 Results: The company reported a 51.10% YoY increase in total net revenues to RMB 28.40 billion in Q1FY21 (ended March 31, 2021) compared to RMB 18.79 billion in Q1FY20, attributable to a 54% YoY increase in the total number of active customers during the quarter. In Q1FY21, VIPS’ Gross Merchandise Value (GMV) increased by 59% YoY to RMB 46.10 billion, driven by a 44% YoY growth in total orders to 175.50 million. The company reported a surge of 125.7% in net income to RMB 1.55 billion in Q1FY21 compared to RMB 684.83 million in Q1FY20.

Strong Total Orders & Net Revenue Growth (Source: Investor Presentation, May 2021)

Risks: The majority of VIPS’ revenue in FY20 was generated from online retail sales of apparel products. Hence, any decline in sales volume or customer base could harm its financials. Moreover, the Chinese authorities' recent crackdown on its US-listed businesses and the consequential possibility of stricter rules could dent its operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Outlook: For Q2FY21, VIPS expects to generate revenues in the range of RMB 28.9 - 30.1 billion, representing a YoY growth of 20% to 25%.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

VIPS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: VIPS’ share price has decreased 44.57% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 14.87 to USD 46.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 39.47. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 20.47. Considering the correction in the stock price in the past three months, decent financials, and associated risks, we recommend a "Speculative Buy” rating on the stock at the closing price of USD 16.90, up 1.62% as of August 02, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Hello Group Inc. (previously, Momo Inc.)

MOMO Details

Hello Group Inc. (NASDAQ: MOMO), formerly Momo Inc., is a holding company that provides its customers with a variety of online platforms to discover new relationships, develop their social networks, and create meaningful interactions. Momo, a mobile app that connects people and facilitates social interactions based on location, interests, and a variety of other online leisure activities; and Tantan, a social and dating app that helps users find and establish connections and meet interesting people, are two of the company's main products. Live video, value-added, mobile marketing, online games, and other services are the company's primary sources of revenue. As of August 02, 2021, the company has 206.13 million American Depository Shares (ADS) listed and outstanding (each ADS representing two Class A ordinary shares).

Name Change: On August 2, 2021, the company declared that it had changed its name from Momo Inc. to Hello Group Inc after holding an extraordinary general meeting regarding the same. The company's American depositary shares (ADS) have begun trading under the new corporate name.

Q1FY21 Results: The company reported a 3.44% decrease in net revenue to RMB 3.47 billion in Q1FY21 (ended March 31, 2021) compared to RMB 3.59 billion in Q1FY20, primarily due to structural reform on Momo’s core live video business. In addition, the company reported a decline in net income to RMB 460.92 million in Q1FY21 vs. RMB 537.71 million in Q1FY20. Monthly Active Users (MAU) on the Momo app increased to 115.3 million during Q1FY21 from 108.0 million during Q1FY20.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequential possibility of stricter rules could dent the company's operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm. Further, one of the third-party application stores contributed to 26% of the company’s total accounts receivable during FY20 and FY19. Increased dependence on such third-party stores could negatively impact the company’s operations and cash flows.

Outlook: MOMO estimates its net revenue in the range of RMB 3.6 billion to RMB 3.7 billion in Q2FY21, down 6.9% to 4.3% from Q2FY20. However, it also noted that its Momo app is improving steadily and expects it to become a cash cow business shortly.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MOMO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MOMO’s share price has fallen 27.38% in the past 12 months and is currently leaning towards the lower-band of the 52-week range of USD 11.17 to USD 21.15. The stock is currently trading much lower its 50 and 200 DMA levels, and its RSI Index is at 45.32. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 15.04. Considering the significant correction in the stock price over the past 12 months, the increasing demand for social and dating mobile apps, a turnaround in the business outlook, and associated political and regulatory risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 12.87, up 3.87% as of August 02, 2021, at 03:20 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.