Vipshop Holdings Limited

VIPS Details

Vipshop Holdings Limited (NYSE: VIPS) operates as an online discount retailer for brands in China. Its operating segments are 1) Vip.com, providing customers with high-quality and trendy branded products via flash sales on the vipshop.com and vip.com online platforms, 2) Shan Shan Outlets, operating offline retail locations in China, and 3) Others, comprising VIPS' other two divisions, i.e., internet finance and offline shop. As of October 15, 2021, VIPS' market capitalization stood at USD 7.65 billion, with 676.21 million American Depository Shares (ADS) listed and outstanding (each ADS representing 0.2 Class A ordinary shares).

Q2FY21 Results: The company reported a YoY increase of 22.80% in total net revenues to RMB 29.61 billion in Q2FY21 (ended June 30, 2021) from RMB 24.11 billion in Q2FY20, attributable to a 32% YoY growth in the total number of active customers during the quarter. In Q2FY21, VIPS' Gross Merchandise Value (GMV) expanded 25% YoY to RMB 48.1 billion, due to 30% YoY growth in total orders to 221.5 million. However, net income for the company decreased to RMB 1.09 billion in Q2FY21 from RMB 1.54 billion in Q2FY20. As of June 30, 2021, the company had cash and cash equivalents (including short-term investments) of RMB 19.31 billion and total debt of RMB 1.96 billion.

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

Risks: VIPS derived the majority of its revenue from online retail sales of apparel products in FY20. Hence, any downturn in the volume sold or customer base could impair the company's financials.

Moreover, the Chinese authorities' crackdown on its US-listed businesses and the consequent 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.

Outlook: In Q3FY21, VIPS expects to generate revenue in the range of RMB 24.3 – 25.5 billion, thus realizing a YoY growth of ~5% - 10%.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation   

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM 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 59.66% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 10.15 to USD 46.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.93. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 14.41. Considering the correction in the stock price in the past six months, decent financials, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 11.47, up 1.33% as of October 15, 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.