Vipshop Holdings Limited

VIPS Details

Vipshop Holdings Limited (NYSE: VIPS) is a leading online discount retailer in China. VIPS provides high-value and trendy brand-named products to customers in the People’s Republic of China through flash sales via vipshop.com and vip.com online platforms (under the Vip.com reportable segment). The discount retailer also operates offline retail stores in China (through the Shan Shan Outlets segment), having approximately 240 Vipmaxx offline stores and 310 Vipshop retail stores as of December 31, 2020. VIP’s other two divisions, i.e., internet finance and offline shop, are grouped under the Others reportable segment. The company earns most of its revenue from the Vip.com segment. Each of the company’s American Depositary Shares (ADS) represents 0.2 Class A ordinary shares. As of June 23, 2021, the company’s market capitalization stood at USD 12.04 billion.

Fitch Rating Indicates Strong Financial Standing: Fitch affirmed VIPS' Long-Term Issuer Default Rating as well as senior unsecured rating at 'BBB+' on June 17, 2021, highlighting the company's excellent financial profile, cautious financial policy, and strong recovery since the coronavirus pandemic. Because of its focus on discount retail, the company is more defensive and resilient in the face of slowing economic growth.

Share Repurchase Program: On March 30, 2021, the company announced a share repurchase program under which it may purchase up to USD 500 million of its Class A ordinary shares in the next 24 months. The repurchases might be made from time to time during the open market at general market prices. The company expects to finance its share repurchase program using its existing cash balance.

Robust Q1FY21 Results: The company reported a 51.10% increase in total net revenues to RMB 28.39 billion in Q1FY21 (ending March 31, 2021) compared to RMB 18.79 billion in Q1FY20 (ending March 31, 2020), primarily due to growth in the total number of active customers during the quarter. The online discount retailer’s Gross Merchandise Value (GMV) increased by 59% to RMB 46.10 billion in Q1FY21. The total orders increased by 44% Yoy to 175.50 million in Q1FY21 compared to 121.70 million in Q1FY20. The company reported a massive increase in net income to RMB 1.54 billion in Q1FY21 compared to RMB 680.89 in Q1FY20.

Strong Customer Growth (Source: Investor Presentation, May 2021)

Risks: Prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case of the US authorities’ inability to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest delisting begins possibly in 2024), the companies that might not be able to fulfill the revised standards are at risk.’

Outlook: For Q2FY21, the company is expecting its total net revenue to be in the range of RMB 28.90 billion to RMB 30.10 billion, reflecting a YOY growth of 20% to 25%.

Valuation: 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

Stock Recommendation: VIPS has declined by 49.45% in the past three months and is currently inclined towards the lower end of its 52 weeks 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 27.68. We have valued the stock using the EV/EBITDA multiple-based relative valuation method and arrived at a target price of USD 22.58. Considering the significant fall in the stock price in the past three months, strong brand recall, robust balance sheet, and growth in active customers, we recommend a “BUY” rating on the stock at the closing price of USD 18.10, up by 3.31% as of June 23, 2021.

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

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