Natalia DoboszAnalyst ReportMay 14, 2015 Vipshop Holdings Ltd
(VIPS) Recommendation ReportInvestment ThesisVIPS, being a part of
te !ons"#er $is!retionary se!tor, %o"l$ be a great fit for tis
seg#ent of te portfolio& It is ea$'"artere$ an$ f"n!tions in te
great, prospero"s e!ono#y of (ina, %i! allo%s for its !ontin"o"s
gro%t& (ina)s $is!o"nt sales #ar*et !o"nts for abo"t 20+ of te
total #er!an$ise sales& ,at %as a great opport"nity for tis
retailer, %o a!te$ on it an$ is no% a pioneer an$ lea$er in te
$is!o"nt flas sales in te !o"ntry& Moreo-er, (ina)s gro%ing
#i$$le !lass %ill s"pport te e.ponentially gro%ing sales of tis
!o#pany& VIPS %o"l$ be one of te #ore -olatile, ig gro%t sto!*s
in te portfolio, as it is "n$er-al"e$ an$ presents a "ge "psi$e
potential& ,e re!ent finan!ial state#ent allegations tat te
!o#pany is fa!ing an$%i! $ro-e $o%n te pri!e of te sto!* #a*e it a
goo$ opport"nity to b"y te se!"rity at tis #o#ent& Alto"g tese
allegations %orry so#e, tey are -ery "nli*ely to be fo"n$ tr"e&
After te analysis of te sto!*, it %as fo"n$ tat it is
"n$er-al"e$& /n$er te !"rrent !lose of 25&21, testo!* as a
101+ possible "psi$e as it %as -al"e$ at 52&10& Regional
Analysis(ina, a !o"ntry %ell *no%n to #any in-estors is a o#e to
Vipsop 3ol$ings 4t$& ,at)s %ere te !o#pany as all of its sales,
operations an$ %areo"ses& Alto"g (ina %as istori!ally *no%n for
ig e!ono#i! gro%t, it finally $e!i$e$ to slo% it $o%n, in!rease te
reg"lations an$ gro% its #i$$le !lass, %i! so"l$ s"pport te gro%t
in #er!an$ise sales of tis !o#pany& Moreo-er, te re!ently !"t
borro%ing rates of te !o"ntry %ill $e!rease te !ost of te !o#pany)s
$ebt, pro-i$ing for better #argins an$ iger re-en"es& (ina)s
5DP as been falling for te past t%o years an$ is !"rrently a
1+& Alto"g it)s s"ppose$ to !ontin"e to fall, it so"l$n)t appen
$rasti!ally& It %ill #ost li*ely ta*e years, if not $e!a$es for
it to fall to #e$io!re 0+& Its (PI, %i! fell fro# 2&0 last
year is at 1&4 no% an$ is s"ppose$ to go ba!* "p& ,e
!o"ntry)s "ne#ploy#ent rate of 4&1+ is pretty lo% an$
stable& ,e abo-e #entione$ interest rate !"ts are -isible in a
06#ont rate, %i! as fallen fro# 0&5 to 2&77+ no%, as %ell
as te bon$ rate tat as fallen fro# 0&75 to 0&44& (ina)s
agen!y !re$it rating is e.!ellent bet%een A8 an$ AA6 stable& ,e
!o"ntry)s lo% inflation of 1&4 an$ #e$io!re $ebt to 5DP of 22+
also infor# of te !o"ntry)s goo$ e!ono#i! ealt& ,e !orporate
ta. rate of#e$io!re 25+ #a*es it frien$ly for in-estors to $o
b"siness at& IndustryAs it %as #entione$ before, 20+ of (ina)s
#er!an$ise retail is $is!o"nt #ar*et, %ile (inese !ons"#ers are
igly bran$ an$ pri!e oriente$& Moreo-er, te !o"ntry as la!* of
#a9or $is!o"nt retailers an$ only a li#ite$ n"#ber of o"tlet
stores& A lot of te #ar*et %as !reate$ tro"g !ons"#er to
!ons"#er online sales& VIPS, being te pioneer in te b"siness to
!ons"#erse!tor as an a$-antage o-er te !o#petitors, %i! gi-es it a
lea$ing position in tis #ar*et& ,e fa!t tat Vipsop is an online
retailer attra!ts te yo"nger portion of te pop"lation, %i! isoften
te one loo*ing for $is!o"nts& ,is #ar*et seg#ent is a -ery
pro#ising one as te b"siness #o$el as so%n to be -ery s"!!essf"l in
te /nite$ States&The Company Vipsop 3ol$ings 4t$ is te lea$er
in its se!tor of te (inese #ar*et %it te #ar*et !ap of 11&:2
;& ,eir sales an$ %areo"ses are only li#ite$ to (ina<
o%e-er, te !o#pany is loo*ing to e.pan$ into 3ong =ong an$
Ma!a"& VIPS is a relati-ely yo"ng >establise$ in 200:?
!o#pany an$ -ery s"!!essf"l !o#pany tat %as intro$"!e$ into te
sto!* #ar*et in 2012& Sin!e ten it as $e#onstrate$ e.ponential
sales gro%t an$ tre#en$o"s sto!* -al"e gro%t, %i! le$to te 10@1
sto!* split on No-e#ber 4, 2014&Aat $ro-e te s"!!ess of te
!o#pany is its s"!!essf"l flas sales #o$el, %i! $ri-es on te
!ons"#er)s Be.!ite#entC, as te pro$"!t as to be p"r!ase$ %itin te
li#ite$ a#o"nt of ti#e an$ "ntil te s"pplies last& ,is also
elps $ri-ing"p te sales of te !o#pany as te pro$"!ts are being sol$
#"! faster tan "n$er te tra$itional sales #o$el& ,e !o#pany
re!ently %ent #obile an$ also re'"ire$ #inority sta*es in a !o"ple
of !o#panies >Dnsogo 4t$ an$ 4a#bing&!o# in 2015?, %i! so%s
its efforts to f"rter gro% te '"antity an$ '"ality of sales, as
%ell as to i#pro-e its bran$ an$ pro$"!t portfolio& ,e
!o#pany)s #er!an$ise in!l"$es #ostly !loting, a!!essories,
!os#eti!s an$ o#e goo$s&inancial Analysis VIPS %as fo"n$ to be
at an e.!ellent finan!ial !on$ition %it its sales an$ net in!o#e
e.ponentially gro%ing year o-er year& ,e !o#pany)s D;I, an$
D;I,DA #argins %ere fo"n$ tobe at 0&7 an$ 5&1+,
respe!ti-ely as te !o#pany is getting bigger& Alto"g tese still
see# lo%, tese *in$s of #argins are typi!al for tis in$"stry&
Moreo-er, te !o#pany as e.presse$ o"tloo* tat tere)s $efinitely
roo# for #argin gro%t in te f"t"re, espe!ially in te areas li*e
a$-ertising&Vipsop 3ol$ings $oesn)t !"rrently pay any
$i-i$en$s< instea$, it rein-ests in!o#e into te !o#pany)s
gro%t& Its sto!* pri!e as appre!iate$ 5742+ o-er te past tree
years, %i! gi-es a goo$ i$ea of o% s"!!essf"l tis !o#pany as
been& ,e -al"ation of te !o#panyyiel$e$ a pri!e of
E52&10Fsare&In te !o#pany)s -al"ation, it %as ass"#e$ tat
te sales %ill gro% e.ponentially b"t %ill e-ent"ally slo% $o%n to
5+, %i! re'"ire$ tat te n"#ber of pre$i!te$ !as flo% years %as
elongate$ to te ne.t :& ,is ass"#ption %as base$ on te fa!t tat
tis !o#pany is still yo"ng an$ fast gro%ing b"t %ill e-ent"ally get
stable& Its 5+ gro%t %ill be s"pporte$ by (ina)s gro%ing #i$$le
!lass an$ still ig 5DP, %i! alto"g falling, %ant fall lo%
o-ernigt& ,e D;I,DA #argin %as starte$ at 5+ an$ %as gro%n to
1+ o-er years to !al!"late for te gro%ing #argins&,e !apital
e.pen$it"res as + of sales %as *ept at 5+, %i! is aro"n$ te !"rrent
an$ in$"stry per!entage& ,e perpet"ity #eto$ gro%t rate %as 4+,
%i! is #eant to be s"pporte$ by still ig 5DP& ,e tree p"bli!
!o#parable !o#panies tat %ere "se$ to -al"e VIPS %ere si#ilar in
#ar*et size, re-en"e gro%t, #argins an$ region e.pos"re& ,e
AA(( "se$ %as base$ on 2014 res"lts an$ %as at 5&0+ /sing tese
!o#parables yiel$e$ an DV to D;I,DA #"ltiple of 40&25., %i! is
in line %it !"rrent #ar*et #"ltiple&Ris!,ere are a !o"ple of
syste#ati! an$ !o#pany ris*s asso!iate$ %it VIPS se!"rity&
Girst of all, teir only #ar*et is (ina for no%< terefore if
anyting goes ba$ %itin te region, te sto!* pri!e %ill s"ffer&
Moreo-er, te !anging !ons"#er tastes an$ preferen!es !o"l$ be a
potential so"r!e of proble#, if te !o#pany %o"l$n)t be able to
satisfy tose& G"rter#ore, VIPS%o"l$ a$$ to te alrea$y (ina
e.pos"re of te portfolio< terefore $e!reasing its
$i-ersifi!ation&3o%e-er, portfolio $oesn)t a-e any !ons"#er
$is!retionary sto!*s fro# (ina& If let)s say te portfolio
#anage#ent tea# %ere loo*ing to sell any of teir (inese sto!*s, tis
%o"l$ be a great option to s"bstit"te it %it& Anoter ris* !o#es
%it te fa!t tat tis is a relati-ely ne% an$ fast gro%ing !o#pany,
%i! #a*es "p for te iger -olatility of its sto!*s& Ginally, te
re!ent allegations abo"t te s"ppose$ly fra"$"lent an$ erroneo"s
finan!ial state#ents of te !o#pany !o"l$ be a potential so"r!e of
ris* if tey %ere to appen to be tr"e& ,e !o#pany %as a!!"se$ of
#anip"lating its sales an$ re!ei-ables an$ a !o"ple of oter tings
tat %o"l$ s"ppose$ly !a"se for errors in teir finan!ial
state#ents& ,ey %ere a!!"se$ tat te n"#bers on teir (inese
filings %ere $ifferent tan teir /S filings& 3o%e-er, tis sort
of s!an$al is rater "nli*ely to appen to be tr"e& Girst ofall,
teir res"lts are al%ays a"$ite$ by a gro"p of e.perien!e$ o"tsi$e
professionals, in teir !ase Delloitte 44P, %o %o"l$n)t allo%
te#sel-es for ba$ p"bli!ity& If tis sort of s!an$al %as to
arise, it %o"l$ be so#eting in te s!ale of Dnron, %i! is "nli*ely
sin!e #any la%s %ere p"t inpla!e to pre-ent tis sort of e-ent fro#
appening again& Moreo-er, one also nee$s to !onsi$er tat /S
a!!o"nting stan$ar$s >5AAP? are $ifferent fro# te international
ones an$ re'"ire for ite#s to be $is!lose$ an$ boo*e$ in a
$ifferent %ay& Recommendation ,e analysis of VIPS !a#e o"t %it
te b"y re!o##en$ation& ,is $e!ision is $ri-en b"yte strong
gro%t of te !o#pany %itin te past years an$ teir strong finan!ial
position& ,e gro%t of its sales an$ #argin %ill #ost li*ely
!ontin"e $ri-ing "p te pri!e of te sto!* of tis relati-ely yo"ng
!o#pany&Moreo-er, te s"periority of tis !o#pany is %ell
s"pporte$ by its lea$ing an$ priority position in te opport"nisti!
$is!o"nt sales #ar*et& ,e (ina)s gro%ing #i$$le !lass %ill
f"rter s"pport te gro%ing !ons"#er base $ri-ing "p te sales& ,e
fa!t tat tis !o#pany %as 9"st fa!e$ %it allegation %i! $ro-e $o%n
te -al"e of te sto!* #a*es tis !o#pany a b"y at a great pri!e Aor*s
(ite$;loo#berg Platfor#%%%&ir&-ip&!o#
