Vipshop Holdings:To continue to invest for user growth

Event

    1Q17 revenue and non-GAAP net profit beat consensus by 2%/3%; and 2Q17revenue guidance of 26-30% YoY to Rmb17-17.5bn was in-line withMQ/consensus of Rmb17.2bn. The number of active customers increased 32%YoY to 26 million, while new customer acquisition cost also increased YoY.

    Vipshop guides to continue focusing on user acquisitions and revenue growth.

    We fine tune our FY17/18 estimates, and raise our TP from US$14 to US$16.5based on a 17x FY18E PE as we roll over from FY17. We remain cautious on thesustainability of new active customer growth, and maintain our Neutral rating.

    Impact

    1Q17 results slightly beat. 1Q revenue increased 31% YoY to Rmb16bn,beating MQ estimate and consensus by 3%/2%. This was driven by a 23%YoY increase in the number of total orders, and 7% YoY growth in ASP. GPMcontracted 1.1ppts YoY to 23.2%, on continuous promotions and rebates.

    Non-GAAP OP margin came in flat YoY at 6.3%, due partially to RMB170m ingovernment subsidies and tax rebates in 1Q17 vs. RMB32m in 1Q16. Non-GAAP net profit grew 28% YoY to Rmb799m, 1%/3% ahead of MQ estimateand consensus. Vipshop guides 2Q17 revenue growth of 26-30% YoY toRmb17-17.5bn, in line with MQ/consensus Rmb17.2bn.

    To continue focusing on user acquisitions. The number of activecustomers increased 32% YoY to 26m in 1Q17, 3% ahead of MQ estimate.

    The repeat customer ratio improved 1.6ppts YoY to 76.7%, while ordersplaced by repeat customers remained largely flat YoY at 91.5%. In 1Q17,Vipshop launched the trail of a new Super VIP paid membership program,aiming to improve purchasing frequency and spending per customer; and thecompany guides to continue investing in promotional events and S&Mactivities to expand its active customer base for future revenue growth.

    To open up the logistics business. In 1Q17, Vipshop added two localwarehouses, and targets to establish one local warehouse in each provinceby the end of 2017. The company also plans to open up its warehouse andlogistic services to a broader market, which should help generate additionalrevenues and help lower overall logistic costs. Third-party logistics servicescurrently accounted for 22% of the total orders/packages.

    Potential spin-off of Internet finance. In May-17, Vipshop is authorized by theboard to explore the possibility of spinning off the Internet finance unit. The spinoffcould lift the negative financial impact on the core e-commerce business,and potentially enable faster growth of Internet finance. As of Mar-2017, creditoutstanding to customers reached Rmb2.5bn, up from Rmb570m a year ago;and advances to suppliers was at Rmb746m vs. Rmb490m last year.

    Earnings and target price revision

    We fine tune our FY17/18 estimates