Summary

Ellen commented on recent feedback from 32 eCommerce professionals in Jan. She observed solid 4Q sales trends on leading platforms. BABA, JD, PDD and VIPS can likely perform better than 4Q street revenue expectation. She recommends accumulating BABA despite near-term negative news flow, while PDD will be a beneficiary of maturing antitrust framework. JD and PDD are experiencing rapid growth from their aggressive community group- buy initiatives. She remains positive on BABA, JD, PDD and VIPS that will benefit from recent consumer and business shifts to online and the economic recovery post Covid. China’s community group-buying (an order online and pick-up offline model) has surged post Covid as reflected in user growth of related mini-programs, as players can tap into their existing userbase, reduce last-mile delivery costs and gain/maintain stickier users who repeat food and FMCG purchases. PDD launched DuoDuo Maicai in Aug with decent traction. JD announced investments in Xingsheng Youxuan (the leader in the community group- buying space) and Dili Group (which operates 10 agriculture wholesale markets) in Dec. Most surveys in food and FMCG have started or plan to sell through community group-buying platforms. Westlake's experts generally agree that unless the government drastically tightens relevant regulations, the space has immense potential, as 1) it combines the advantages of both eCommerce and offline stores, resulting in convenience and attractive pricing to consumers, and 2) online penetration in food and lower-tier cities, with hundreds of millions of potential customers, is still low and much market share is up for grabs. Ellen expects solid appliance demand and improved phone demand (including strong iPhone12 demand) to benefit JD the most. Based on JD Research Institute’s data, its health, food & beverage, cosmetics & beauty and local services categories experienced significant growth in ’20. Ellen expects solid JD growth in the intermediate term, driven by robust general merchandise/pharmaceutical sales trends, solid demand in the appliances/3C space, newer growth initiatives like community group-buying, and further penetration in to lower-tier cities and rural areas. Ellen remains positive on PDD, given the company being a beneficiary of maturing antitrust framework, further growth potential from merchants, upward monetisation potential from large merchants (in both commissions and ads), newer growth initiatives like community group-buying and its focus on affordable products/services that appeal to a broad base of Chinese consumers. Ellen recommends BIDU for its long-term potential from cloud, leading position in autonomous driving and intelligent car initiatives. She expects BILI’s solid game performance trend to continue in 4Q, given the strong performance of Genshin Impact, anniversary events of Fate/GrandOrder (FGO) in Oct and robust performance of Princess Connect Re: Dive with special promotions.

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