Not Out Of The Woods Yet

China’s slowing e-commerce tangible goods’ GMV growth (+8.7% in 3Q21 vs 3Q20’s +16.2%) and intensifying competition dragged traditional e-commerce companies’ GMV growth in 3Q21 with Alibaba taking the most impact. Consumer staples categories to continue to outperform the non-essential categories as the resurgence of the pandemic will prompt consumers to stockpile staple goods and weak consumer sentiment will weigh on non-essential items. Maintain MARKET WEIGHT.


Moderating growth in China’s e-commerce segment. During 3Q21, China’s tangible ecommerce gross merchandise value (GMV) growth was at 8.7%, slowing qoq and yoy from 13.3% in 2Q21 and 16.2% during 3Q20, as weak consumer sentiment in non-essential items such as apparels, automobile and furniture sales remain weak. For the performance for each physical goods’ retail sales in 10M21, we saw that the consumer staples, cosmetic, communication equipment and cigarettes & wines categories had achieved 23.1%/23.6%/28.2%/27.7% growth vs pre-COVID-19 levels, whereas furniture, apparels, home appliances and auto’s 10M21 sales only grew by 8%/6%/5.1%/6.5% respectively vs pre-COVID-19 levels. This also explains the slower GMV growth from Alibaba (with higher proportion of product categories in apparel sales) vs resilient performance from JD (higher proportion in communication equipment) and Pinduoduo (PDD) (higher proportion in consumer staples goods) during the Sep 21 quarter. We forecast a deceleration in online goods’ sales growth during 2030-25 at 9.3% vs 23.5% during 2014-20, lifting online
penetration to 36% by 2025 with increased online penetration rates from fast-moving consumer goods (FMCG) and fresh goods.

Competitive e-commerce landscape. Leveraging the strong traffic and user engagement, social commerce platforms gained 40% of the incremental share from China’s e-commerce GMV in 3Q21 from 10% in 3Q20. Alibaba remains the largest e-commerce player (based on GMV) as at Sep 21 with estimated market share of over 60% vs JD’s 22% and PDD‘s17%. Notably, Alibaba’s market share has seen little progress in terms of growth in the past few quarters (hovering around 60-63%). This can be attributed to its slowing annual active customer (AAC) growth (10-15%) vs JD (25-30%) and PDD (20-40%) as PDD had become the largest e-commerce player in terms of annual active customers (AAC) for four consecutive quarters since 4Q20. This demonstrates PDD’s strong footing in the lower-tier cities given that rural areas’ internet users accounted for 70.6% of China’s total internet users as at Jun 21, with online penetration of only 59% vs 78% from the urban areas according to China Internet Network Information Center (CNNIC).

Sep 21 quarter results wrap-up. JD trumped Alibaba and PDD in Sep 21’s quarterly results with in-line revenue as well as bottom line performance given the company’s robust performance from its 3P business and omni-channel solutions mitigating the impact of the industry’s slowing growth. Meanwhile for PDD, although the company delivered missed revenue (19% below street’s estimate) as we believe street failed to take into account the company’s 1P business, the company delivered another profitable quarter with net margin expanding 11.4ppt yoy to 14.6% due to the improving operating efficiency. Lastly, the weaker-than-expected top-line from Alibaba was due to the slowing GMV growth (single digits) coupled with the increased investment in key strategic areas in support merchants such as Taobao Deals, Local Consumer Services, Community Marketplace and Lazada.