UOBKH: China Internet – Kuaishou, Pinduoduo, Alibaba, JD.com

11.11 Campaign – Value-for-money Strategy To Support Growth Revival

Taobao, JD, PDD and Kuaishou kicked off pre-sales/11.11 promotions on 24, 23, 20 and 18 October respectively. 11.11 pre-sales data showed signs of pent-up demand release following pressured 3Q23 NBS consumption data. To revitalise the soft macro environment, multiple platforms have adopted low price strategies for users to acquire high-value products at more affordable prices. We remain upbeat on China’s ecommerce sector pending an encouraging recovery in 4Q23. Maintain MARKET WEIGHT.

WHAT’S NEW

• Kuaishou. On 31 October, Kuaishou’s e-commerce 11.11 pre-sales period ended, signalling the official commencement of 11.11 campaign 2023. During the pre-sales period from 18 October to 30 October, Kuaishou’s e-commerce experienced 84% yoy growth in gross merchandise volume (GMV). Home appliances, beauty and personal care, and 3C digital products emerged as the top-selling product categories in the pre-sales period. The “A good life doesn’t have to be expensive” philosophy quoted by Kuaishou was reflected during 11.11 this year. Throughout 11.11, Kuaishou’s e-commerce allocated an additional Rmb2b in subsidies, allowing users to receive daily vouchers of up to Rmb2,888, with discounts available for every item purchased.

• Pinduoduo. On 20 October, Pinduoduo (PDD) officially launched its 11.11 pre-sales period. On the first three days of pre-sales period, over 20 categories achieved double yoy growth. Currently, the user base for PDD’s Billion Subsidy Channel has exceeded 620m. The user order volume has soared by 113%/167% yoy in Tier 1 cities and Tier 4-5 cities, respectively. Domestic cosmetics and new fashion emerged as the categories with the highest brand participation in PDD’s Rmb1b subsidy programme. PDD offers consumers a double-tiered discount: a Rmb50 reduction for every Rmb300 spent and a Rmb30 reduction for every Rmb200 spent. In addition, PDD’s Billion Subsidy Channel introduced the Single-Item Instant Discount feature for the first time on 23 October which provides an additional official subsidy on top of existing discounts. Products participating in the SingleItem Instant Discount promotion receive additional subsidies with no limits, ensuring that consumers can easily purchase products without needing to calculate and meet certain purchase thresholds.

• Alibaba: On 24 October at 8pm, Alibaba’s Taobao and Tmall Group kicked off pre-sales for its Singles’ Day promotion. On the pre-sales day, DAU on Taobao app grew 5% yoy to 507m. Within an hour after its pre-sales period started, Taobao and Tmall Group’s platforms recorded over 200% yoy surge in turnover for 1,300 brands, while sales of nearly 700 brands grew over 5x. Each of the live streamers who helped launch the Alibaba ecommerce unit’s campaign at 8pm on Tuesday via Taobao Live, generated more than Rmb100m in total sales volume by midnight. In addition to traditional discounts, Tmall’s Double 11 campaign is featuring an extensive official discount initiative, allowing single item discounts without requiring customers to meet a minimum purchase threshold. In addition, it promises compensation for overpaying on products designated as part of its billion-dollar subsidy programme.

ESSENTIALS

• Alibaba introduced Double 11 Daily Low Price to support SMEs offering cost-effective products during a period of consumption downgrades. Products tagged under this activity will receive priority exposure to the platform’s user traffic. The merchant guidelines specify that Double 11 Daily Low Price products are those rated four or five stars among the five star price-performance products currently offered by Taobao Tmall merchants. These products are competitively priced below the standard market rates compared with similar models.

• Taobao Wenwen serves as an AI assistant during 11.11. During 11.11 this year, Taobao and Tmall will introduce 10 free AI tools to assist merchants in their digital operations. As of now, over 100,000 merchants have utilised Alibaba’s Wanxiang Lab, which has boosted production efficiency by fivefold and delivered noticeable business growth for Tmall brands like Kiehl’s and Peacebird. Currently, Taobao Wenwen can be used in various scenarios, including shopping, consumption, daily life, and companionship. It offers the ability to answer questions and perform quick product comparisons based on users’ browsing history and preferences. This feature aims to improve shopping experience and facilitate efficient decision-making. Through multi-turn AI conversations, it accurately understands and stimulates consumers’ diverse personalised needs. Data shows that non-shopping scenarios account for 25% of user questions on Taobao Wenwen.

• JD. On 23 October at 8pm, JD kicked off its Singles’ Day campaign 2023. Since then, sales for nearly 30 brands have exceeded Rmb1b. Transactions for nearly 15,000 brands have soared over 5x yoy, and transactions for nearly 9,000 brands have surged over 10x yoy. The user base of JD’s Billion Subsidy Channel grew 5x since June and generated over 1.2m popular items with orders in the millions. JD also introduced a Price Protection service covering over 800m products. It initiated the JD 11.11 Genuine Low Price Initiative in partnership with renowned brands from 8pm on 23 October until midnight on 13 November. If consumers discover a price drop on a previously purchased item, they can simply click the “Price Guarantee” button, and the price difference will be promptly refunded. Based on JD’s data, the number of price guarantee claims by JD’s consumers has exceeded 1b, resulting in nearly Rmb9b in savings for consumers.

• Douyin. Douyin’s Double 11 pre-sales period was from 20 October at 12am to 30 October at 11pm. As of 23 October, Douyin Mall’s overall GMV, the number of paying users, and the number of payment orders soared by 200%, 165%, and 195%, respectively, compared with the same period of Double 11 last year. Compared with last year’s pre-sales brand sales rankings, Douyin’s Double 11 witnessed a surge in sales for new brands this year.

VALUATION/RECOMMENDATION

• Maintain BUY on Kuaishou (1024 HK) with a target price of HK$100.00. We remain optimistic on the company due to resilient growth in live-streaming e-commerce GMV and online advertising monetisation. Our target price implies 3.2x 2023F PS. The company is currently trading at 1.8x 12-month forward EV/Sales (13x 2024F PE), below its historical mean of 4x. We prefer Kuaishou in the e-commerce sector given its rapid growth potential of live-streaming in the e-commerce sector amid weak consumption recovery.

• Maintain BUY for Pinduoduo (PDD US) with a target price of US$120.00. We believe PDD’s value-added proposition and Temu’s strong progress in overseas expansion are the company’s key catalysts. Our target price implies a 5.6x EV sales ratio based on 2023 revenue, below its historical mean of 6.2x, and also implies 21x/17x 2023F/2024F PE against a 20% EPS CAGR over 2023-26. PDD is trading at 16x/12x 2023F/2024F PE and 3.6x 12-month forward EV/Sales, 1SD below its historical mean of 6.2x.

SECTOR CATALYST AND RISK

• Catalysts: a) Supportive government policies, b) increasing online retail penetration driven by less developed areas and the younger generation, and c) continued improvements in technology and e-commerce infrastructure.

• Risks: a) Uncertain geopolitical risks, b) challenging regulatory landscape, c) weak macro environment, d) high user acquisition expenses as well as increased competition as multiple players seek to increase market share with heavy investments in new retail, and e) local services strategy dragging down e-commerce companies’ margins and ROEs.