Industry: The e-commerce service market continues to expand, and business expansion creates competitive barriers
With the rise of cross-border e-commerce, live e-commerce, social e-commerce, etc., and the application of digital technology, brands are facing challenges such as local marketing, private marketing, and omni-channel construction, increasing demand for e-commerce services. On the one hand, it has promoted the continuous expansion of the e-commerce service market. The 2017-2021 CAGR is 28%, and the market size is expected to reach 366.3 billion yuan (+24%) in 2022. On the other hand, it also encourages service providers to expand from basic operation services to core services such as IT services, marketing services, and warehousing and logistics services. Core services require high technology and experience, and the threshold is relatively high. Leading operators have formed competitive barriers in these areas of business, which has a crowding out effect on small and medium-sized service providers, driving an increase in industry concentration.
Business: Misplaced competition is deeply involved in the liquor circuit, using the advantages of multi-channel operation to expand online consumption of new categories of liquor, mainly at the middle and high end. In the context of consumption upgrades, the high-end liquor market of 500 to 1000 yuan and high-end liquor above 1,000 yuan continues to expand. iResearch expects CAGR to reach 13.7% and 12% respectively from 2019 to 2025. The company is deeply involved in liquor e-commerce services, providing e-commerce services for many leading liquor brands such as Luzhou Laojiao, Shuijingfang, and Xijiu. It competes in a misplaced competition with many leading service providers focusing on the beauty category. With its ability to operate multiple channels, it is expected to share the dividends of online liquor consumption growth. At the same time, the company is actively expanding categories, developing its own brand, and creating a new growth curve.
Investment advice:
In the short term, the company divested its retail business, which had serious losses due to the pandemic, and focused on the Internet marketing business, which is the main contributor to profits. Performance is expected to achieve greater flexibility. In the long run, the company's Internet marketing business has the advantage of operating through multiple channels such as Tmall, JD, and Pinduoduo. While deeply involved in liquor operations, it is expected to achieve steady growth by expanding new growth categories and developing its own brands. We expect the company's EPS from 2022 to 2024 to be 0.32, 0.22, and 0.25 yuan/share, respectively, corresponding to the current stock price of PE 16, 24, and 21 times, respectively. First coverage, giving a “buy” rating.
Risk warning
Category expansion fell short of expectations; industry competition intensified.