Yahoo Japan, Alibaba, Naver Search engines market participation!

ANCHOR REPORT
Global Markets Research
Asia Pacific internet: Top picks – Yahoo Japan, Alibaba, Naver
Invest in leading e-commerce platforms
amid strong market growth
We recommend investing in leading e-commerce platforms which control
traffic and provide end-to-end ecosystems. Internet tends to be a winnertakes-all industry, and we believe that e-commerce is similar given the
networking effect. Leading platforms will have the most buyers and sellers,
and the platforms will continue to enjoy the virtuous cycle.
We expect market leaders to see an improving blended take-rate through
targeted ads. With resilient GMV growth and advertising efficiency such as
rising click-through rates and conversion ratios helped by big data, we
expect the blended take-rates of leading platforms such as Alibaba, Yahoo
Japan and Naver to gradually improve.
Key analysis in this Anchor Report includes:

Who will be the winners in the e-commerce market? We provide our
outlook on the competitive environment and market share.

An in-depth analysis of the different e-commerce business models,
including 1P, 3P and search engines.

Financial analysis: we compare the profitability of Asian e-commerce
companies and share opportunities for improving blended take-rates.
14 February 2017
Research analysts
South Korea Internet & New
Media
Angela Hong - NFIK
[email protected]
+82 2 3783 2360
Japan internet & media
Yoshitaka Nagao - NSC
[email protected]
+81 3 6703 1175
China Internet & New Media
Jialong Shi - NIHK
[email protected]
+852 2252 1409
Japan telecommunications
Daisaku Masuno, CFA - NSC
[email protected]
+81 3 6703 1180
Production Complete: 2017-02-14 23:30 UTC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Asia Pacific internet
EQUITY: INTERNET & NEW MEDIA
Top picks: Yahoo Japan, Alibaba, Naver
Global Markets Research
Invest in leading e-commerce platforms amid strong
market growth
14 February 2017
We recommend investing in leading platforms which control traffic and
provide end-to-end ecosystem: Yahoo Japan, Alibaba and Naver
Internet tends to be a winner-takes-all industry and we believe that e-commerce
is similar given the networking effect. Leading platforms will have the most
buyers and sellers, and the platforms will continue to enjoy the virtuous cycle.
Yahoo Japan, Alibaba and Naver provide superior customer experience from
search to a comprehensive ecosystem which provides online payment, delivery
and customer rewards programmes. Given that the three companies have
strong traffic and ecosystem, we believe they will continue to be long-term
winners in their respective markets.
Market leaders to see improving blended take-rate through targeted ads
We note that blended take-rates (commissions and advertising revenue over
total GMV) of Chinese e-commerce companies vary from 3% (Alibaba) to 8%
(JD), while those of Japanese and Korean open market platforms are 7-8% (for
Rakuten, eBay Korea and Coupang). For search engines, this take-rate tends to
be 3.5% (for Yahoo Japan and Naver). With resilient GMV growth and
advertising efficiency such as rising click-through rates and conversion ratio
helped by big data, we expect the blended take-rate of leading platforms such
as Alibaba, Yahoo Japan and Naver to gradually improve.
Financial analysis: Margins to contract for major e-commerce players in
China and Korea, while Japanese players to turn profitable
On the margin front, Japanese players are likely to turn profitable driven by
stabilising competition as well as Yahoo Japan’s initiative to focus on profitability
by pursuing more efficient promotions, through collaboration with Softbank
Group. For major China e-commerce players, we expect to witness further
margin expansion for the core e-commerce business, but consolidated margin
will likely contract owing to new business investment. In Korea, losses of the
big-3 social commerce players and 11st are likely to continue owing to a fierce
market share battle. In this environment, we think the winner will continue to be
Naver whose position as a traffic gateway will further strengthen if consumers
prefer to shop on price comparison platforms.
Where we are different from the Street in this report
 China: We are more bullish than the Street about Alibaba’s potential in
marketing services, backed by the improving ROI for its existing ad products
and many under-monetised inventories on Ali’s properties.
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateways
and provide an end-to-end
ecosystem.
Nomura vs consensus
Our 2017F EPS for Yahoo
Japan/Naver is 5%/9% above
consensus, while that for Alibaba
is largely in line with consensus.
Research analysts
South Korea Internet & New Media
Angela Hong - NFIK
[email protected]
+82 2 3783 2360
Japan internet & media
Yoshitaka Nagao - NSC
[email protected]
+81 3 6703 1175
China Internet & New Media
Jialong Shi - NIHK
[email protected]
+852 2252 1409
Japan telecommunications
Daisaku Masuno, CFA - NSC
[email protected]
+81 3 6703 1180
 Japan: We expect e-commerce industry competition to stabilise in 2017,
compared to the Street view of potential escalation in competition.
 Korea: We analyse the competitive environment and financial performance of
not only the listed companies but also unlisted ones, including eBay Korea,
Coupang, TicketMonster and WeMakePrice.
Fig. 1: Stocks for action
Company
Yahoo Japan
Code
Rating
M/Caps
(USDmn)
Avg. TO
(USDmn)
Target Price
Closing
10-Feb
Upside
(%)
4689 JP
Buy
26,999
16
640
539
19%
Alibaba Group Holding
BABA US
Buy
253,231
1,327
133
102
30%
Naver Corporation
035420 KS
Buy
22,799
19
950,000↓
795,000
19%
Source: Bloomberg, Nomura estimates. Prices and TP in trading currency.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Asia Pacific internet
14 February 2017
Contents
Executive summary ................................................................................. 3
Valuation and stock recommendations .................................................... 6
Competitive analysis: Who will be the winners? ...................................... 7
E-commerce business models .............................................................. 24
Market growth outlook and history ......................................................... 35
Financial analysis .................................................................................. 48
Yahoo Japan ......................................................................................... 61
Alibaba Group Holding .......................................................................... 74
Naver Corporation ................................................................................. 76
Softbank Group ..................................................................................... 80
Rakuten ................................................................................................. 84
JD.com .................................................................................................. 93
VIPSHOP ............................................................................................... 95
SK Telecom ........................................................................................... 97
Kakao Corp. ......................................................................................... 102
Appendix A-1 ....................................................................................... 108
2
Nomura | Asia Pacific internet
14 February 2017
Executive summary
Our top picks are Yahoo Japan, Alibaba and Naver
We recommend that investors invest in e-commerce companies which control user traffic
and provide end-to-end e-commerce ecosystem. Our top picks in the region are Yahoo
Japan, Alibaba and Naver.
• Yahoo Japan (4689 JP, Buy, TP JPY640): We forecast margin improvement at Yahoo
Shopping as gross merchandise sales rise on expansion of the product range and the
partnership with Softbank Group ensures efficient promotions.
• Alibaba (BABA US, Buy, TP USD133): We expect Alibaba to continue its dominance
with over 70% market share in terms of GMV, given its leading position in the ecommerce market, profound ecosystem and monetisation capability.
Fig. 2: China e-commerce
market share
Vipshop
2%
Others
12%
JD
13%
Alibaba
73%
• Naver (035420 KS, Buy, TP KRW950,000): We forecast Naver Shopping to continue
its dominance as a traffic gateway and Naver could also leverage Naver Pay to gain
market share in Korea’s ecommerce market.
Competitive analysis: Who will be the winners?
Leading platforms which control traffic gateway and provide end-to-end
ecosystem are long-term winners
Internet tends to be a winner-takes-all industry, and we believe that e-commerce is similar
given the networking effect. Leading platforms will have the most buyers and sellers, and the
platforms will continue to enjoy the virtuous cycle. In China, Alibaba has dominated the ecommerce market and, therefore, people go to Taobao directly, rather than going through
other search engines. In Japan and Korea, people initiate online shopping on search
platforms such as Yahoo Japan and Naver, as the search platforms dominate search query
market share, while there is no dominant e-commerce player. These leading platforms
provide superior customer experience from search to a comprehensive ecosystem which
provides online payment, delivery and customer rewards programmes. Given Alibaba, Yahoo
Japan and Naver have strong traffic and ecosystems, we believe they will continue to be
long-term winners in their respective markets.
Competitive landscape in each region:
• China: China’s e-commerce market has been dominated by Alibaba, with more than
70% market share, and we expect this dominance to continue given its: 1) leading
position in the e-commerce market, where it has accumulated a large number of loyal
shoppers and merchant base; 2) profound ecosystem, including: Ant Financial, Cainiao
and AliCloud; 3) monetisation capability: leveraging accurate customer profiles backed
by big data. Alibaba, in our view, has ample potential to monetise its customers further
(such as increased click volume and better click-through rates) through more targeted
feed ads.
• Japan: We believe the main competitive field for e-commerce in Japan is shifting to
value-added services, from the previous focus on price competition. From this
standpoint, we look for improvement in profitability at Yahoo Japan, which is working to
provide its own value-added services more efficiently by strengthening collaborative
efforts with Softbank Group. We also have high expectations for Rakuten, given the
weighting of new users has been rising since Rakuten adopted its Super Point Up
(SPU) programme, which offers larger point discounts the more a customer uses
Rakuten's services.
• Korea: The e-commerce market in Korea is fragmented, with a number of players. We
expect heated competition to continue into 2017-18F, driven by social commerce
players’ market share competition as well as 11st’s vision to become the largest ecommerce player. Furthermore, 3P companies are expanding into 1P model, and vice
versa. As such, we think the boundaries between open market and social commerce
will fade into 2017-18F. In this environment, we expect consumers to prefer to shop on
Naver where they can search for products, compare prices and make payments – all in
one place.
Note: as of 2016F
Source: Nomura estimates
Fig. 3: Japan e-commerce
market share
Other
33%
Yahoo!
Shopping
6%
Rakuten
37%
Amazon
Japan
24%
Note: as of 2016F
Source: Nomura estimates
Fig. 4: Korea e-commerce
market share
Interpark
Tmon
1%
6%
WeMakePrice
5%
Coupang
6%
Auction
7%
Others
54%
11st
10%
Gmarket
11%
Note: as of 2016F
Source: Nomura estimates
3
Nomura | Asia Pacific internet
14 February 2017
E-commerce business models: Market share leaders should
see improving blended take-rate through targeted advertising
There are three major types of e-commerce business models: 1) online direct sales (1P);
2) online marketplace (3P); 3) search platform. In 1P model, the company takes control
of the inventory and sells the products to buyers. As such, the 1P model derives revenue
from product sales and cost of products sold is booked as COGS. 3P model purely
connects merchants and buyers, and the key revenues are commissions, value-added
services and advertising fees charged to merchants. Meanwhile, a search platform
model is a vertical search engine that allows users products search, price comparison
and sharing of customer reviews. They charge commissions to different retailers,
including 1P and 3P companies, for transferring GMV traffic as well as advertising fees
for displaying products on their platform.
Blended take-rate of leading platforms to improve gradually
We note that blended take-rates (commissions and advertising revenue over total GMV)
of Chinese e-commerce companies vary from 3%(Alibaba) to 8% (JD), while those of
Japanese and Korean open market/social commerce models are 7-8% (for Rakuten,
eBay Korea and Coupang). For search engines, this take-rate tends to be 3.5% (for
Yahoo Japan and Naver). With resilient GMV growth and improving advertising efficiency
helped by big data, we expect blended take rate of leading platforms such as Alibaba,
Yahoo Japan and Naver to improve gradually.
• In 3P model, there has been downward pressure on commission revenue. This is
because the number of merchants on an e-commerce platform is a key competitive
advantage and we have seen that companies that intend to gain market share will often
offer lower commissions. We note that Alibaba offered 0% commission on Taobao and
did not start monetising from advertising until Taobao attracted enough number of
merchants. Yahoo Japan has been the #3 e-commerce platform for many years. In an
attempt to gain market share, it started a zero commission strategy several years ago.
In Korea, 11st and WeMakePrice charge low commission from merchants in an effort to
recruit more merchants.
• Instead, e-commerce platforms will make more money from advertising. We
expect online marketing services including advertising to outgrow commission revenue,
given a large number of un-monetised merchants and better marketing tools offering so
as to incentivise increasing ad spending.
Fig. 5: Take rate comparison
3P
Search engine
* Rakuten
* JD
8.0%
Alibaba
2.9%
* Coupang
* WeMake
7.1%
Price
8.0%
Yahoo
Japan
Naver
3.5%
3.6%
China
Japan
eBay
Korea
7.6%
5.0%
Korea
Note 1: * Take rates of the companies’ 3P business
Note 2: as of 2016; WeMakePrice, Coupang and eBay Korea as of 2015
Source: Company data, Nomura estimates
Market growth outlook and history
E-commerce market remains a secular trend in Asia; China’s e-commerce market
to grow at 16% CAGR in 2017-20F, followed by Korea at 12% and Japan at 9%.
In 2017-20F, we estimate China’s e-commerce to grow the fastest at 16% CAGR,
followed by Korea’s 12% and Japan’s 9%. Overall, we expect the growth of e-commerce
4
Nomura | Asia Pacific internet
14 February 2017
will be driven by increasing mobile usage, competitive prices and convenience of mobile
payment.
• In China, e-commerce growth has mostly been driven by first-tier cities on internet
availability, whereas we believe consumption upgrades and ongoing rising penetration
rates in rural areas and the fast-moving consumer goods (FMCG) category will serve
as major growth drivers going forward.
• Japan: Given e-commerce accounts for a small percentage of total retail market in
Japan compared with Korea, we expect e-commerce penetration rates to continue
growing strongly, driven by the removal of tenant fees and royalty fees from Yahoo!
Shopping, announced in October 2013. We think this encourages both SMEs and large
companies to get into e-commerce in Japan at the same time.
• For Korea, we expect attractive prices offered by e-commerce platforms, as well as the
convenience factor of shopping and payment, to lead e-commerce to grow faster than
other retail channels.
History of e-commerce market: amid fading boundaries between 3P and 1P
models, companies are engaged in price and delivery wars
We have observed that third-party e-commerce platforms tend to be the first business
model in most markets due to low capital intensity. Those that took the first-mover
advantage are Alibaba, Rakuten and Interpark and Gmarket. As consumers become
more sophisticated and demanding, this gives an opportunity to a new business model,
which is the direct sales model (1P): In the mid-to-late 2000s, online retailers such as
JD.com, Amazon Japan, TicketMonster and Coupang challenged the market leaders,
with competitive pricing and guaranteed product quality. Since then, there have been
price wars initiated by smaller companies trying to gain share against the market leaders.
What added to the price competition was the concept of ‘fast delivery’. Most recently,
companies like JD.com, Amazon Japan, Askul and Coupang have invested heavily in
logistics networks and offer same-day delivery services to consumers, in an effort to gain
market share.
Financials analysis: margins to contract for major ecommerce players in China and Korea, while Japanese
players to turn profitable
We expect the revenue growth of e-commerce companies in China, Japan and Korea to
continue to post double-digit CAGR. On the margin front, we note that e-commerce
players’ margin is contracting overall due to heavy investments and/or heated market
competition. In this competitive market environment, dominant players, such as Alibaba
and Ebay Korea, are enjoying the highest profitability of double-digit operating margins
by leveraging their market-dominant position. However, the rest of the players are
struggling and either seeing only single-digit operating margin or even making operating
losses. We expect this trend to continue into 2017-18F.
• China: For major China e-commerce players (Alibaba, JD and VIPSHOP), we expect to
witness further margin expansion for core e-commerce business, pointing to operating
leverage and improving procurement pricing , but consolidated margin will likely
contract owing to new business investment (Internet Finance, Cloud business, O2O for
example), in our view.
• Japanese players’ margins are likely to turn around and start to be profitable as they
focus more on profitability. This is driven by a stabilising competitive environment in
Japan, as well as Yahoo Japan’s initiative to focus on profitability by pursuing more
efficient promotions, through collaboration with Softbank Group.
• In Korea, losses of pure e-commerce players are likely to expand owing to a fierce
market share battle. In particular, companies which look to gain market share will need
to sacrifice profitability for GMV growth. These companies include the big three social
commerce players and 11st. In this environment, we think the winner will continue to be
Naver whose position as a traffic gateway will further strengthen if other e-commerce
players continue to fight for market share and consumers prefer to shop on price
comparison platforms. We estimate Naver Shopping’s revenue to post 50% CAGR until
2018F, driven by advertising and Naver Pay commissions.
5
Nomura | Asia Pacific internet
14 February 2017
Valuation and stock recommendations
Fig. 6: Global internet companies – valuation comparison
Company
Code
M/Caps
Rating
(USD mn)
Target
Closing
Price
10-Feb
Upside YTD perf
PER (x)
EPS growth (%)
PEG (x)
PBR (x)
ROE (%)
OP margin (%) NP margin (%)
(%)
(%)
FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F
Alibaba
BABA US
253,231
Buy
133
102
30%
16.6
29.7
26.2
38.9
16.9
0.8
1.6
6.4
5.3
16.3
17.1
30.5
32.5
25.3
24.9
JD.com
JD US
42,790
Buy
32
29
9%
15.5
188.7
51.4
(5,446)
266.9
n.a.
0.2
8.2
7.3
-4.8
7.5
-0.3
0.5
-0.4
0.6
VIPS US
7,318
Buy
16.4
12
31%
13.4
16.0
13.7
15.9
18.9
1.0
0.7
5.0
3.6
27.9
23.2
3.9
3.9
3.3
3.4
78.1
30.4
17.9
0.9
0.8
6.6
5.4
13.1
15.9
11.4
12.3
9.4
9.6
VIP shop
China average
27.4
Softbank Group
9984 JP
85,110
Buy
11,790.0
8,792.0
34%
13.2
16.6
13.8
21.2
20.4
0.8
0.7
3.1
2.5
21.7
20.7
13.5
14.2
7.3
8.7
Yahoo Japan
4689 JP
26,999
Buy
640.0
539.0
19%
20.0
19.5
17.2
14.9
13.0
1.3
1.3
3.0
2.6
16.0
16.1
24.9
26.4
17.5
18.5
Rakuten
4755 JP
14,232
Buy
1,400.0
* 1128.5
24%
(3.2)
20.2
18.1
30.3
11.4
0.7
1.6
2.2
2.0
9.7
10.1
14.6
14.8
8.8
8.9
Askul
2678 JP
1,740
Buy
4,700.0
3,580.0
31%
17.5
23.4
19.0
35.8
23.1
0.7
0.8
3.0
2.7
13.5
14.9
3.3
3.6
2.4
2.8
19.9
17.0
17.0
0.9
1.1
2.8
2.4
15.2
15.5
14.1
14.7
9.0
9.7
27.4
22.7
38.9
21.4
0.7
1.1
5.1
4.1
26.6
26.1
31.1
33.1
23.6
25.2
Japan average
Naver
035420 KS
22,799
Buy
950,000
795,000
SKT
017670 KS
15,982
Neutral
240,000
227,500
5%
1.6
7.9
9.9
37.9
-19.9
0.2
-0.5
1.0
1.0
13.7
10.1
9.3
9.3
13.6
10.7
Kakao
035720 KS
5,010
Neutral
80,000
85,100
-6%
10.5
55.3
38.0
49.8
45.6
1.1
0.8
1.6
1.5
3.1
4.3
9.4
11.8
6.2
8.3
Interpark
108790 KS
8,980
n.a.
(12.0)
16.8
13.4
181.2
24.7
0.1
0.5
1.6
1.5
10.0
11.7
4.4
5.1
3.6
4.3
26.8
21.0
18.0
0.5
0.5
2.3
2.0
13.4
13.1
13.6
14.8
11.7
12.1
241 Not Rated
n.a.
19%
2.6
25.6
Korea average
Amazon
AMZN US
Ebay
EBAY US
393,182
Buy
827
12%
10.3
43.4
30.4
44.2
42.7
1.0
0.7
12.0
8.9
27.9
34.3
5.2
6.8
4.7
5.0
34
n.a.
13.3
15.1
14.0
10.2
7.8
1.5
1.8
2.1
1.9
18.8
16.5
30.8
31.3
24.2
24.8
US average
29.3
22.2
27.2
25.3
1.2
1.3
7.1
5.4
23.3
25.4
18.0
19.1
14.4
14.9
Global internet companies average
38.5
22.7
39.3
19.5
0.9
0.9
4.7
3.8
16.3
17.5
14.2
15.2
11.1
11.6
36,557 Not Rated
925
76.9
n.a.
Source: Company data, Bloomberg, Nomura estimates; Bloomberg consensus for not-rated stocks.
* Note: Share price for Rakuten (4755 JP) is as of 13 February 2017; Chinese stocks’ TP and closing prices are in trading currency
Asia e-commerce stocks trade in the range of 17-25x 2017F P/E. While these multiples
might seem high, we note that EPS growth for these companies is strong. Another way
to look at the valuation could be PEG multiple valuation, as it takes into account the
earnings growth. These companies trade in the range of 1-1.5x, which is broadly in line
with the multiples for US e-commerce stocks Amazon and Ebay. We note that marketdominant players in their respective country/business, including Alibaba, Yahoo Japan,
Rakuten and Naver, tend to trade at the upper end of the PEG range compared to their
competitors, as we think the market gives a premium to their high profitability and
earnings sustainability. Internet, and e-commerce, tends to be a winner-takes-all industry
and, therefore, leading platforms continue to enjoy the virtuous cycle. For Softbank
Group and SK Telecom, which have multiple businesses such as telecom, e-commerce
and other non-core businesses, the stocks trade at lower P/E and PEG multiples
compared to other pure e-commerce stocks.
Our top picks are Yahoo Japan, Alibaba and Naver
We recommend that investors invest in e-commerce companies which control user traffic
and provide end-to-end e-commerce ecosystem. Our top picks in the region are Yahoo
Japan, Alibaba and Naver.
• Yahoo Japan (4689 JP, Buy, TP JPY640): We forecast margin improvement at Yahoo
Shopping as gross merchandise sales rise on expansion of the product range and the
partnership with Softbank Group ensures efficient promotions.
• Alibaba (BABA US, Buy, TP USD133): We expect Alibaba to continue its dominance
with over 70% market share in terms of GMV, given its leading position in the ecommerce market, profound ecosystem and monetisation capability.
• Naver (035420 KS, Buy, TP KRW950,000): We forecast Naver Shopping to continue
its dominance as a traffic gateway and Naver could also leverage Naver Pay to gain
market share in Korea’s e-commerce market.
6
Nomura | Asia Pacific internet
14 February 2017
Competitive analysis: Who will be the
winners?
Leading platforms which control traffic gateway and provide end-to-end
ecosystem are long term winners
Internet tends to be a winner-takes-all industry and we believe that e-commerce is
similar given the networking effect. Leading platforms will have the most buyers and
sellers, and the platforms will continue to enjoy the virtuous cycle. In China, Alibaba has
dominated the e-commerce market and, therefore, people go to Taobao directly, rather
than going through other search engines. In Japan and Korea, people initiate online
shopping on search platforms such as Yahoo Japan and Naver, as the search platforms
dominate search query market share while there is no dominant e-commerce player.
These leading platforms provide superior customer experience from search to a
comprehensive ecosystem which provides online payment, delivery and customer
rewards programmes. Given Alibaba, Yahoo Japan and Naver have strong traffic and
ecosystem, we believe that they will continue to be long-term winners in their respective
markets.
Competitive landscape in each region:
• China: China’s e-commerce market has been dominated by Alibaba, currently with
more than 70% market share, and we expect this dominance to continue, given its: 1)
leading position in the e-commerce market, where it has accumulated a large number
of loyal shoppers and merchant base; 2) profound ecosystem, including: Ant Financial,
Cainiao and AliCloud; 3) monetisation capability: leveraging accurate customer profiles
backed by big data, Alibaba, in our view, has ample potential to further monetise its
customers (such as increased click volume and better click-through rates) through
more targeted feed ads.
• Japan: We believe the main competitive field for e-commerce in Japan is shifting to
value-added services, from the previous focus on price competition. From this
standpoint, we look for improvement in profitability at Yahoo Japan, which is working to
provide its own value-added services more efficiently by strengthening collaborative
efforts with Softbank Group. We also have high expectations for Rakuten, given the
weighting of new users has been rising since Rakuten adopted its Super Point Up
(SPU) programme, which offers larger points discounts the more a customer uses
Rakuten's services.
• Korea: The e-commerce market in Korea is fragmented with a number of players. We
expect heated competition to continue into 2017-18, driven by social commerce
players’ market share competition as well as 11st’s vision to become the largest ecommerce player. Furthermore, 3P companies are expanding into 1P model, and vice
versa. As such, we think the boundaries between open market and social commerce
will fade into 2017-18F. In this environment, we expect consumers to prefer to shop on
Naver where they can search for products, compare prices and make payments – all in
one place.
China: Alibaba’s dominance to continue
China’s e-commerce market has been dominated by Alibaba, currently with more than
70% market share, and our analyst Jialong Shi expects this dominance to continue,
given its: 1) leading position in the e-commerce market, where it has accumulated a
large number of loyal shoppers and merchant base; 2) profound ecosystem: Alibaba has
established a comprehensive ecosystem to support its e-commerce business, including:
Ant Financial, its internet finance arm; Cainiao, its smart logistics subsidiary; and
AliCloud, a leading public cloud service provider; to name a few; 3) monetisation
capability: leveraging accurate customer profiles backed by big data, Alibaba, in our
view, has ample potential to monetise its customers further – for example, through more
targeted feed ads, Alibaba achieved increased click volume and better click-through
rates without adding ad loads during the December-end quarter 2016.
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14 February 2017
Alibaba – China’s undisputed e-commerce leader
The China e-commerce market is heavily dominated by Alibaba through Taobao (C2C)
and Tmall (B2C), with around RMB3.6tn GMV for 2016, more than the combination of
Amazon and eBay. We estimate that Alibaba has ~73% market share of China’s total ecommerce market in terms of GMV, far exceeding JD’s 13% and VIPSHOP’s 2% (Fig.
7). In the B2C e-commerce market, Tmall continues to top the list with around 56%
market share, followed by JD at 25% and Suning (002024CH, NR) at 4%. Overall, we
believe Alibaba and JD have absolute advantages in the e-commerce market, but we
have witnessed some smaller vertical e-commerce players emerge, such as
Xiaohongshu and Ymatou, to meet the different tastes of shoppers.
Fig. 7: China e-commerce market share in 2016F
Vipshop
2%
Fig. 8: China B2C e-commerce market share in 3Q16
Others
12%
Gome
1%
YiHaodian
Others
1%
9%
Vipshop
3%
JD
13%
Suning
5%
JD
25%
Tmall
56%
Alibaba
73%
Source: Nomura estimates
Source: iResearch, Nomura research
Catalysts for China e-commerce
Despite the economic slowdown, we expect Chinese domestic consumption will record a
resilient 7% CAGR through 2020F (Fig. 9), underpinned by growing disposable income
of China’s middle class and internet-savvy, consumption-driven, post-90s population.
Furthermore, we believe online consumption will continue to outpace offline consumption
due to the continuing offline-to-online migration. In particular, increasing mobile device
adoption should facilitate online shopping, leading both to more frequent purchases and
higher spending per shopper.
Fig. 9: China: Domestic retail consumption and growth
(CNYtrn)
18%
Total retail sales (LHS)
YoY% (RHS)
50
44.3
17%
45
15%
14%
40
20%
18%
16%
35
14%
12%
11%
30
10%
12%
10%
25
10%
7%
20
7%
6%
8%
15
6%
10
4%
5
2%
0
0%
2010
2011
2012
2013
2014
2015
2016 2017F 2018F 2019F 2020F
Source: iResearch, Nomura estimates
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Rural e-commerce
We believe there is still much untapped potential in lower-tier cities and rural areas and,
thus, penetrating those areas could help to greatly broaden the customer base for ecommerce services. According to the World Bank, China’s rural population was 609mn
as of 2015, accounting for 44% of the country’s entire population; of this, rural internet
users reached 195mn, accounting for only 28.4% of the Chinese internet population
based on CNNIC data (Fig. 10). As per a McKinsey estimate, there are some 160mn
people in low-tier cities who use online services but have yet to be exposed to ecommerce; the number is nearly as many people as the number of online shoppers in
high-tier cities today. In high-tier cities, by contrast, McKinsey 2016 iConsumer shows
limited potential for user penetration to drive e-commerce growth: 89% of digital
consumers in Tier-1 and Tier-2 cities are already shopping online. Consequently, we
expect rural e-commerce in China to see a 32% CAGR over 2017-20F, reaching
RMB2.3tn in 2020F (Fig. 11).
Fig. 10: China: Number of rural internet users
Fig. 11: China: Rural e-commerce market size and growth
(Million)
250
(CNYbn)
Rural e-commerce GMV
2,500
YoY growth (RHS)
200
2,000
120%
96%
100%
83%
80%
150
1,500
55%
100
60%
45%
1,000
32%
50
40%
21%
500
Source: CNNIC, Nomura research
2016-12
2016-06
2015-12
2015-06
2014-12
2014-06
2013-12
2013-06
2012-12
2012-06
2011-12
2011-06
0
20%
0
0%
2014
2015 2016E 2017F 2018F 2019F 2020F
Source: iResearch, Nomura estimates
Chinese rural areas still lag behind cities in overall economic development. But the gap
has been narrowing over the past couple of years, thanks to favourable government
policies. As shown in Fig. 12, overall rural consumption spending has climbed
impressively since 2012 and reached 36% of that for urban dwellers by 2015.
The vast population and increasing incomes have laid solid groundwork for rural ecommerce. Alibaba, JD and other e-commerce players have begun to explore the rural
market. Alibaba’s rural e-commerce solution is a two-way model, ie, selling to and selling
by farmers. On the one hand, farmers are also selling local produce or handmade craft
via Taobao to customers nationwide. Taobao-based entrepreneurship is thriving in some
rural areas. The number of so-called “Taobao Villages” or clusters of rural online
entrepreneurs who have opened shops on the Taobao marketplace, increased from
three in 2009 to 1,311 by the end of 2016, according to Ali Research (Fig. 13).
In addition, Alibaba has unveiled a slew of incentive policies to encourage farmers to
become Taobao merchants. Ant Financial, Alibaba’s Internet Finance affiliate, has
provided financial support for Taobao Village merchants. Meanwhile, Taobao University,
Taobao’s educational arm, will start a programme of seminars in rural areas to train
village merchants as well.
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14 February 2017
Fig. 12: China: Rural vs. urban consumption spending
Urban consumption spend (LHS)
Rural consumption spend (LHS)
Rural as % or urban (RHS)
30,000
25,000
20,000
15,000
Fig. 13: Alibaba: Number of Taobao villages
1,400
1,311
40%
35%
1,200
30%
1,000
25%
800
20%
780
600
15%
10,000
400
10%
5,000
5%
0
0%
212
200
3
20
2009
2013
0
2008 2009 2010 2011 2012 2013 2014 2015
2014
2015
2016
Source: Ali Research, Nomura research
Source: NBS, Nomura research
• Barriers to penetration of e-commerce into rural market
Despite the attractive potential, in our view, there remain a few challenges for ecommerce players such as Alibaba or JD to expand their businesses into rural areas.
These challenges include: 1) backward internet infrastructure, as many rural households
still do not have internet access; 2) villagers’ lack of trust in e-commerce; and 3) last-mile
delivery, as logistics coverage of Chinese rural areas is still quite poor.
Fig. 14: The process of online shopping in rural regions
Shopping
• Villagers browse items on
Taobao or JD's website at
their respective service
Making an order
Payment
•Owners of service stations
• Owners of the service
help villagers maker an
stations pay via their own
order on Taobao or JD.
Alipay or bank accounts for
stations located in the
the purchased items on
villages
behalf of the villagers.
Return goods
Service stations are a
key piece of rural
ecommerce to reduce
payment barrier and
cultivate villagers' trust
in online shopping
Settlement
• If the villagers are not
• When the purchased
satisfied with the items
items are received, the
received, they can return
villagers pay back the
them to the service stations
service station
and do not need to pay.
Source: Nomura research
In addition, both Ali and JD address these issues through setting up service stations in
villages, which act as agents assisting villagers with shopping, payment, and receipt and
after-sale services, as depicted by Fig. 15 and Fig. 16.
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Fig. 15: Alibaba: Taobao rural service station
Fig. 16: JD: Rural service station
Source: Sina.com
Source: Sina.com
Cross-border e-commerce
According to iResearch, the import cross-border e-commerce market in China is
expected to see a 55% CAGR (2016-18F), and reach RMB526mn in 2018, underpinned
by: 1) surging demand for overseas products; 2) consumption upgrades; 3) policy
support.
Fig. 17: China: Online retail sales of imported goods
(CNYmn)
Online retail sales of imported goods (LHS)
600
YoY growth (RHS)
120%
112%
500
100%
86%
71%
400
80%
53%
300
55%
54%
200
60%
40%
20%
100
20%
0
0%
2012
2013
2014
2015
2016F
2017F
2018F
Source: iResearch, Nomura research
• Surging demand for overseas products
We have witnessed increasing demand for overseas goods from China shoppers, who
are becoming more discerning on quality, service and variety. Chinese middle- and
upper-middle-class consumers are looking to trade up to overseas products, which are
trustworthy quality products, exclusively available in overseas market, or specialised
offerings that traditional offline merchants rarely sell. Besides, we believe another key
reason for cross-border shoppers to shop for overseas brands is to prevent counterfeit
goods; as such, they are willing to buy more trustworthy quality products from overseas
brands despite generally higher prices than domestic brands. For example, according to
iResearch, the top five cross-border purchase categories in 2016 were beauty and
cosmetics, baby and maternity products, apparel, bags and accessories, and household
goods.
• Consumption upgrade
As incomes rise in China, consumers have stepped up purchases of imported goods,
especially among the young generation. We believe the post-90s generation, raised in
the internet era and armed with more consumption power, especially is a key
demographic in online consumption. Generally speaking, the post-90s generation seems
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14 February 2017
to follow a more individualistic way of life and is more inclined to spend on
products/services that reflect one’s personal identity or improve one’s quality of life.
Besides, China disposable income per capita of urban households is projected to trend
up to ~RMB44,070 (USD6,393) by 2020F, which implies a 7% CAGR over 2015-20F,
according to Trading Economics (Fig. 19).
• Policy support
The government of China has also supported cross-border e-commerce through several
accommodating polices. For example, policymakers have approved 13 comprehensive
cross-border e-commerce pilot cities, including Hangzhou, Tianjin, and Shanghai, to
enjoy favourable postal duties of 10-50%.
Fig. 18: China: Reasons for cross-border online shopping
Fig. 19: Disposable income per capita for urban households
(CNY)
Buying products that users once bought
overseas
50,000
44,070
45,000
A rich variety of products to choose from
40,000
35,000
Brand preference
30,000
25,000
Unavailable on domestic websites
20,000
15,000
Affordable price
10,000
5,000
Products quality
0
0%
Source: iResearch, Nomura research
10%
20%
30%
40%
50%
60%
70%
2011
2012
2013
2014
2015
2020E
Source: NBS, Trading Economics estimates, Nomura research
Concerns on China CBE
– Potential policy impacts
In March 2016, Chinese authorities unveiled a new cross-border e-commerce (CBE) tax
(Fig. 20-Fig. 21), which will replace the existing postal tax from May 2017, postponed
from an original effective date of April 2016. In our view, this new CBE tax could have
some negative impact, especially for low-value items, but should still be manageable, as
it is still more than ~30% lower than the tax on offline imports. Therefore, we believe the
impact from an 11.9% tax increase for the majority of the affected items should not hurt
the e-commerce industry materially, as regular CBE shoppers generally have a
preference for overseas brands, especially for maternity products. They will stick with the
CBE channel as long as prices are more competitive than those offered by offline
retailers.
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14 February 2017
Fig. 20: Tax changes for CBE via bonded warehouse channel
New tax
Net tax change
(New vs current)
0% (RMB50 tax exemption);
11.9%
+11.9%
10%
11.9%
+11.9%
Cosmetics (perfume, sun block, eye cream, lipstick etc) under RMB100
0% (RMB50 tax exemption);
32.9%
+32.9%
Cosmetics (perfume, sun block, eye cream, lipstick etc) above RMB100
50%
32.9%
-17.1%
Toiletries and skincare items below RMB100
0% (RMB50 tax exemption);;
11.9%
+11.9%
Toiletries and skincare items above RMB100
50%
11.9%
-38.1%
Apparel & accessories, electrical appliances, watches, bicycles under
RMB250
0% (RMB50 tax exemption);
11.9%
+11.9%
Apparel & accessories, electrical appliances, watches, bicycles, etc,
above RMB250
20%
11.9%
-8.1%
Category
Current tax
Maternity products, foods, nutritional supplements etc, under RMB500
Maternity products, foods, nutrition supplements etc, above RMB500
Source: China Customs, Nomura research
Fig. 21: Tax changes for CBE via direct shipment from overseas markets
Item
1
Current Postal Tax Category
Foods & beverage; electronics (computer, video
cameras, cameras etc.)
Tax Rate
Item
10%
1
2
Sporting goods (exclude golf ball and equipment), fishing
equipment; textiles; televisions, cameras and other
electronic appliances; all the others not included in item 1
30%
3
Cigarettes, alcoholic drinks; luxury jewel, golf ball and
equipment, high-end watches; cosmetics
60%
2
Textile, televisions, cameras and other electronic
appliance, bicycles, ordinary watches and clocks etc.
20%
3
Golf ball and equipment, high-end watches etc.
30%
4
Cigarettes, alcoholic drinks and cosmetics
50%
Current Postal Tax Category
Food & beverage; electronics (computer, video cameras,
cameras etc.)
Tax Rate
15%
Source: China Customs, Nomura research
– Competition from global cross-border e-commerce players
Some investors may worry about competition from global cross-border e-commerce
players such as Amazon Global, especially after the introduction of the Prime membership
programme in China last year. We believe domestic cross-border e-commerce players,
such as Tmall Global, JD Worldwide and NetEase Kaola, have advantages over other
players given their more comprehensive understanding of Chinese online buyers. A recent
iResearch survey reveals that, among all consumers who made cross-border online
purchases in the past year, 61% chose domestic cross-border e-commerce platforms vs.
45% who chose global cross-border platforms (Fig. 22). Consequently, we believe
competition from global cross-border e-commerce players will be limited in the short-to-mid
term.
Fig. 22: China: Cross-border shopping channel preference in 2016
Purchasing agents on WeChat and other
social media
Domestic independent cross-border ecommerce websites
28%
29%
Overseas shopping websites
32%
Navigation websites of domestic cross-border
online shopping
Foreign websites of global comprehensive ecommerce enterprises
Overseas shopping channels of domestic ecommerce enterprises
36%
45%
61%
0%
10%
20%
30%
40%
50%
60%
70%
Source: iResearch, Nomura research
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14 February 2017
Major cross-border e-commerce players

Tmall Global: Alibaba was one of the first companies to initiate a cross-border
business. Launched in February 2014, Tmall Global utilises Alibaba’s classic
marketplace model and provides a range of global products from such categories as
cosmetics/skincare, healthcare/food, mother/babies, apparel/shoes/bags, and
life/digital. It has formed partnerships with hypermarket brands such as Costco,
Countdown, Lottemart, e-Mart, RT-Mart, Fresta and King Power, and operates in free
tax zones in Shanghai, Guangzhou, Zhengzhou, Hangzhou and Ningbo.
The online marketplace model means Tmall Global has no inventory risk. However,
we note that the majority of merchants choose to ship their products directly from
overseas instead of using domestic tax-free bonded warehouses. Compared to
direct sale names, Tmall Global offers a lower quality guarantee, longer shipping
times and a more complex refund process, which could hurt the user experience, in
our view.


JD Worldwide: Launched in April 2015, JD Worldwide sells about 800,000 stock
keeping units (SKUs) and works with nearly 1,000 merchants. It uses a direct sale
model for cosmetics and baby categories, and a marketplace model for others. JD
currently partners with five free trade zone cities – Hangzhou, Ningbo, Zhenzhou,
Shanghai and Guangzhou. Merchants pay an annual fee of USD1,000 and
transaction commissions range from 1% to 10% depending on the product category.
JD has abundant traffic and a quality user base; however, JD Worldwide entered the
cross-border e-commerce market relatively late and does not have a strong supply
chain integration advantage in new e-commerce verticals yet. We believe leveraging
on its traffic, JD could potentially obtain a significant share in its new initiatives.
NetEase Kaola: Kaola is NetEase’s cross-border e-commerce business, launched in
January 2015. Like Jumei, Kaola operates with a direct sale model. According to
163.com, it currently partners with free tax zones in Hangzhou and Ningbo, with
14,000sqm and 26,000sqm warehouses, respectively. Its new Zhengzhou warehouse
started operation in June. Although it has not disclosed how many transactions it has
made, we believe Kaola has already captured a significant share of the cross-border
e-commerce space in the six months since its launch.

VIPSHOP: VIPSHOP launched its cross-border e-commerce platform in September
2014, but has not been as aggressive as peers. Products are shipped directly from
abroad and due to the lengthy shipping time, the number of transactions is insignificant
at the moment. Gross profit margin on these cross-border goods is 15-30% depending
on product category.

Jumei Global: Jumei Global was launched in September 2014 and expanded its
offering from cosmetics & skincare to include baby & maternity products in April 2015.
According to management, it is the largest cross-border e-commerce platform among
peers. Its bonded warehouses in Zhengzhou and Shenzhen free tax zones are
40,000sqm and 20,000sqm, respectively, accounting for over 90% of all packages
shipped in each pilot zone. Unlike Tmall and JD, Jumei uses primarily a direct sale
model that guarantees product quality and delivery. About 70-80% of its products are
priced below CNY100, and hence are below the postal tax threshold. Also, about 7080% of its products are bought directly from brands.
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Fig. 23: China: Cross-border e-commerce market share (2016)
Others
4%
Ymatou
5%
NetEase Kaola
22%
Xiaohongshu
7%
Jumei
12%
Tmall Global
19%
JD Worldwide
15%
Vipshop
16%
Source: iResearch, Nomura research
Japan: Competitive analysis
The competitive axis of Japan's e-commerce industry comprises: 1) the number of
products; 2) logistics; and 3) loyalty programmes. Here, focusing on these three points,
we will explain the relative competitiveness of Rakuten Ichiba, Yahoo! Shopping and
Amazon.
Fig. 24: The number of items and stores on Yahoo! Shopping
(mn)
Number of items available at Yahoo Shopping (lhs)
250
230
Term-end no of stores (rhs)
('000)
500
450
200
400
180
350
150
300
120
100
250
200
80
150
50
100
50
0
Q1
Q2 Q3
14/3
Q4
Q1
Q2 Q3
15/3
Q4
Q1
Q2 Q3
16/3
Q4
Q1 Q2
17/3
0
Source: Nomura, based on company data
The number of items
According to Nomura estimates based on the GMV of each e-commerce platform, there
were 230mn merchandise items on Yahoo! Shopping at the end of September 2016.
Rakuten Ichiba at the same period had about 200mn items, and we estimate that
Amazon.co.jp had around 200mn as well. We believe the reason Yahoo! Shopping had
the largest number of items was the impact of its “free fee” programme. The number of
tenants and merchandise items rose sharply over 2013 (Fig. 24).
Fig. 25 comes from presentation material disclosed by Rakuten with reference to 2014
survey data from the Fuji Economic Research Institute. Looking at the market share of
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14 February 2017
the total distribution of the main product categories of the smartphone e-commerce
market, we find that Rakuten was strong in the food category.
This is because many tenants of Rakuten Ichiba deal with seafood, meat and snacks. On
the other hand, Amazon.co.jp has traditionally been much stronger in products such as
home appliances, entertainment products and books, CDs and DVDs. The total flow of
Yahoo! Shopping in 2014 was JPY370bn. Nomura estimates Yahoo! Shopping’s market
share at about only 5%, but we believe that the share will expand steadily as the number
of products increases.
Fig. 25: Smartphone market, e-commerce companies’ market share in Japan by genre (2014)
Others
11.7%
Amazon
Rakuten
5.8%
18.9%
11.2%
37.1%
15.0%
7.3%
Yahoo
13.3%
43.0%
66.3%
13.7%
5.5%
16.7%
55.0%
12.4%
10.2%
2.3%
66.0%
1.9%
54.1%
40.7%
Food
Health/
Medicine
Daily
34.4%
29.5%
28.0%
Beauty,
etc
Fashion
Appliance/
Electronics
Source: Nomura, based on company data
What is distribution to Rakuten?
Amazon.co.jp operates a first-party business model where it stocks and sells its own
merchandise. In contrast, Rakuten Ichiba and Yahoo! Shopping operate marketplace
business models that provide tenants with an e-commerce platform. Rakuten advertises
and drives customers to its online shopping mall, and its tenants do the actual selling
and delivery of merchandise (Fig. 26).
Building massive distribution centres does not solve everything
Amazon.co.jp builds massive centralised distribution centres to create economies of
scale in fulfilment functions, from product supply to inventory management, order
processing, packaging and delivery. Rakuten and Yahoo! Shopping tenants are
scattered throughout all regions of Japan, and therefore it would not make sense for
them to build massive distribution centres around the country to offer fulfilment services.
Rakuten Logistics plans and executes logistics for the entire Rakuten group
In view of Amazon.com’s approach to managing its own inventories and centralising
distribution, Rakuten and Yahoo! Shopping are at a disadvantage in terms of building a
distribution network. As a counter to Amazon.co.jp, Rakuten constructed a large
distribution centre called Rakuten Fulfilment Center (RFC) in Ichikawa-shi, Chiba
Prefecture, and this is operated by its wholly owned subsidiary, Rakuten Logistics.
Purpose of RFC is to compete against Amazon.com
RFC plays two key roles. The first is fulfilment for Rakuten Books, a business Rakuten
runs as a retailer. The second is fulfilment services for merchandise inventoried on
consignment to Rakuten Logistics by major tenants on Rakuten Ichiba. The aim of
providing fulfilment services to tenants is because Rakuten’s tenants are unable to
individually compete effectively against Amazon.com’s distribution system. Rakuten’s
management of logistics functions is a bid to increase the competitiveness of distribution
for its tenants.
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Askul and Yahoo Japan = Yasukul
On 27 April 2012, Askul and Yahoo Japan announced a business and capital tie-up
aimed clearly at securing the No. 1 position in Japan’s e-commerce field. Currently
Yahoo Japan owns 41.6% and Askul is a consolidated subsidiary of Yahoo Japan.
Askul has strengths in terms of product lineup, pricing, distribution and customer support,
while Yahoo Japan’s strengths lie in customer appeal and payment services. We think
the two companies could build a significant distribution platform in Japan by combining
their complementary strengths. By using Askul’s distribution bases, Yahoo Japan is
aiming to create a platform enabling it to provide faster delivery services.
Fig. 26: Differences in the business models of Amazon.co.jp and Rakuten Yahoo!
Amazon.co.jp
Rakuten and Yahoo!
(tenants spread around the
country)
Large大量仕入れ
supply volume
Centralized operations
Heavy capex in large distribution
centers (benefits from collecting and
shipping products out of one
location)
Geographically dispersed operations
Light capex in large distribution
centers (not logical to collect and
ship products out of one location)
Source: Nomura
Current state of Amazon.com's distribution network in Japan
Because of differences in topography, the road network and population density, one has
to be careful when making comparisons between the US and Japan. For example, 200
miles is roughly 320km, the same distance as that between the Tokyo and Nagoya
interchanges on the Tokyo-Nagoya Expressway. Taking the land area, population, and
population densities of the two countries into account, we have decided to use 10-40km
as our yardstick for measuring the distance between Amazon.com's distribution centres
and major centres of population in Japan.
Examining the fundamentals of Amazon.com's distribution network in Japan
Phase 1 (2005-09) "Covering the major population centres of Tokyo and Osaka": During
this phase, Amazon.com built distribution centres within about 10-40km of the major
population centres of Tokyo and Osaka. It built a distribution centre in Ichikawa (Chiba
Prefecture) in 2005, one in Hachiyo (also Chiba Prefecture) in 2007, and one in Sakai
(Osaka Prefecture) in 2009.
Phase 2 (2010) "Filling gaps in coverage": As Amazon.com widened the range of goods
it offered, it built distribution centres specialising in different types of goods. For example,
its Kawagoe distribution centre specialises in footwear and bags while its Daito
distribution centre specialises in large items. Like the centres it built during Phase 1,
these centres are located within 10-40km of urban areas. However, whereas the centres
it built during Phase 1 had an average floor area of 60,000sqm, those it built during
Phase 2 had an average floor area of only 30,000sqm.
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Fig. 27: Location of Amazon.com distribution centres in Japan
Source: Nomura, based on company’s press release
Phase 3 (2011-13) "Extending centre coverage and sharply increasing number of
centres": Since Amazon Japan abolished charges for standard delivery of all items in
November 2011, it has been increasing the coverage of its new distribution centres. In
addition to building a series of centres within 30-100km of urban areas, it completed a
massive centre with a floor area of 200,000sqm in Odawara (Kanagawa Prefecture) in
2013.
Phase 4 (2013-) "Possibly nearer to urban areas": As yet, Amazon.com has not followed
its own example from the US and built more distribution centres nearer to urban areas in
Japan. However, if it is to widen its product range, increase its inventories and reduce its
delivery times, we think it will probably build new distribution centres nearer to urban
areas.
More distribution centres means better service
As we have seen, Amazon.com has been expanding its distribution network in Japan. In
our view, the company is likely eventually to follow its own example from the US and
build distribution centres nearer to population centres. As Amazon.co.jp’s aggressive
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14 February 2017
investment in new distribution centres enables it to reduce delivery charges and times,
other e-commerce companies in Japan risk finding themselves offering an inferior
service. Furthermore, by expanding its distribution network, Amazon.co.jp has been able
to reduce its overall shipping costs. Its rivals now also face the risk of being unable to
match its margins.
Rakuten Super Points
Loyalty points programmes are one of the key competitive factors in the Japanese ecommerce market. In this regard, Rakuten is more competitive than any other ecommerce company in Japan.
Rakuten Super Points is the industry’s most popular loyalty points programme. Points
can be earned through shopping and various other services in the Rakuten Group's
ecosystem. The Rakuten Ecosystem, formed by various services offered by Rakuten
Group, is a one-of-a-kind member-based business model that connects Rakuten
services through the Rakuten Super Points rewards system, according to management.
Fig. 28: Rakuten Ecosystem
Source: Rakuten IR material
Rakuten members receive a Rakuten ID upon registration that is common to various
Rakuten services, which all utilise Rakuten Super Points to reward loyal users and
encourage the patronage of other Rakuten Group services. Furthermore, Rakuten's
convenient settlement services, such as Rakuten Card credit card and e-money service
Rakuten Edy, create what we consider to be a perfect mix of online and offline services.
The Rakuten Ecosystem and its membership database form the foundation of Rakuten’s
business, but it also offers its members fun and convenient online shopping and service
experiences. The synergies generated by the Rakuten Ecosystem are expanding and
are expected by the company to continue to increase Rakuten Group Gross Transaction
Volume and lifetime value per member.
For shopping on Rakuten Ichiba, consumers are granted 1 point per JPY100 of
purchases, and 2x or 3x points campaigns or more are often offered. 1 point is
equivalent to JPY1 toward the next purchase, or it can be used for travel and
commissions for financial services.
Unlike Amazon, Rakuten sites do not use convenience as their main selling point. Under
the Rakuten Super Point programme, members are ranked as regular, silver, gold or
platinum, depending on the value and frequency of purchases. The company runs
campaigns that offer various benefits to users depending on their rank. Rakuten also
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Nomura | Asia Pacific internet
14 February 2017
provides various contents that enable users to rank products by category, post user
reviews, and give awards to stores, thereby increasing the number of points of contact
between users and stores.
Owing to the kind of content mentioned above, it can sometimes be complicated and
time consuming to search for and compare products on Rakuten Ichiba. However, users
tend to enjoy collecting loyalty points, posting reviews, and reading various content, and
this mechanism tends to bring users back to the site. There have also been cases of
merchants that have struggled when they set up their own independent online stores, but
who have subsequently met with success when they opened a store on Rakuten Ichiba,
or merchants who have struggled initially when they opened stores on Rakuten Ichiba,
but who then saw sales grow after they used the sales promotion and joint purchasing
know-how available via e-mail publications. Rakuten has used its own methods to bring
together users and merchants in a way that would not be possible on sites that take the
rational approach, according to management.
Fig. 29: Popularity ranking of points programmes in Japan
Rank
1
1
3
4
5
Com pany
Rakuten
JAL
ANA
T-POINT
JCB Card
Score
147
147
126
92
87
Source: 'Point Tanken Club' point service portal site, 'Point of the Year 2014' survey results.
T-point
Yahoo! Shopping competes against the Rakuten Super Point programme with the “Tpoint” programme. T-point is a rewards programme established by CCC, Culture
Convenience Club. CCC was originally a planning company that mainly operated CD
and DVD rental stores. In order to spread franchisees of the rental stores nationwide,
CCC collaborated with a network of local convenience stores, gas stations and
restaurants. Taking advantage of such relations, the early T-point reward points
programme spread to some of Japan’s offline stores.
Yahoo Japan entered into a strategic capital and business alliance with CCC in June
2012. As a result, the "Yahoo! Points" that Yahoo Japan had issued in the past were
integrated into T-points in more than 16 Yahoo Japan's services such as "Yahoo!
Shopping", "Yahoo! Travel", and "Yahoo! Game".
Thus, T-points became available not only in the internet space but also in over 57,000 Tpoint-affiliated stores nationwide including "TSUTAYA" and "FamilyMart". It is the biggest
combined online and offline points programme in Japan. Yahoo Japan holds 17.5% in Tpoint Japan, the company which operates T-point.
Amazon Prime
We believe that Amazon.co.jp’s lack of a powerful rewards programme such as Rakuten
Super Point or T-point resulted in the company struggling to acquire and retain new
customers in the Japanese e-commerce market over 2007. However, we believe this
trend is changing, following the introduction of the Amazon Prime Service.
For an annual fee of JPY3,900 (tax included), Amazon Prime members can avail
themselves of date-specified merchandise delivery at no additional charge. Also,
members receive benefits such as video and music discounts and unlimited online photo
storage.
In the Japan e-commerce market, Rakuten's Rakuten Super Point, Yahoo! Shopping's T
Point, and Amazon Prime Service are competing to acquire new users and strengthen
customer retention. As such, we need to look carefully at the profitability of both Rakuten
and Yahoo Japan. In fact, point competition intensified between Yahoo Japan and
Rakuten in 2015 and 2016 (explained in detail later).
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14 February 2017
Korea: Competition among social commerce players and 11st
to continue
Social commerce has gained market share against open market platforms
Unlike the US and China where a few players dominate the e-commerce market, Korea
has been hyper-competitive and fragmented. The competition got elevated since social
commerce was introduced in 2010: open market platforms’ e-commerce market share in
Korea has fallen from 43% in 2010 to 30% in 2015, while social commerce’s share has
reached 16% in 2015 (Fig. 31). We expect heated competition among social commerce
players and 11st to continue into 2017-18F.
Fig. 30: Korea’s e-commerce market is fragmented with multiple players
WeMakePrice
5%
Tmon
6%
Interpark
1%
Coupang
6%
Auction
7%
Auction
7%
Others
54%
11st
10%
Gmarket
11%
Note: GMV market share as of 2016F; Source: Nomura estimates
Fig. 31: Social commerce has gained e-commerce market share against open market
platforms
Open market
Social Commerce
50%
40%
0%
3%
5%
8%
12%
16%
17%
20%
22%
36%
34%
32%
30%
29%
28%
27%
2014
2015
2016
2017F
2018F
30%
20%
43%
39%
10%
0%
2010
2011
2012
2013
Source: Statistics Korea, Nomura estimates
Fig. 32: Open market platforms’ e-commerce market share
Gmarket
Auction
11st
Fig. 33: Market share of social commerce players are similar
Interpark
45%
2%
36%
10%
2%
11%
27%
11%
1%
10%
13%
11%
18%
9%
1%
18%
11%
10%
1%
1%
10%
1%
9%
10%
8%
8%
7%
15%
14%
13%
12%
12%
11%
2011
2012
2013
2014
2015
2016
WeMakePri
ce
30%
Coupang
38%
Ticket
Monster
32%
0%
2010
Note: based on GMV; Source: Fair Trade Committee, Nomura estimates
Source: based on GMV, as of 2015; Source: Company data, Nomura estimates
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14 February 2017
eBay’s #1 position in open market being challenged by 11st
Within open market players, the biggest player has been Gmarket (12% of market as of
2015), followed by 11st (10%), Auction (8%), and Interpark (1%), in 2014. The market
dynamics have changed since 2015, as SK Group became aggressive in expanding 11st
market share. By leveraging SKT’s largest mobile user base in Korea, 11st offered
unlimited data usage of the shopping app to SKT subscribers. Separately, 11st has run
promotions of lowering merchant commissions, which drove 11st to have the highest
number of merchants among open market platforms in Korea. We expect 11st’s
aggressive aim for market share to threaten eBay’s #1 position. Unless eBay’s strategy
of focusing on profitability than on market share changes, we think 11st’s market share
gain will likely continue not just among the open market platforms but also against social
commerce players.
Chicken game among social commerce players to continue
Social commerce players’ presence in Korean e-commerce market has surged in the
past few years. The above-industry growth was driven by attractive discount deals to
consumers as well as same-day delivery offerings. Although companies have decided to
sit back from the delivery war amid mounting losses, we expect social commerce players
to introduce other marketing campaigns to gain consumer traffic among each other.
Key strategies of social commerce players vary
• Coupang: Endeavoring to improve financials by cost controls
Amid skyrocketing losses driven by same-day delivery service, Coupang appears to
have decided on cost controls. These efforts include raising the minimum purchase
amount for free delivery and the decision to stop disclosing its product information on
Naver shopping platform. Although its increased control over investment on delivery will
likely improve their bottom line near-term, we think the challenge to the management is
how to maintain user traffic without exposing product information on the Korea’s largest
search engine, Naver. According to Korean Click, Coupang’s visitor traffic declined
sharply after it decided not to show its products on Naver Shopping, and its number of
unique visitors fell to the lowest among Big3 social commerce players in December
2016.
• Ticket Monster: Increased focus on tour, while refraining from delivery war
In an effort to differentiate itself from other players, Ticket Monster expanded tour-related
products in 2016, through partnerships with multiple travel reservation service providers.
Meanwhile, TMon said it would not invest heavily in distribution centers like Coupang,
but will rather leverage external logistics companies to save expenses.
• WeMakePrice: Trying to become #2 player in terms of market share, in order to
secure external funding.
WeMakePrice’s shareholders equity has stayed negative and most impaired of the three
major social commerce players. As such, we believe WeMakePrice’s near-term focus is
to secure funding. In order to do so, we think the company will try to appeal investors by
surpassing Ticket Monster in terms of GMV market share and, at the same time,
avoiding heavy marketing spending. Some efforts to increase user traffic include its
recently launched fresh food delivery service ‘Mr. Fresh’, as well as B2B service
‘WeMakePrice Bizmall’.
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Nomura | Asia Pacific internet
14 February 2017
Fig. 34: Korea e-commerce: comparison
Open market
Social Commerce
Search engine
Business model
3P
Group buying (1P + 3P)
Price comparison
Variety of
product offerings
Offers wide range of products.
Focus on high inventory turnover products such as consumer staples.
No limit.
High ASP products such as home appliance and electronics.
Low ASP.
Varying.
ASP
Ebay Korea
(Auction + Gmarket)
11st Street
Interpark
Coupang
Ticket Monster
WeMakePrice
Naver Shopping
Daum Shoppinghow
* GMV (KRW tn)
11
5
0.7
3
2.5
2.4
7
1.5
* GMV market share
20%
9%
1%
6%
5%
4%
15% of Korean e-commerce
GMV goes through Naver.
3% of Korean e-commerce
GMV goes through Daum.
Major Shareholder(s)
eBay KTA(UK) Ltd.
100%
SK telecom 98%
Ki Hyoung Lee 36%
Forward Ventures LLC
100%
KKR Consortium 57%,
Groupon 40%
Min Heo and others 88%
Service provided by NAVER
Service provided by Kakao
Founded by / year
Hyuk Oh / 1998 (Auction)
Young Bae Koo / 2000
(Gmarket)
SK telecom / 2008
Ki Hyoung Lee / 1996
Beom Suk Kim / 2010
Hyun Sung Shin / 2010
Min Heo / 2010
NAVER / 2001
Daum / 2001
Focus category
Fashion, Book
Tour, Entertainment
Food, Fashion, Beauty
n.a.
• No. 1 market share
player in open market
industry.
• Has wide range of
product database.
Fashion, Appliance
• Most price
competitive among
open market platforms,
with its own discount
coupons.
• Started providing travel
services by partnering
with various travel
agencies since Oct
2016.
• Leader in the travel and
entertainment booking
sites.
• No. 1 market share
player among 3 social
commerce players.
• Differentiates its service
with Rocket Delivery
service.
• Differentiates service by
offering 'Super delivery',
which delivers necessities
within a day after order.
• Provides hotel / flight
ticketing service thru
partnership with various
travel agencies.
• Most price competitive
among 3 social commerce
companies, with its own
discount coupons.
• Leverages Naver's strong
search platform and user
base.
• Provides price comparison
throughout various online
shopping malls at a glance.
• Customers can use Naver
Pay, the most widely used
mobile payment service in
Korea.
• Provides price
comparison throughout
various online shopping
malls at a glance.
• Losing market share to
11st due to the
competitor's aggressive
marketing.
• Loss making due to
heavy marketing
expenses.
• Falling GMV market
share.
• Making huge losses due
to aggressive marketing
and fixed costs from its
trademark rocket delivery
service.
• Losing market share.
• Has lowest number of
products, as it is the only
company which did not
accommodate open
market business among 3
social commerce players.
• Number of user is
declining.
• Online shopping malls (e.g.
Coupang) are continuouly
trying to drop out of Naver
Shopping platform, in an effort
to saving commission fee.
• Generating minimal
revenue, due to Daum's
weak search platform and
user base.
PayCo, Pay Now
Naver Pay
Strength
Weakness
Mobile payment
service
Smile Pay
Syrup Pay, T pay
PayCo, T pay, Naver
Pay, Kakao Pay
Baby Products
Rocket Pay
Tour, Food
Tmon Pay, PayCo, Kakao
Pay
n.a.
Kakao Pay
Note: * as of 2015; Source: Nomura research
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14 February 2017
E-commerce business models
E-commerce business models: 1) online direct sales; 2) marketplace; 3) search
platform
There are three major types of e-commerce business models: 1) online direct sales (1P);
2) online marketplace (3P); 3) search platform. In the 1P model, the company takes
control of the inventory and sells the products to buyers. As such, the 1P model derives
revenue from product sales and cost of products sold is booked as COGS. 3P model
purely connects merchants and buyers, and the key revenues are commissions, valueadded services and advertising fees charged to merchants. Meanwhile, a search
platform model is a vertical search engine that allows users products search, price
comparison and sharing of customer reviews. They charge commissions to different
retailers including 1P and 3P companies for transferring GMV traffic as well as
advertising fees for displaying products on their platform.
Market share leaders should see improving blended take-rate through targeted
advertising
We note that blended take-rates (commissions and advertising revenue over total GMV)
of Chinese e-commerce companies vary from 3% (Alibaba) to 8% (JD), while those of
Japanese and Korean open market/social commerce models are 7-8% (for Rakuten,
eBay Korea and Coupang). For search engines, this take-rate tends to be 3.5% (for
Yahoo Japan and Naver). With resilient GMV growth and improving advertising efficiency
helped by big data, we expect the blended take rate of leading platforms such as Alibaba,
Yahoo Japan and Naver to improve gradually.
• In 3P model, there has been downward pressure on commission revenue. This is
because the number of merchants on an e-commerce platform is a key competitive
advantage and we have seen that companies that intend to gain market share will often
offer lower commissions. We note that Alibaba offered 0% commission on Taobao and
did not start monetising from advertising until Taobao attracted enough merchants.
Yahoo Japan has been the #3 e-commerce platform for many years. In an attempt to
gain market share, it started a zero commission strategy several years ago. In Korea,
11st and WeMakePrice charge low commission from merchants in an effort to recruit
more merchants.
• Instead, e-commerce platforms will make more money from advertising. We
expect online marketing services including advertising to outgrow commission revenue
given a large number of un-monetised merchants and better marketing tools offering so
as to incentivise increasing ad spending.
Fig. 35: Take rate comparison
3P
Search engine
* Rakuten
* JD
8.0%
Alibaba
2.9%
* Coupang
* WeMake
7.1%
Price
8.0%
Yahoo
Japan
Naver
3.5%
3.6%
China
Japan
eBay
Korea
7.6%
5.0%
Korea
Note 1: * Take rates of the companies’ 3P business
Note 2: as of 2016; WeMakePrice, Coupang and eBay Korea as of 2015
Source: Company data, Nomura estimates
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14 February 2017
China: Business model
Alibaba’s Taobao (C2C platform) deploys an unconventional profit model in that it
charges primarily for advertising instead of a commission, which rapidly accumulated a
large number of loyal merchants and customers on the platform since its inception in
2003. Alibaba’s Tmall (B2C platform) derives revenue both from advertising and
commission, which ranges from 0.3-5% depending on category (Fig. 42). Unlike many
other countries, given Alibaba’s leading position, its commission rate has been stable
over the past couple of years. With resilient GMV growth and increasing paid-click
volume backed by big data, we expect Alibaba’s blended take rate (online marketing and
commission revenue over total GMV) gradually to improve.
Online direct sales (1P) and online marketplace (3P) are the two major online retail
business models in China. Under the 1P business model, a company (such as JD) sells
goods directly to online buyers, providing delivery and after-sales services. It generates
revenues from the sales of products and incurs the cost of procuring the products sold.
Under the 3P business model, the company (such as Alibaba) acts as a platform
between buyers and sellers online and facilitates the sale of goods between the two
parties, and derives revenue from online marketing (advertising) services, where sellers
pay marketing fees to acquire user traffic, and GMV-based commission revenues.
China’s online retail market is dominated by marketplaces, particularly Alibaba’s Tmall
(B2C platform) and Taobao (C2C platform), given China’s fragmented retail value chain
and multi-layer “middle men” for major categories, in our view. Alibaba, as China’s
largest e-commerce player in terms of GMV, offers a wide diversified merchandise
election by aggregating significant numbers of sellers and brands which appeal to online
buyers. Meanwhile, as Chinese shoppers have increasingly demanded better quality and
service, the 1P model, which offers a more reliable source for authentic products with
strictly managed procurement and fulfilment services, has quickly gain traction.
In our view, the 1P model will continue to gain wallet share from offline retailers as
structural movement from offline to online continues apace in the industry, especially for
standardised product categories (3C, home appliances and cosmetics, for example).
Besides, major 3P e-commerce players such as JD and VIPSHOP have begun to
embrace a dual-business model (ie, 1P+3P), establishing their own online marketplace
platforms to supplement the 1P model, monetise online traffic and leverage fulfilment
capabilities. JD, leveraging a strong in-house logistics network and reliable sources for
authentic products, has quickly become the largest online direct sale company in China
in terms of GMV, with 56% 1P GMV contribution, of which 95% was from electronics and
home appliances in 2016, we estimate. Likewise, leveraging its flash sales discount
model with a unique value proposition, VIPSHOP has become an important channel for
brands to clear off-season inventory in large amounts, which offline retailers cannot
match.
Fig. 36: Major China e-commerce companies comparison
Business m odel
Market share by GMV
3P GMV contribution
Category focus
Num ber of users (m n)
Alibaba
3P
73%
100%
General merchandise
439
Logistics
3rd party partnership
JD
1P + 3P
13%
43%
Electronics and home appliance
199
In-house, 3rd party for remote
areas
Vipshop
1P + 3P
2%
5%
Apparel
51
In-house, 3rd party for remote area
Source: Company data, Nomura estimates.
Alibaba
Differing from other e-commerce peers that mainly take a portion of respective
marketplace sales as commission revenue, primarily Alibaba generates revenue from
online marketing (advertising) services. We estimate Alibaba’s online marketing services
contributed ~70% of China commerce retail revenue versus 30% from commission
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Nomura | Asia Pacific internet
14 February 2017
revenue as of the December 2016 quarter, up from 61% in the March 2015 quarter (Fig.
37-Fig. 38).
Fig. 38: Alibaba: revenue mix (December-end 2016 quarter)
Fig. 37: Alibaba: China commerce retail revenue mix
Online marketing services contribute a larger share than commission
Marketing revenue and others (LHS)
Commission revenue (LHS)
Commission rev YoY (RHS)
Marketing rev YoY (RHS)
(CNYmn)
50,000
40,000
70%
60%
50%
30,000
40%
20,000
30%
20%
10,000
10%
Dec-16
Sep-16
Jun-16
Mar-16
Dec-15
Sep-15
Jun-15
0%
Mar-15
0
Source: Nomura estimates.
China
commerce
wholesale
3%
Online
marketing
services
54%
International
commerce
(retail
+wholesale)
7%
Innovation
initiatives
and others
2%
Digital
media and
entertainment
8%
China retail
77%
Cloud
computing
3%
Commission
23%
Source: Company data, Nomura research
Online marketing services revenue
Alibaba’s marketing services are primarily performance-based (P4P), where sellers bid
for keywords that match product or service listings appearing in search or browser
results on a cost-per-click (CPC) basis through a market-based bidding mechanism (Fig.
39). In addition, Alibaba provides display marketing service, in which sellers bid for
banner ad positions at fixed prices or on a cost-per-thousand impression (CPM) basis
though a real-time bidding system (Fig. 40).
Fig. 39: Alibaba: screenshot of P4P ads on mobile app
Fig. 40: Alibaba: screenshot of banner ads on PC
Source: Company website
Source: Company website
Commission revenue
Besides purchasing online marketing services, sellers on Tmall and Juhuasuan
(Alibaba’s group buy platform) also pay a commission based on a percentage of GMV
(ie, commission rate). This commission rate typically ranges from 0.3% to 5% depending
on the product category (Fig. 42). For example, for categories that typically have higher
gross margins, such as apparel and luxury goods, Alibaba charges higher commission
rates from sellers, whereas for categories such as consumer electronics, where gross
margins are generally lower for merchants, Alibaba charges lower rates.
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Nomura | Asia Pacific internet
14 February 2017
Fig. 42: Tmall: commission rate for
major categories
Fig. 41: Alibaba: Taobao and Tmall business model comparison
Business m odel
Num ber of users *
Mobile MAUs *
Num ber of shopfronts
Estim ated num ber of products
Shopfront deposit
Annual m arketplace fee
Com m ission
Taobao
C2C
Tm all
B2C
439 mn (12m period )
450 mn
NA
60 K+
More than 1 billion products and service
Rmb 10,000 -300,000 (depending
Free
on store type and product
category)
Rmb 10,000 - 60,000 (discount may
Free
apply if exceed certain GMV per
annum )
Free
0.3% - 5%
Movie and show ticket
0.50%
Virtual items
0.50%
3C
2%
Foods
2%
Mother & baby products
2%
Books & audio-visual products
2%
Nutritious products
3%
Cosmetic & beauty products
4%
Household products
5%
Handbag & suitcase
5%
Apparel
5%
0%
1%
2%
3%
4%
5%
6%
Source: Company data, Nomura research
Source: Company, Nomura estimates. Note: As of September 2016 quarter.
We expect online marketing services will continue to outgrow commission revenue, given
a large number of un-monetised merchants and better marketing tools offering so as to
incentivise increasing ad spending. According to the company, there were 1-1.5mn
advertising merchants in total at the end of the June 2016 quarter, but this number is still
small compared with upwards of 10mn active merchants on its Taobao and Tmall
platforms. Furthermore, Alibaba has rolled out a slew of merchant-oriented products over
the past several years, the most noticeable of which is Qianniu, which provides
merchants and brands with free communication and productivity tools that enable them
to operate their businesses more efficiently. Daily active enterprises on Qianniu had
exceeded 6mn by September 2016.
JD
JD deploys a combination of online direct sales and an online marketplace, with a
comprehensive coverage of its supply chain from procurement, storage and processing,
to delivery and payment.
Fig. 43: JD: Screenshot of JD website
Fig. 44: JD: Screenshot of JD mobile app
Source: Company website
Source: Company website
As mentioned above, under its online direct sales business model, JD acquires products
from suppliers and sells them directly to customers, booking revenues from the sales of
products and incurring the cost of procuring the products sold. JD has long specialised in
consumer electronics and home appliances; meanwhile, it has made efforts to diversify
its products selection to attract more sales from its loyal users and to reach into new
markets. Consequently, its sales of general merchandise have increased gradually as a
percentage of online direct sales from 12% in FY11 to 20% in FY16E.
Under its online marketplace business, JD sources revenue from commission,
advertising and value-added services – for example, delivery services or a combination
of warehousing and delivery services. The online marketplace has witnessed growing
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Nomura | Asia Pacific internet
14 February 2017
presence in JD’s business structure. Its GMV as a percentage of the total has increased
from 9% in 2011 to 45% as of 3Q16.
Fig. 45: JD: Direct sales revenue breakdown and growth
General merchandise products
Electronics and home appliances
Electronics and home appliances YoY growth (RHS)
General merchandise products YoY growth (RHS)
(CNYbn)
250
200%
200
150%
150
Fig. 46: JD: GMV mix of 1P and 3P
1P GMV
(CNYbn)
700
3P GMV
1P YoY growth (RHS)
3P YoY growth (RHS)
600
500
500%
450%
400%
350%
Big drop of 3P
growth due to its
recent anti-brush
efforts
400
300%
250%
300
200%
200
150%
100%
100
50%
50
0
0%
2011
2012
2013
2014
2015
Source: Company data, Nomura estimates
2016F
100%
100
50%
0
0%
2011
2012
2013
2014
2015
2016F
Source: Company data, Nomura estimates
VIPSHOP
VIPSHOP is a leading flash-sale e-commerce company in China that offers limited-time,
deep-discount products and mainly targets lower-tier cities. As online shoppers are
increasingly valuing quality and service, price is no longer the sole consideration when
making an online purchase. By offering high quality and popular branded products
(mainly apparel) at a significant discount, VIPSHOP has quickly established a large and
highly engaged (primarily) female customer base.
Fig. 47: VIPS: Screenshot of VIPSHOP website
Fig. 48: VIPS: Screenshot of VIPSHOP mobile app
Source: Company website
Source: Company website
Similar to JD, VIPSHOP derives revenue primarily from direct sales (~98% revenue
contribution), supplemented by commission revenue and value-added services (delivery,
warehousing for example) from third-party merchants (Fig. 49).
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Nomura | Asia Pacific internet
14 February 2017
Fig. 49: VIPS: Revenue mix and growth
Fig. 50: VIPS: GMV mix and growth
Third-party business revenue
Principal business revenue (1P)
YoY growth (RHS)
(CNYmn)
16,000
14,000
120%
(CNYmn)
25,000
100%
20,000
1P GMV
3P GMV
Total GMV YoY (RHS)
120%
100%
12,000
80%
10,000
8,000
80%
15,000
60%
60%
10,000
6,000
40%
40%
Sep-16
Jun-16
Mar-16
Dec-15
0%
Mar-15
Sep-16
Jun-16
Mar-16
Dec-15
Sep-15
Jun-15
Source: Company data
20%
0
0%
Mar-15
0
5,000
Sep-15
20%
2,000
Jun-15
4,000
Source: Nomura estimates
Japan: Business model
The main e-commerce companies in Japan are Rakuten, Yahoo! Shopping and
Amazon.co.jp. Here, we mainly explain Rakuten and Yahoo's business models.
Rakuten business model
Rakuten Ichiba is "BtoBtoC". Tenants from all over Japan gather at Rakuten Ichiba and
run businesses with Rakuten. Rakuten Ichiba’s main revenue sources are from: (1)
opening fees; (2) royalty fees; (3) advertisement.
Fig. 51: Take rate of Rakuten Ichiba
Variable
cost
Rakuten Ichiba
advertising sales
+
other
Take rate of
3.0%
Rakuten Ichiba
8.0%
Rakuten Ichiba
commission
+
opening fee
5.0%
Fixed cost
Source: Nomura estimates
Because Rakuten uses a non-standard definition of Gross Merchandising Volume
(GMV), it is difficult to separate the GMV of Rakuten Ichiba from its revenues. Referring
to the current disclosure information, we see the GMV of Rakuten’s domestic EC in 2015
was about JPY2.7tn, including Rakuten Ichiba, Rakuten Travel, and other subsidiary
companies. Net revenues were JPY284.6bn. From here, we calculate Rakutan’s takerate (sales/total distribution) to be 10.6%.
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Nomura | Asia Pacific internet
14 February 2017
Based on Nomura estimates, the take-rate of the Rakuten market alone is about 8%. Of
this, we estimate that: (1) shopping fees; (2) handling fees together are about 5%; (3)
advertising is about 3%. In other words, the Rakuten market tenant pays Rakuten about
8% of sales.
Rakuten provides its tenants with a system called RMS (Rakuten Merchant Server),
developed by the company in order to operate efficiently in the Rakuten Ichiba
marketplace. Also, in order for tenants to succeed in the Rakuten Ichiba, Rakuten
dispatches EC consultants to provide help. In addition, in 2001 Rakuten opened a school
called Rakuten University for tenants as a place where they can learn and share success
stories.
Yahoo! Shopping business model
The business model of Yahoo! Shopping is also a "BtoBtoC" similar to Rakuten Ichiba.
Until October 2013, Yahoo! Shopping also charged tenants with opening fees, royalty
fees, and advertisement fees. The take-rate of Yahoo! Shopping accounted for
approximately 3.5% of total GMV. One of the reasons that the take-rate was lower than
that of Rakuten Ichiba was because the quality of service for tenants on Yahoo!
Shopping was weaker.
In October 2013, Yahoo! Shopping abolished shopping and royalty fee for tenants.
Instead, it focused on increasing the number of stores and items on Yahoo! Shopping.
Currently the main sales revenue generator for Yahoo! Shopping is advertising. The
purpose of doing away with the fees was to increase the number of stores and products,
and to induce healthy competition within Yahoo! Shopping, increasing the attractiveness
of its shopping mall, increasing the number of customers and finally to earn transaction
volume. In the Jul-Sep 2016 quarter, Yahoo! Shopping’s advertising revenue was
JPY3.1bn, representing 3.1% of GMV.
Korea: Business model
Open market platforms receive commissions by linking sellers and buyers
Open market platforms in Korea make money mostly through commissions and
advertising. When customers buy a product, open market platforms receive around high
single digit rate of GMV as commission from the merchants, depending on the type of
the product (Fig. 54). With regard to advertising, open market platforms charge
advertising fees to the merchants on various advertising products, such as display ads
on main page as well as keyword search advertising.
Fig. 52: Business model: Open market platform
Open market
Consumer
Cost
Reward points,
marketing promotion
Gmarket
AUCTION
11st
INTERPARK
Merchant
Revenue
1. Merchant fee
2. Search & Display Ads
Source: Nomura research
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Nomura | Asia Pacific internet
14 February 2017
Fig. 54: Commission rate of open market platforms differ by
product
Fig. 53: eBay Korea: Revenue breakdown by source
Others
8%
Additional
services
10%
Advertising
30%
Fashion
Commission
fee
52%
Book/
Album
Food/
Health
Household
Appliance
Gmarket
12%
10-12%
10-12%
8-12%
4-8%
Auction
12%
10-12%
8-12%
10%
4-8%
11st
12%
11%
8-12%
10%
6-8%
Interpark
12%
10-12%
12%
10-12%
6-8%
Source: Fair Trade Committee, Nomura research
Source: Nomura estimates
Economies of scale matters to social commerce; group-buying
Open market platforms link merchants and buyers by providing a marketplace. Social
commerce players started out with a 1P model. They will purchase products such as
diapers, tissue papers, etc, that have high inventory turnaround and sell them to
consumers. Over time, the social companies are able to leverage on their increasing
volume to extract discounts from suppliers. The gross margin for high-end electronics is
slightly under 10%. For fashion items, the gross margin can be ~ 30%. However, despite
strong revenue growth, TMon, Coupang and WeMakePrice are still making losses. That
is largely due to the huge investments into marketing activities such as hiring Korean
celebrities and airing TV ads. In addition, Coupang has invested heavily in
logistics/warehouses, as they are guaranteeing same-day delivery for certain SKUs.
Fig. 55: Business model: Social commerce
Revenue
Sales revenue
Consumer
Social Commerce
coupang
WeMakePrice
TMON
Cost
Purchase of product
Merchant
Source: Nomura research
Fig. 56: Market shares of Korean social commerce players are similar
WeMakePrice
30%
Coupang
38%
Ticket Monster
32%
Note: as of 2016F; Source: Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
Search engines provide comprehensive price comparison platform
Given that Korean consumers are highly price sensitive and there is no market dominant
e-commerce player, Naver and Daum provide value to consumers by offering a platform
to search for products and compare prices from external open markets and social
commerce players. We estimate that roughly 20% of Korea’s e-commerce GMV traffic is
initiated on the search engines and passed through to external e-commerce players.
Therefore, these search engines are an important source of traffic to e-commerce
players in Korea. Historically, there have been efforts by open market platforms and
social commerce players to drop out of search engines and save commissions, but such
efforts were in vain as they had to reverse the decision for falling traffic: Ebay, 11st and
Interpark all had tried to leave Naver Shopping platform (Ebay/11st in 2Q13 and
Interpark in 2Q14, respectively) but they all returned eventually as the impact on their
GMV was notable (Ebay in 1Q15, 11st in 1Q14 and Interpark in 1Q15). Coupang has
recently decided to stop showing its products on Naver (4Q16), but we believe that
Coupang could come back if the impact on its GMV is meaningful.
Search engines take roughly 2% of GMV as commission from external e-commerce
players a purchase is made. Therefore, the conversion rate of consumers making actual
purchase is key to Naver and Daum’s shopping commissions. This is why search
engines are trying to improve shopping experience by providing mobile payment
solutions and introducing live chat bots to increase the conversion ratio.
• Naver Shopping makes money from traffic commission, ads and commission for
Naver Pay
We estimate that roughly 18% of Korea’s e-commerce GMV traffic is initiated on the
search engines (15% on Naver, 5% on Daum) and passed through to external ecommerce players. In addition to the 2% commission for directing traffic to external ecommerce players, Naver also makes money from advertising such as display and
search ads. Lastly, Naver collects a 1.0-3.7% commission of GMV for the transactions
made using Naver Pay. Roughly, we estimate that 40% of Naver shopping revenue
comes from directing traffic to merchants, 30% of Naver shopping revenue from Naver
Pay commission of and 30% of Naver shopping revenue from advertising.
Fig. 57: Business model: Search engine
Search engine
Cost
Consumer reward
Consumer
Naver Shopping
Daum Shopping-how
Revenue
• Commission for GMV traffic
(=2% of GMV)
• Ads
• Commission for mobile
payment (=1-3.7% of GMV)
- Open market platforms
- Social commerce
- Merchant
Source: Nomura research
Fig. 58: Naver Shopping: Revenue breakdown by source
Naver Pay
26%
Display Ads
28%
Commission for
GMV traffic
46%
Source: Company data, Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
Fig. 59: Naver Shopping business model
Naver Shopping
: sources of revenue
1
2
Display Ads
Commission
3
Search Ads
Product ads placed on
Naver Shopping platform
Products display on
Naver homepage.
CPC
• 0.2% of
GMV per
click
• For SME
shopping
malls
4
Naver Pay
3.74% commission
from credit card
companies
CPS
• Fixed cost
+ 2% of
GMV
• For large
shopping
malls
Source: Company data, Nomura research
Fig. 60: Advertising products on Naver Shopping
Shopping
display ads
Shopping
search ad
Targeted ads
Available to pay
with Naver Pay
Naver receives 13.7% of GMV as
payment
commission from
merchants
Naver gives Naver
Pay points
Source: Naver Corporation, Nomura research
Source: Company data, Nomura research
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Nomura | Asia Pacific internet
14 February 2017
• Kakao generates e-commerce revenue from Daum Shoppinghow and Kakao Talk
Kakao’s e-commerce business is run on two platforms, Daum and Kakao. The search
engine Daum runs ‘Daum Shoppinghow’ service which helps product search and price
comparison, similar to Naver Shopping. On the Kakao platform, the company provides
two e-commerce services including Kakao Giftshop and Plus Friends: The ‘Gift Shop’
function lets users buy products or send gifts to friends on Kakao Talk platform.
Meanwhile, Kakao plans to launch AI-based shopping functions on Plus Friends that
offer an integrated shopping service from placing orders to paying. We think
management wants to find a way to go around the weak traffic on Daum’s shopping
platform and chose Plus Friends to leverage messaging traffic.
We estimate that merely 3% of Korea’s e-commerce GMV traffic goes through Daum
and Kakao’s platforms, compared to 15% for Naver. We think the low e-commerce
market share of Daum and Kakao is due to the Daum’s weakness in search business.
Revenue sources of Daum Shoppinghow are similar to Naver Shopping, except that
Daum does not have shopping search ads, which Naver newly introduced in November
2016. For ‘Gift Shop’ function, Kakao takes 5% of the GMV as commission from
merchants, and c. 60% of the buyers use Kakao Pay when they buy products in the Gift
Shop. The Gift Shop achieved KRW800bn of annual GMV in 2016 and its GMV is
growing fast, but the revenue contribution is still low.
Fig. 61: Kakao’s e-commerce business model
Kakao
: sources of e-commerce revenue
Daum Shoppinghow
1
Display Ads
2
Commission
3
Kakao Pay
4%* commission from
credit card companies
Products display on
Daum homepage.
CPC
• Up to
0.2% of
GMV per
click
• For SME
shopping
malls
We are uncerta
Talk
4
Gift shop
5% of GMV
commission from
merchants
5
Plus Friends
Integrated shopping
service
CPS
• Fixed cost
+ 2% of
GMV per
sales
• For large
shopping
malls
Source: Company data, Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
Market growth outlook and history
E-commerce market remains a secular trend in Asia
As of 2016F, e-commerce penetration in China (15% of total retail sales) and Korea
(17%) is far higher than that in the US (8%) and Japan (5%). We think the low
penetration in Japan is due mainly to a large number of stores that are open 24/7 as well
as no major price gap between offline and online stores. By 2020F, we expect the three
countries’ e-commerce share of the total retail consumption to reach the following
penetration rate: China at 22%, Korea at 24%, and Japan at 7%.
China’s e-commerce market to grow the fastest at 16% CAGR in 2017-20F,
followed by Korea at 12% and Japan at 9%
In 2017-20F, we estimate China’s e-commerce to grow the fastest at 16% CAGR,
followed by Korea at 12% and Japan at 9%. We expect mobile channel to drive the
growth of e-commerce, while shopping on PC will likely decline.
• In China, e-commerce growth has been driven mostly by first-tier cities on internet
availability, whereas we believe consumption upgrades and ongoing rising penetration
rates in rural area and the fast-moving consumer goods (FMCG) category will serve as
major growth drivers going forward.
• Japan: Given e-commerce accounts for a small percentage of total retail market in
Japan compared to Korea and Japan, we expect e-commerce penetration rate to
continue growing strongly, driven by the removal of tenant fees and royalty fees from
Yahoo! Shopping, announced in October 2013. We think this encourages both SMEs
and large companies to get into e-commerce in Japan at the same time.
• For Korea, we expect attractive prices offered by e-commerce platforms as well as the
convenience factor of shopping and payment to lead e-commerce to grow faster than
other retail channels.
Fig. 62: China, Japan, and Korea’s e-commerce market CAGR in 2017-20F
18%
16%
16%
14%
12%
12%
10%
9%
8%
China
Korea
Japan
Source: Nomura estimates
Fig. 63: E-commerce penetration trend
U.S.
China
Korea
Japan
25%
20%
15%
10%
5%
0%
2011
2012
2013
2014
2015
2016F
2017F
2018F
2019F
2020F
Source: Statistics Korea, China National Bureau of Statistics, Ministry of Economy, Trade and Industry, Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
China’s e-commerce market to enjoy resilient growth, with
increases in penetration rates
We forecast that China’s e-commerce market (B2C and C2C) will register a 16% CAGR
to RMB9.8tn over 2017-20F. We believe consumption upgrades and rising penetration
rates in rural areas and in FMCG will serve as major growth drivers.
E-commerce to likely record 16% CAGR over 2017-20F
We forecast China’s e-commerce market (B2C and C2C) to register a 16% CAGR to
RMB9.8tn over 2017-20F, while we see the online penetration rate rising from 15% in
2016E to 22% in 2020F, which implies a 7% CAGR for China’s total retail sales during
the same period. We expect the B2C market will likely outpace the C2C market with a
21% CAGR to RMB6.6tn, or 68% of the China’s total e-commerce market, vs a 8%
CAGR for the C2C market during the same period (Fig. 64-Fig. 65). We believe
consumption upgrades and ongoing rising penetration rates in rural area and the fastmoving consumer goods (FMCG) category will serve as major growth drivers.
Fig. 64: China: E-commerce market size and growth
Fig. 65: China: total retail sales and online penetration rate
16% CAGR to RMB9.8tn over 2017-20F
Online penetration rate expected to reach 22% in 2020F
China online shopping (LHS)
(CNYtrn)
YoY growth (RHS)
12
120%
97%
9.8
10
70%
8
100%
80%
51%
Total retail sales (LHS)
50
Online Penetration Rate (RHS)
21%
45
60%
47%
37%
4
31%
25%
40%
20%
2
16% 12%
20%
20%
15%17%
35
15%
13%
10%
25
20
15
10
22% 25%
19%
40
30
59%
6
(CNYtrn)
8%
3%
4%
10%
6%
5%
5
Source: iResearch, Nomura estimates
2020F
2019F
2018F
2017F
2016
2015
2014
2013
2012
0%
2011
0
2010
2020F
2019F
2018F
2017F
2016E
2015
2014
2013
2012
2011
0%
2010
0
Source: China National Bureau of Statistics, Nomura estimates
Growing middle class and post-90 generation populations drive consumption
upgrade
We believe the growing disposable income of China’s middle class and internet-savvy,
consumption-driven Post-90 generation (those born after 1990) populations are the
major driver force for consumption upgrade. According to a McKinsey report, Chinese
upper middle class households, defined as those earnings USD16-34K pa, will account
for 54% of Chinese urban households by 2020F, up from 14% in 2012. Besides, China
disposable income per capita of urban households is projected to trend ~RMB44,070
(USD6,393) in 2020F, which implies a 7% CAGR over 2015-20F (Fig. 66), according to
Trading Economics.
Meanwhile, we believe the post-90s generation, raised on the internet, is armed with
more consumption power, especially in online consumption. This group, accounting for
over 50% of the internet population, have grown up in a far more internet-savvy and
consumer-driven society than previous generations, resulting in different values and
consumption habits compared with the post-60s and 70s generations (Fig. 67). Generally
speaking, the post-90s generation seems to follow a more individualistic way of life and
is more inclined to spend on products/services that reflect one’s personal identity or
improve one’s quality of life. In comparison, previous generations share a strong feeling
of insecurity for the future after experiencing the turbulence and extreme poverty caused
by the decade-long Cultural Revolution (1966-76). As such, many older consumers
deem anything beyond life’s necessities a luxury, and prefer to save a high share of their
income, which is apparent in the extraordinarily high savings rate in China vs. developed
economies.
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Nomura | Asia Pacific internet
14 February 2017
Fig. 66: Disposable income per capita for urban households
(CNY)
Fig. 67: Age distribution of China internet population
2015
35%
2016
30%
50,000
44,070
45,000
40,000
30%
23%
25%
20%
35,000
20%
30,000
14%
15%
25,000
20,000
10%
15,000
5%
10,000
5%
5,000
0%
0
2011
2012
2013
2014
2015
2020E
Source: NBS, Trading Economics estimates, Nomura research
3%
4%
Below 10 - 19 20 - 29 30 - 39 40 - 49 50 - 59 60 and
10
above
Source: CNNIC, Nomura research.
Ongoing rising in penetration rate in rural area and FMCG category
We expect China’s online penetration rate will likely rise from 15% in 2016E to 22% in
2020F, mainly driven by ongoing penetrating into lower-tier cities and rural areas and
into the fast-moving consumer goods (FMCG) category, despite already relatively high
penetration rates in first-tier cities (ie, Beijing, Shanghai, Guangzhou and Shenzhen) and
large categories (eg, apparel, general merchandise, 3C).
• Penetrating lower-tier cities – thriving rural e-commerce
We believe there is still much untapped potential in lower-tier cities and rural areas, and
penetrating those areas could help to broaden the customer base for e-commerce
service significantly. According to the World Bank, China’s rural population was 609mn
as of 2015, accounting for 44% of the country’s total population. Of this number, rural
internet users reached 195mn, accounting for only 28.4% of the Chinese internet
population based on CNNIC data (Fig. 68). As per a McKinsey estimate, some 160mn
people in low-tier cities who use online services have yet to be exposed to online
shopping; the number is nearly as many people as the number of online shoppers in
high-tier cities today. In high-tier cities, by contrast, McKinsey 2016 iConsumer shows
limited potential for user penetration to drive e-commerce growth: 89% of digital
consumers in tier 1 and 2 cities are already shopping online (Fig. 69).
Fig. 68: China: Number of rural internet users
Fig. 69: Low-tier cities spend more on e-commerce
(Million)
250
Share of national GMV
e-commerce penetration
200
Online shopper base
150
Online shopper growth
Tier 1 and 2
Tier 3 and 4
49.90%
50.10%
89%
62%
183mn
257mn
43%
61%
Source: McKinsey iConsumer China 2016 survey, Nomura research
100
50
2016-12
2016-06
2015-12
2015-06
2014-12
2014-06
2013-12
2013-06
2012-12
2012-06
2011-12
2011-06
0
Source: CNNIC, Nomura research
• Penetrating FMCG category
We believe FMCG is one the a few large shopping categories with relatively low
penetration of Chinese online shoppers, thus leaving ample potential for online
penetration. Among major shopping categories, apparel has historically led other
37
Nomura | Asia Pacific internet
14 February 2017
categories in online adoption, followed by consumer electronics and small appliances
with around a 30% e-commerce penetration rate estimated by McKinsey, such that we
believe FMCG will naturally become the next battlefield for major e-commerce players
despite smaller ticket size and higher logistics requirements (e.g., cold-chain logistics for
Food & Beverage). In 2H16, JD (JD US, Buy) indicated it would ramp up investment in
newly acquired YiHaoDian (YHD) in a bid to grab more FMCG share and guided an
incremental RMB1bn operating loss for 2H16. Earlier in July 2016, Tmall announced an
RMB4bn investment for the FMCG category. As we believe competition in FMCG
category between China’s two e-commerce giants, Alibaba (BABA US, Buy) and JD, will
last into 2017, we expect meaningful online penetration improvement in the FMCG
category, especially in household products given high repurchase rate and fixed
standards.
Key trends
• B2C outpaces C2C
We believe the B2C model will benefit more from deeper pockets and more discerning
online shoppers in China, given that Chinese online shoppers are becoming more
discerning on service and quality and the quality of goods and service are generally
more reliable in B2C than in C2C. We also note that this phenomenon is more prominent
among young generation, according to Baidu Post-90s Insight Report, quality surpasses
price as the no 1 purchase criterion (Fig. 71). As such, we expect China’s B2C market to
continue to outgrow C2C over the next few decades. According to iResearch, C2C
accounted for 86% of total e-commerce consumption in 2010, but this is expected to fall
to 38% by 2018F (Fig. 70).
Fig. 70: China: E-commerce GMV breakdown – by channel
Fig. 71: Purchase criteria ranking for Post-90s generation
B2C outpaces C2C
Quality surpasses price as no 1 purchase criterion among Post-90s
0
B2C GMV (LHS)
(CNYtrn)
C2C GMV (LHS)
12
200%
6
150%
Appearance
4
100%
Practicability
2
50%
0
0%
2020F
2019F
2018F
2017F
2016E
2015
2014
2013
2012
Brand
2011
4
5
4.34
Price
8
2010
3
250%
B2C YoY Growth (RHS)
Source: iResearch, Nomura estimates
2
Quality
C2C YoY Growth (RHS)
10
1
300%
Advertising
3.5
3.09
2.62
0.56
0.15
Source: Baidu post-90s insight report, Nomura research. Note: Score range 0-5.
• Mobile migration underway
We believe mobile will continue gaining share from PC given increases in the size of
mobile screens, and widening 4G coverage could effectively improve the mobile
shopping experience. We believe smartphones’ small screen size is one of the prevalent
factors contributing to a poor mobile shopping experience, as product profiles and details
are difficult to read on smaller screens. A recent analysis by ComScore confirms the
likelihood of mobile purchase and mobile spending increases as screen sizes get larger
(Fig. 73). Besides, as mobile users often shop on the go, widening 4G coverage along
with faster and cheaper network connections that are secure front-to-end (from browser
products to the completion of payment) would enhance the mobile shopping experience.
We note that mobile has the potential to become a major gateway for online shopping
and to change consumer shopping habits going forward. According to iResearch, mobile
GMV surpassed PC GMV for the first time in 2015, and is expected to contribute 74% of
China’s total e-commerce GMV in 2018F (Fig. 72). On Singles Day (11 November,
rebranded by Alibaba as an online shopping festival) for example, Alibaba mobile GMV
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Nomura | Asia Pacific internet
14 February 2017
grew 58% y-y to RMB99bn (USD14.6bn) in 2016, and contributed 82% of total GMV
compared to 69% in 2015. JD had 85% of fulfilled orders coming from mobile devices
compared with 74% in 2015.
Fig. 72: China: E-commerce GMV breakdown – by devices
Mobile expected to contribute 74% of total e-commerce GMV in 2018F
Mobile GMV (LHS)
PC GMV (LHS)
Mobile YoY (RHS)
PC YoY (RHS)
(CNYtrn)
12
490%
10
8
Fig. 73: Predicted mobile spend and mobile purchase
incidence by smartphone screen size
500%
299%
61%
34% 22% 18% 14%
25%
200%
300
100%
200
20%
16%
402
12%
15%
311
10%
0%
8%
100
-100%
97
2020F
2019F
11% 9%
2018F
2017F
2016E
2015
14% -8%
-18% 0%
2014
2013
2012
0
518
300%
124%
25%
20%
6
45% 45%
24%
500
400
4
30%
Mobile Purchase Incidence (RHS)
400%
242%
2
Mobile Spend per Buyer (LHS)
(USD)
600
600%
5%
124
0
0%
<3.5 inch 4.25 inch 4.75 inch 5.25 inch 5.5+ inch
Source: iResearch, Nomura estimates
Source: ComScore, Nomura research
Fig. 74: China: E-commerce market size and penetration forecast (by device)
(CNY trn)
China online shopping
YoY growth
Mobile GMV
Mobile YoY
Mobile % of online shopping
PC GMV
PC YoY
PC % of online shopping
Total retail sales
YoY%
Online Penetration Rate
2010
0.46
97%
15.7
18%
3%
2011
0.8
70%
0.0
426%
2%
0.8
99%
18.4
17%
4%
2012
1.2
51%
0.1
490%
6%
1.1
45%
94%
21.0
14%
6%
2013
1.9
59%
0.3
299%
15%
1.6
45%
86%
24.3
15%
8%
2014
2.8
47%
0.9
242%
34%
1.8
14%
66%
27.2
12%
10%
2015
3.8
37%
2.1
124%
56%
1.7
-8%
45%
30.1
11%
13%
2016E
5.0
31%
3.4
61%
68%
1.6
-18%
32%
33.2
10%
15%
2017F
6.2
25%
4.5
34%
73%
1.7
0%
27%
36.4
10%
17%
2018F
7.5
20%
5.5
22%
74%
2.0
11%
26%
39.0
7%
19%
2019F
8.7
16%
6.5
18%
75%
2.2
9%
25%
41.7
7%
21%
2020F
9.8
12%
7.4
14%
76%
2.4
8%
24%
44.3
6%
22%
2016E
5.0
31%
2.18
19.8%
44%
2.78
41.3%
56%
33.2
10%
15%
2017F
6.2
25%
2.49
14.0%
40%
3.73
34.4%
60%
36.4
10%
17%
2018F
7.5
20%
2.85
14.4%
38%
4.65
24.4%
62%
39.0
7%
19%
2019F
8.7
16%
3.04
6.8%
35%
5.65
21.6%
65%
41.7
7%
21%
2020F
9.8
12%
3.12
2.7%
32%
6.64
17.5%
68%
44.3
6%
22%
Source: iResearch, NBS, Nomura estimates
Fig. 75: China: E-commerce market size and penetration forecast (by channel)
(CNY trn)
China online shopping
YoY growth
C2C GMV
C2C YoY Growth
C2C % of total
B2C GMV
B2C YoY Growth
B2C % of total
Total retail sales
YoY%
Online Penetration Rate
2010
0.46
97%
0.40
84.3%
86%
0.06
245.9%
14%
15.7
18%
3%
2011
0.8
70%
0.59
47.3%
75%
0.20
214.3%
25%
18.4
17%
4%
2012
1.2
51%
0.78
32.5%
65%
0.41
106.9%
35%
21.0
14%
6%
2013
1.9
59%
1.13
45.3%
60%
0.76
86.1%
40%
24.3
15%
8%
2014
2.8
47%
1.52
35.0%
55%
1.26
64.2%
45%
27.2
12%
10%
2015
3.8
37%
1.82
19.8%
48%
1.97
56.7%
52%
30.1
11%
13%
Source: iResearch, NBS, Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
Japan: Market growth
Japan's e-commerce market
According to METI's E-Commerce Market Survey for FY15, Japanese retailers'
merchandise sales came to around ¥152tn in FY15, of which products sold via the
internet accounted for around ¥7tn. The e-commerce ratio – online sales as a
percentage of total merchandise sales – thus works out to around 4.8%. On average, in
FY11-15, the value of merchandise sales via the internet rose 12% a year.
We still see room for growth in Japan's e-commerce market
Japan's e-commerce ratio is low compared with the ratios of 5-10% seen in the US and
major European countries such as France and Germany, indicating to us that there is
substantial room for further growth in this market in Japan. We attribute the low ecommerce rate in Japan to: 1) a high density of bricks-and-mortar retail stores as
measured by population; 2) a large number of stores that are open 24/7 or late into the
night, such as convenience stores; and 3) no major price gap between offline stores and
e-commerce stores.
Fig. 76: Japanese e-commerce market growth, 2017-2020F
Scale of B to C-EC market in Japan (billion yen)
Total retail sales(excluding services)
y-y(%)
Online(eCom m erce)
y-y(%)
% of total retail sales(excluding services)
PC
y-y(%)
% of online sales
Mobile
y-y(%)
% of total retail sales(excluding services)
Offline
y-y(%)
% of total retail sales(excluding services)
2014
155,703
0.0%
6,804
13.5%
4.4%
5,443
2.1%
80%
1,361
106.4%
20.0%
148,898
-0.5%
95.6%
2015
152,417
-2.1%
7,240
6.4%
4.8%
5,256
-3.4%
73%
1,984
45.8%
27.4%
145,177
-2.5%
95.3%
2016E
153,941
1.0%
8,082
11.6%
5.3%
5,221
-0.7%
65%
2,861
44.2%
35.4%
145,859
0.5%
94.8%
2017E
155,480
1.0%
9,096
12.5%
5.9%
4,966
-4.9%
55%
4,129
44.3%
45.4%
146,385
0.4%
94.2%
2018E
157,035
1.0%
10,129
11.4%
6.5%
4,517
-9.0%
45%
5,611
35.9%
55.4%
146,906
0.4%
93.6%
2019E
158,606
1.0%
11,182
10.4%
7.1%
3,981
-11.9%
36%
7,201
28.3%
64.4%
147,424
0.4%
93.0%
2020E
160,192
1.0%
12,255
9.6%
7.7%
3,260
-18.1%
27%
8,995
24.9%
73.4%
147,937
0.3%
92.4%
2021E
161,794
1.0%
13,348
8.9%
8.3%
2,349
-27.9%
18%
10,999
22.3%
82.4%
148,446
0.3%
91.8%
2022E
163,411
1.0%
14,462
8.3%
8.9%
1,244
-47.1%
9%
13,218
20.2%
91.4%
148,950
0.3%
91.2%
Source: METI-, Nomura estimates
Japan’s e-commerce market is in a structural growth phase
Japan's e-commerce market is in a growth phase. In our view, the first reason for this is
that the age range of users is widening and the frequency of usage is increasing. People
in their 20s and 30s are the most frequent users of e-commerce, while the percentage of
people that have used e-commerce is rising. However, people in their 40s and above
have recently started to use e-commerce more actively, too. Over the next 5 -10 years,
the current generation of people in their 20s and 30s will move into their 30s and 40s,
thereby leading to structural growth in the e-commerce market, in our opinion.
The second reason that Japan's e-commerce market is in a growth phase, in our view, is
that major retailers and brand companies that are popular with higher-age groups have
ventured into internet sales. For example, P&G and Marui Group opened virtual stores
on the Rakuten Ichiba site in January 2010 and November 2010 respectively, followed
by Reebok in January 2011 and Disney in February 2011.
The third reason is that there have been improvements in payment, distribution, and
delivery. For example, K's Holdings used to have separate inventories for its internet and
physical store sales, but at the beginning of 2011, it merged the two. Up to then, it
delivered goods to the whole of Japan from its warehouse in Ibaraki Prefecture, but it is
now able to deliver from its stores around the country. The reduction in packaging and
delivery times has made the service more convenient to use.
Expansion of the e-commerce market via smartphones
The spread of smartphones is also boosting growth in the e-commerce market. For
example, shopping on Rakuten Ichiba using mobile devices accounted for around 10%
of the site’s sales in June 2012, but this percentage has been increasing every year, and
we estimate that it reached around 80% in 20/12. In Jul–Sep 2016, the figure rose to
around 60%, boosted by the increase in smartphone usage. We expect e-commerce via
smartphones to continue to increase from now on.
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Nomura | Asia Pacific internet
14 February 2017
E-commerce advances for daily sundries and fresh foods
Looking at e-commerce ratios by product, while it seems that e-commerce had once
consisted mainly of durable goods such as PCs and TVs, we are focusing on an upswing
in e-commerce for daily sundries and fresh foods as a result of shipping costs starting to
come down based on an expansion of distribution networks at e-commerce companies
including Rakuten and Amazon Japan.
Fig. 77: EC ratio (%)
EC ratio (%)
2014
Product
Foodstuffs, beverages, alcohol
Home electric appliances/AV equipment/computers and accessories
Books, video & music softw are
Cosmetics/medical supplies
Interior/farniture & housew ares
Apparel/fashion,accessories
Automobile/motorcycle and accessories
Office Stationeries
Others
2015
4.37
1.89
24.13
19.59
4.18
15.49
8.11
1.98
28.12
0.56
4.75
2.03
28.34
21.79
4.48
16.74
9.04
2.51
28.19
0.63
Source: METI, Nomura research
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Nomura | Asia Pacific internet
14 February 2017
Korea’s e-commerce market to stay fragmented
Korean e-commerce market to see a 12% CAGR until 2020F
We estimate Korea’s e-commerce market to record a 12% CAGR in 2017-20F. This
compares to total retail consumption growth of 3%. We expect Korea’s e-commerce
share of the total retail consumption to grow (from the current 17% to 25% by 2020F)
and e-commerce to become a critical purchasing pattern of consumers. Korea’s ecommerce penetration has been one of the highest at 17% as of 2016F, compared to the
US’ 8%, China’s 15% and Japan’s 5%.
Mobile shopping to continue to grow at the expense of PC shopping
We forecast e-commerce penetration in Korea to increase further to 24% by 2020F,
driven by the smartphone penetration. We estimate growth of mobile shopping to be
outstanding and PC shopping to continue to decline. As of 2016, the mobile shopping
market has already exceeded the PC shopping market, and we expect this trend to
continue in the long term. Therefore, over 2017-20F, we forecast mobile shopping to see
an 20% CAGR, while we expect PC shopping to decline by 4% CAGR.
E-commerce market to remain fragmented
From a market share perspective, we think competition between social commerce
players and open market platform will continue into 2017-18 and, therefore, the market
will likely remain fragmented. As of 2016, Korea’s e-commerce market is divided into
online retailers (54% of market share), open market platforms (29%) and social
commerce players (17%). In the past few years, social commerce players have gained
market share against open market platforms. This is because social commerce players
are offering attractive deals to consumers at the expense of marketing costs, and
customer satisfaction on social commerce has increased.
Fig. 78: Korea’s e-commerce market to grow at 12% CAGR until 2020, driven by mobile shopping
(KRW bn)
Total retail sales
y-y (%)
E-commerce
y-y (%)
% of total retail sales
Open market
y-y (%)
% of e-commerce
Social Commerce
y-y (%)
% of e-commerce
Others
y-y (%)
Offline
y-y (%)
% of total retail sales
2013
353,732
1%
38,498
13%
11%
13,026
5%
34%
3,140
85%
8%
22,332
12%
315,234
0%
89%
2014
361,164
2%
45,302
18%
13%
14,342
10%
32%
5,430
73%
12%
25,530
14%
315,861
0%
87%
2015
369,224
2%
53,888
19%
15%
16,166
13%
30%
8,360
54%
16%
29,362
15%
315,336
0%
85%
2016
384,950
4%
64,913
18%
17%
18,817
16%
29%
11,277
35%
17%
34,820
19%
320,037
1%
83%
2017F
396,766
3%
75,033
16%
19%
21,008
12%
28%
15,035
33%
20%
38,991
12%
321,732
1%
81%
2018F
408,820
3%
85,383
14%
21%
23,069
10%
27%
18,881
26%
22%
43,433
11%
323,437
1%
79%
2019F
420,993
3%
95,843
12%
23%
24,802
8%
26%
23,051
22%
24%
47,990
10%
325,150
1%
77%
2020F
432,402
3%
105,530
10%
24%
26,306
6%
25%
27,172
18%
26%
52,052
8%
326,873
1%
76%
Source: Statistics Korea, Fair Trade Committee, Korea online shopping association, Nomura estimates
Fig. 79: GMV of social commerce players has grown rapidly
(KRWbn)
9,000
8,360
70% CAGR
5,430
6,000
3,140
3,000
1,000
1,700
2011
2012
2013
2014
2015
Source: Korea online shopping association, Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
History of e-commerce market
Amid fading boundaries between 3P and 1P models, companies are engaged in
price and delivery wars
We have observed that third-party e-commerce platforms tend to be the first business
model in most markets due to low capital intensity. Those that took the first-mover
advantage are Alibaba, Rakuten and Interpark and Gmarket. As consumers become
more sophisticated and demanding, this gives an opportunity to a new business model,
which is the direct sales model (1P): In the mid-to-late 2000s, online retailers such as
JD.com, Amazon Japan, TicketMonster and Coupang challenged the market leaders,
with competitive pricing and guaranteed product quality. Since then, there have been
price wars initiated by smaller companies trying to gain share against the market leaders.
What added to the price competition was the concept of ‘fast delivery’. Most recently,
companies like JD.com, Amazon Japan, Askul and Coupang have invested heavily in
logistics networks and offer same-day delivery services to consumers, in an effort to gain
market share.
China: History
China began embracing e-commerce in 1997, supported by a series of “golden projects”
by the Chinese government, aiming at building the technical infrastructure and regulatory
frameworks for e-commerce in China. Since then, e-commerce has grown at an
astonishing rate, With the improvement of the internet infrastructure, substantial
opportunities for development were brought to e-commerce, Alibaba established the
C2C e-commerce website Taobao, Tencent launched Paipai, JD is the current leader in
consumers electronics and home appliances and VIPSHOP offers “flash-sale” ecommerce, featuring time and quantity limited discounts on a wide range of products and
services.
Unlike other countries (Korea and Japan for example), China e-commerce platforms are
less dependent on search engines. In Alibaba’s case, back in 2008, the company
recognised Baidu (BIDU US, Neutral), the so-called “Google of China”, as a serious
competitive threat. Alibaba sealed a wall around Taobao by blocking Baidu, worrying that
online shoppers would migrate gradually to Baidu to begin product searches if Baidu’s
web crawlers could archive Taobao’s inventory and web pages. It was a momentous
decision that eventually changed the way users behaved when conducting online
shopping searches.
Fig. 80: History of e-commerce development in China
Embryo (1997-1999)
E-commerce is not well recognized
among users given low online
penetration.
•
•
•
B2B - ChemNet China went online
B2C – 8488 established
C2C – EACHNET launched
Adjustment (2000-2002)
Industry reshuffle
•
•
•
Hc360.Com and Joyo went online
CECA established
eBay and EachNet teamed up
Recovery (2003-2005)
Transition (2008-2009)
E-commerce websites have gradually
accepted with rapid online penetration
growth.
•
•
Alibaba established Taobao and Alipay
Tencent launched Paipai
Resilient growth with fierce
competition.
•
•
Taobao blocked Baidu search
Alibaba lunched 1st shopping festival –
Singles Day
Growth (2006-2007)
Development (2010-2012)
Supported by government policy, ecommerce has grow rapidly, along with
logistics, online payment.
Number of Internet users
surged and logistics ( incl. last
mile delivery) grew rapidly
backed by strong online
shopping growth.
•
•
Netsun was listed as China’s first
internet stock
JD, China’s home appliances online
shopping pioneer.
•
VIPS was listed in NYSE
Accelerating
(2012-Present)
Ongoing
penetration (FMCG,
rural area etc) and
globalization
(cross-border ecommerce etc)
Source: Nomura research
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Nomura | Asia Pacific internet
14 February 2017
Japan: History
Japan EC history (1): Early stage 1996-2000
Around 1995, the number of internet users expanded rapidly as broadband internet
connections and desktop personal computers widely penetrated in Japan. As they did,
many e-commerce companies were established and e-commerce sites sprung up like
mushrooms. MDM, Inc (currently Rakuten, Inc) was founded in 1997 and started
“Rakuten Ichiba”, the internet shopping mall, which began services. In 1998, Rakuten
Super Auction”, the predecessor service of “Rakuten Auction” was launched. “Yahoo!
Shopping”, another internet shopping mall, and “Yahoo! Auction” began in 1999. In 2000,
“Amazon.co.jp” started service just as an online book store.
Google entered the Japanese market with “Google.co.jp” in 2000. Japanese internet
users were able to find web sites easily and smoothly. This also helped the expansion of
Japan e-commerce web sites.
Japan EC history (2): the first growth phase – 2001-2005
As the number of e-commerce users expanded rapidly, the number of troubles related to
e-commerce also increased. To help solve problems between e-commerce users and
online shopping malls, the Electronic Consumer Contract Act was implemented in 2001.
Next year in 2002, Amazon started the “Amazon Marketplace”, another internet shopping
mall, in Japan.
In 2005, the Private Information Protection Law was executed in Japan, which provided
some motivation for online shoppers to recognise accidental leaks of private information.
The law provided a mechanism of punishment for companies that neglected the duty of
protecting the personal and private information of their customers.
Japan EC history (3): the second growth phase – 2007-2009
In 2008, “Amazon.co.jp” started “Fulfilment by Amazon,” which allows tenants on
“Amazon Marketplace” to tender packages for storage and delivery. This became a
popular service among tenants because it relieved them of complicated delivery
operations. In 2009, “Amazon.co.jp” started one-day delivery services, triggering capital
investment competition to enhance the speed of delivery among e-commerce
companies.
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Nomura | Asia Pacific internet
14 February 2017
Fig. 81: Japanese e-commerce history
1995
Internet penetration increased
Early Stage
1995 ~ 2000
1997
MDM,Inc. (now Rakuten,Inc.) established
Rakuten Ichiba service started
1998
Rakuten Super Auction (now Rakuten Auction) launched
1999
Yahoo! Shopping & Yahoo! Auction established
2000
2001 ~ 2005
First Growth
2007~ 2009
Second Growth
Am azon.co.jp started as online book store
2001
Electronic Consumer Contract Act introduced
Am azon m arket place started
2005
Private Information Protection Law introduced
2008
Amazon.co.jp started "Fulfilm ent by Am azon"
2009
Amazon.co.jp started one day delivery service
Third Growth
2010~ 2015
2010
Groupon market place started "online group buying" expanded
2013
EC Revolution; Yahoo! Japan provided free opening & royalty fee
2014
Rakuten started Rakuten Box service ; delivery & receiving services enriched
Source: Nomura, based on company data
Japan EC history (4): the third growth phase – 2010-2015
Around 2010, Groupon and similar types of e-commerce marketplaces that connected
subscribers with local merchants by offering activities, travel, goods, and services,
became popular in Japan. The expansion of so-called “online group buying,” which
leverages the collective bargaining power of a large number of customers, was spurred
by the explosion in popularity of social networking services (SNS).
Since the expansion of SNS such as Facebook and Twitter, e-commerce sites have
used them as communication and marketing tools in many cases. As the penetration rate
of smartphones reached over 50% around that period, it became easier for users to
make purchases even when they were not at home, bringing about a change in users’
purchasing habits, with many people doing online shopping even during their commuting
time. As a result, viewing, selecting and purchasing products from e-commerce web sites
needed to be easy for users visiting from smartphones. In fact, Google announced in
2012 that it would be difficult for sites that are not suitable for smartphones to show up
as top-level search results.
In 2013, Yahoo Japan announced that it would do away with opening and royalty fees for
Yahoo! Shopping. This was an “e-commerce revolution”, which would have a major
impact on the e-commerce industry in Japan because tenants would not have to worry
about expenses: SMEs could easily start a net shop. Also in 2013, Recruit Holdings
started its “Pompare Mall” specialising in online group buying.
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Nomura | Asia Pacific internet
14 February 2017
In 2014 and 2015, delivery service and receiving services were enriched. As the number
of consumers who had shopped online increased, it became difficult to receive goods
even if they are delivered because they are not in home. Examples of services provided
are post-in delivery service, which eliminated the need for redelivery, convenience store
reception service, and home delivery boxes that could be delivered even if the shopper
was absent.
Rakuten has begun a trial run of Rakuten Boxes, in 2014, specialised delivery lockers
where users can receive goods ordered from online shopping mall Rakuten Ichiba as
they commute to or from work or school. The trial began at Osaka Municipal Subway’s
Namba Station and Kansai University. Now Rakuten Boxes are available at over 20
locations, mostly located in major railway stations.
Korea: Fragmented market has led to need for price comparison
• 2000-2005: Competition between open market platforms and offline retailers
began.
Some internet entrepreneurs and offline retailers rushed into the e-commerce industry in
late 1990s-early 2000s, with surging internet penetration in Korea (from merely 7% in
1998 to 57% in 2001). Pioneers of e-commerce include Interpark and Internet Auction.
Gmarket, which later became the largest open market platform in Korea, was established
by Interpark as its in-house venture. Later, competition among open markets increased,
with eBay’s acquisition of Internet Auction (2004). Naver and Daum, major search
engines in Korea, introduced price comparison function, by leveraging their search
database.
• 2005-09: Market share competition between eBay and Gmarket (2005-08) ends as
eBay acquires Gmarket (2009)
Marketing competition became fierce, as multiple players fought for market share in the
early stage of e-commerce penetration. SK Group joined the e-commerce competition,
later than its other conglomerate competitors, with its launch of 11st Street. Among all,
Gmarket and Internet Auction were the most aggressive in targeting the #1 market share
position. Then, eBay took a radical action and acquired Gmarket (2009) for USD1.2bn,
and became the dominant market player.
• 2010-14: Increased competition driven by social commerce players’ aggressive
marketing
Korea’s e-commerce market has been fragmented among multiple open market
platforms in 2000s. Ticket Monster, Coupang and WeMakePrice were the first to
introduce the social commerce business model in Korea in 2010. Ticket Monster and
Coupang, after less than two years of operations, became the #1 and #2 social
commerce players in Korea, in terms of GMV market share. Groupon entered the Korea
market in 2011, but the aggressive marketing promotions of the local social commerce
players led it to lose out and close its business in Korea in 2014. Meanwhile, in 2010,
Kakao introduced ‘Gift Shop’ service in its messaging platform Kakao Talk, but failed to
gain enough traction as the product offerings were limited and users could not find the
advantage to shop in the platform.
• 2015-present: Social commerce players’ delivery war and increased need for
funding
Coupang overtook TMon to gain the #1 position in 2014, as it launched same-day 'rocket
delivery' service in 2014. The company secured its own distribution centers and hired
delivery staffs. We believe Coupang’s decision for this huge investment was an initiative
to acquire new customers in the highly fragmented Korean e-commerce market as it
needed to differentiate its service from other e-commerce companies. Since then, the
delivery war started in Korea’s e-commerce market in 2015: TMon and WeMakePrice
followed the same-day-delivery services and open market platforms also joined the
delivery war, with eBay Korea offering same-day-delivery for foods and 11st offering ‘110
minute delivery’ for customers who purchase items over KRW100k. However, this
required a lot of fixed costs and investment, in return. The top three social commerce
players’ net loss surged in 2015 to KRW816bn, and they needed external funding
46
Nomura | Asia Pacific internet
14 February 2017
(KRW2.1tn of total funding was secured at the social commerce companies in 2015-16).
Most recently, with mounting losses from the delivery war, social commerce players have
made strategic moves to: 1) sit back from the delivery war by increasing the hurdles for
free delivery; and 2) expanding into the open market platform model in order to reduce
inventory burden.
On the search engines’ business front, Naver has provided product search and price
comparison services to the price-sensitive Korean customers. Moreover, it introduced
Naver Pay in June 2015, in order to enhance convenience factor and incentivise its
users with customer rewards programme. Even though Naver was the latest to enter
Korea’s mobile payment market among major players, Naver Pay quickly gained users
on the back of Naver Shopping and became the most widely accepted online payment
service in Korea. With the convenience of Naver Pay and customers’ need for price
comparison, Naver’s shopping revenue has accelerated in 2016.
Fig. 82: History of Korea’s e-commerce market
Source: Nomura research
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Nomura | Asia Pacific internet
14 February 2017
Financial analysis
Margins to contract for major e-commerce players in China and Korea, while
Japanese players to turn profitable
Revenue growth of e-commerce companies in China, Korea and Japan has generally
slowed down in the past two years due to a higher base. However, we expect the
revenue to continue double-digit growth over the next two years, on the back of strong
growth of e-commerce markets. On profitability, we note that e-commerce players’
margin has been declining due to heavy investment and intense competition. However,
in this competitive market environment, we expect dominant players such as Alibaba,
Yahoo Japan and Naver to continue to enjoy strong operating margin by leveraging their
market dominant position and improving targeted ads.
Our margin forecast for each region is as follows:
• In China, For major China e-commerce players (Alibaba, JD and VIPSHOP), we expect
to witness further margin expansion for core e-commerce business, pointing to
operating leverage and improving procurement pricing , but consolidated margin will
likely contract owing to new business investment (Internet Finance, Cloud business,
O2O for example), in our view.
• Japanese players’ margins are likely to turn around and start to be profitable as they
focus more on profitability. This is driven by a stabilising competitive environment in
Japan, as well as Yahoo Japan’s initiative to focus on profitability by pursuing more
efficient promotions, through collaboration with Softbank Group.
• In Korea, losses of pure e-commerce players are likely to expand owing to a fierce
market share battle. In particular, companies which look to gain market share will need
to sacrifice profitability for GMV growth. These companies include the big-three social
commerce players and 11st. In this environment, we think the winner will continue to be
Naver whose position as a traffic gateway will further strengthen if other e-commerce
players continue to fight for market share and consumers prefer to shop on price
comparison platforms. We estimate Naver Shopping’s revenue to post 50% CAGR until
2018F, mainly driven by advertising and Naver Pay commissions.
Fig. 83: OPM comparison of companies in the e-commerce industry
Alibaba
41%
eBay Inc.
31%
Naver
31%
Yahoo Japan
25%
Rakuten
15%
Softbank Group
14%
* eBay Korea
10%
Kakao
9%
Amazon
7%
Interpark
4%
VIP shop
Askul
JD.com
1%
** SK Planet
-31%
* Coupang
-48%
* WeMakePrice
-66%
* Tmon
-72%
-75%
5%
3%
-55%
-35%
-15%
5%
25%
45%
Note: as of CY2017F; * eBay Korea, Coupang, WeMakePrice, TMon as of 2015; ** SK Planet as of 2016. Adjusted Alibaba number to calendar year, as fiscal year ends March
quarter.
Source: Company data, Nomura estimates
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Nomura | Asia Pacific internet
14 February 2017
China: Financial performance
In China, the e-commerce market is heavily dominated by Alibaba through Taobao
(C2C) and Tmall (B2C), with around RMB3.6tn GMV for 2016E, more than the
combination of Amazon and eBay. We estimate Alibaba captures ~73% market share of
China total e-commerce market in terms of GMV; far exceeding JD’s 13% and
VIPSHOP’s 2% (Fig. 84). As for Alibaba, we have witnessed a clear trend that Tmall
(B2C) GMV growth outpaced that of Taobao (C2C), and Tmall’s GMV contribution from
29% in CY13 to 41% in CY16E, which echoed our view that B2C model will benefit more
from deeper pockets and more discerning online shoppers in China. In terms of JD, its
marketplace (3P) has outgrown direct sales (1P) over the past few years, except last
year, mainly due to the company’s efforts to crack down on fake transactions. For
VIPSHOP, it principal business contributed the majority (over 95%) of GMV and revenue.
Fig. 84: China e-commerce
market share
Others
Vipshop 12%
2%
JD
13%
Alibaba
73%
As Alibaba does not charge commissions for Taobao, and Tmall’s commission rates are
relatively lower than those for JD, which contributes to a low commission rate and
blended take rate compared to domestic and international peers.
Source: Nomura estimates
Fig. 85: China: GMV comparison of major e-commerce companies
GMV (Rm b bn)
Alibaba
YoY growth
Taobao GMV
YoY growth
% of Alibaba GMV
Tmall GMV
YoY growth
% of Alibaba GMV
JD
YoY growth
Direct sales GMV
YoY growth
% of JD GMV
Marketplace GMV
YoY growth
% of JD GMV
Vipshop
YoY growth
Principal business (1P)
YoY growth
% of Vipshop GMV
Third-party business (3P)
YoY growth
% of Vipshop GMV
CY2012
na
na
na
na
na
na
na
na
73
124%
57
90%
77%
16.6
472%
23%
7
206%
7
204%
99%
0.04
na
1%
CY2013
1,542
na
1,101
na
71%
441
na
29%
126
71%
94
65%
75%
31.8
92%
25%
17
142%
16
139%
98%
0.3
669%
2%
CY2014
2,274
47%
1,511
37%
66%
763
73%
34%
260
107%
159
70%
61%
100.9
217%
39%
38
124%
36
120%
96%
2
349%
4%
CY2015
2,950
30%
1,809
20%
61%
1,141
50%
39%
459
76%
256
60%
56%
203
101%
44%
65
74%
63
74%
96%
3
79%
4%
CY2016F
3,601
22%
2,123
17%
59%
1,478
30%
41%
652
42%
374
46%
57%
280
38%
43%
91
39%
87
39%
95%
4
51%
5%
Source: Company data, Nomura estimates. Adjust Alibaba number to calendar year, as fiscal year ends March quarter.
49
Nomura | Asia Pacific internet
14 February 2017
Fig. 86: China: Revenue and take rate comparison of major e-commerce companies
Revenue (Rm b m n)
Alibaba -China retail
YoY growth
JD
YoY growth
Direct sales revenue *
YoY growth
% of JD revenue
Marketplace and others
YoY growth
% of JD revenue
Vipshop
YoY growth
Principal business (1P) rev *
YoY growth
% of Vipshop revenue
Third-party business (3P)
YoY growth
% of Vipshop revenue
Blended Take rate (%)
Alibaba -China retail
JD - Marketplace
Vipshop - Marketplace **
CY2012
na
na
41,381
96%
40,335
93%
97%
1,046
334%
3%
4,335
205%
4,322
204%
99.7%
13
na
0.3%
CY2012
na
6%
14%
CY2013
40,215
na
69,340
68%
67,018
66%
97%
2,322
122%
3%
10,421
140%
10,322
139%
99%
99
669%
0.9%
CY2013
2.61%
7%
14%
CY2014
56,054
39%
115,002
66%
108,549
62%
94%
6,453
178%
6%
23,129
122%
22,685
120%
98%
444
349%
1.9%
CY2014
2.47%
6%
14%
CY2015
74,742
33%
181,287
58%
167,721
55%
93%
13,566
110%
7%
40,203
74%
39,410
74%
98%
793
79%
2.0%
CY2015
2.53%
7%
14%
CY2016F
106,634
43%
255,849
41%
233,526
39%
91%
22,323
65%
9%
55,895
39%
54,699
39%
98%
1,197
51%
2.1%
CY2016F
2.94%
8%
14%
Source: Company data, Nomura estimates. Note: * 1P revenue books as net revenue, excl.VAT; ** Assume commission
revenue accounts for ~45% 3rd-party revenue. Adjust Alibaba number to calendar year, as fiscal year ends March quarter.
For major China e-commerce players (Alibaba, JD and VIPSHOP), we expect to witness
further margin expansion for core e-commerce business, pointing to operating leverage
and improving procurement pricing, but consolidated margin will likely contract owing to
new business investment (Internet Finance, Cloud business, O2O for example), in our
view.
As Alibaba books net commission revenue for its marketplace business (3P), and GPM
of 3P is generally higher than that for direct sales business (1P), Alibaba’s core
commerce EBITA margin improved 2ppt q-q to 64% in the December-end 2016 quarter;
however, its consolidated margins contracted on new business investments, such as
Youku-Tudou, partially offset by margin expansion for the core commerce business.
Likewise, JD’s core e-commerce business improved 40bp y-y and remained flat q-q at
1.1% in 3Q16, but we believe consolidated margin will likely remain choppy due to new
business investment and FMCG competition. VIPSHOP’s core e-commerce business
reported continues margin expansion on the increasing leverage from fulfilment and
marketing expenses in 3Q16, but consolidated margins contracted due to internet
finance investment.
50
Nomura | Asia Pacific internet
14 February 2017
Fig. 87: China: Financial performance of major e-commerce companies
Grow th (%)
Revenue
Alibaba
JD
Vipshop
Non-GAAP OP
Alibaba
JD
Vipshop
Non-GAAP NP
Alibaba
JD
Vipshop
CY2012
CY2013
CY2014
CY2015
CY2016F
na
96%
205%
na
68%
1406%
44%
66%
122%
33%
57%
74%
52%
41%
39%
na
Loss
Loss
na
Loss
na
35%
Loss
156%
21%
40%
Loss Est. Positive
128%
33%
na
Loss
Loss
na
na
na
41%
72%
210%
27%
Loss
78%
32%
Loss
25%
Margin (%)
GPM
Alibaba
JD
Vipshop
Non-GAAP OPM
Alibaba
JD
Vipshop
Non-GAAP NPM
Alibaba
JD
Vipshop
CY2012
CY2013
CY2014
CY2015
CY2016F
na
8%
22%
75%
10%
24%
70%
12%
25%
67%
13%
25%
63%
16%
24%
na
-4%
-1%
54%
-0.5%
3%
50%
-1%
4%
45%
-1%
5%
42%
0%
5%
na
-4%
-0.3%
49%
0.3%
4%
48%
0.3%
5%
46%
-0.5%
5%
40%
0.0%
5%
Source: Company data, Nomura estimates. Adjust Alibaba number to calendar year, as fiscal year ends March quarter.
51
Nomura | Asia Pacific internet
14 February 2017
Japan e-commerce: Financials
Scale comparison
Rakuten is the biggest e-commerce company in Japan. In 2016, Rakuten's GMV
including travel and other subsidiaries reached about JPY3.0tn, a 12.0% increase y-y.
Based on Nomura estimates, the GMV of Rakuten Ichiba alone could have been JPY2.02.5tn. We estimate the company’s market share in Japan was around 22-28% in 2016.
Fig. 88: EC market by major companies in Japan
(¥bn, except w here noted)
E-com m erce retail m arket
% y-y
E-com m erce rate (%)
Rakuten
% y-y
Net increase
% of retail e-commerce market
Am azon Japan
2014
2015
6,804
13.5%
4.37%
2,434
8.9%
200
35.8%
7,240
6.4%
4.75%
2,687
10.4%
252
37.1%
2016E
2017E
8,082
11.6%
5.25%
3,009
12.0%
323
37.2%
2018E
9,096
12.5%
5.85%
3,432
14.0%
423
37.7%
10,129
11.4%
6.45%
3,880
13.1%
448
38.3%
1,300
1,600
1,940
2,294
2,713
% y-y
26.2%
23.1%
21.3%
18.2%
18.3%
Net increase
419.0
270.0
300.0
340.0
353.5
Direct
780
1,000
1,250
1,500
1,800
% y-y
35.0%
28.2%
25.0%
20.0%
20.0%
Market place
% y-y
% of retail e-commerce market
Yahoo! Shopping
% y-y
Net increase
% of retail e-commerce market
Other
520
600
690
794
913
15.0%
15.4%
15.0%
15.0%
15.0%
19.1%
22.1%
24.0%
25.2%
26.8%
266
379
483
628
755
6.1%
42.2%
27.7%
29.9%
20.2%
15
112
105
145
127
3.9%
5.2%
6.0%
6.9%
7.5%
2,804
2,575
2,649
2,743
2,781
13.2%
-8.2%
2.9%
3.5%
1.4%
Net increase
326
-229
75
93
39
% of retail e-commerce market
41.2
35.6
32.8
30.2
27.5
% y-y
Source: Nomura estimates
The second largest company in the sector is Amazon Japan. We estimate
Amazon.co.jp’s GMV in 2016 was JPY1.9tn, representing y-y growth of 21.3%. Its
market share, based on our estimates, was about 21%. Amazon.co.jp expanded its
market share in 2016 through the introduction of logistics services and the Amazon
Prime service.
We estimate that of Yahoo! Shopping’s GMV in FY16 will increase by 30.7% to
JPY495bn. Although it is still small in scale compared with Rakuten and Amazon.co.jp,
we believe that it has steadily increased its market share after the introduction of its “free
charge” strategy.
Profitability comparison: Rakuten Yahoo Japan
We estimate that Rakuten's sales in 16/12 increased by 9.9% y-y to JPY784.5bn. The
breakdown is as follows: sales for the internet service business increased by 13.0% to
JPY556.9bn. Fin Tech business increased by 9.0%, to JPY299.8 billion yen. The internet
service business accounted for 65.0% of pre-adjustment sales. On the other hand, Fin
Tech accounted for 35.0%.
We expect Non-GAAP operating income in 16/12 to increase by 20.4% to JPY121.1bn.
The breakdown is as follows: we estimate internet service was down 35.6% to
JPY55.8bn. The Fin Tech business is expected to increase by 4.5% to JPY66.8bn. We
estimate that the internet service business accounted for approximately 45% of total
operating income, and the Fin Tech business about 55%. Thus, in our view, the Fin Tech
business is one of Rakuten’s most important segments supporting overall profits.
52
Nomura | Asia Pacific internet
14 February 2017
Fig. 89: Breakdown of sales by segments
Fig. 90: Breakdown of operating profits by segments
Others, 1%
Others, 1%
Adjustment, 1%
Rakuten Life Insurance 1%
Rakuten Life Insurance
Rakuten
Securities
Rakuten
Bank
4%
Adjust
ment
-8%
Domestic
EC, 33%
Rakuten Securities
10%
Domestic
EC, 46%
5%
Rakuten Bank
7%
10%
Internet
Services,
60%
FinTech,
32%
Internet
Services,
45%
FinTech,
53%
Rakuten
Card, 15%
Rakuten
Card, 18%
20%
Communica
tion &
Sports, 7%
-8%
-4%
Other Internet Services
Other Internet Services
Source: Nomura, based on company data
Communication & Sports
Source: Nomura, based on company data
Fig. 96 details the breakdown of Rakuten's operating profit in 16/12. Domestic EC
creates the most profit. The operating profit margin of domestic EC in 16/12 was 24.9%.
Rakuten Card is also an important segment for Rakuten. Rakuten Card’s operating profit,
in 16/12, increased by 23.7% to JPY29.8bn, and its operating margin to be 21.5%.
Rakuten operates various financial businesses including Rakuten Card, Rakuten Bank,
Rakuten Securities and Rakuten Life. These businesses have continued to expand
steadily with synergies with Rakuten Ichiba.
Rakuten Bank's operating profit in 16/12 represented approximately 14% of the
company’s total, with Rakuten Securities accounting for about 15%. Rakuten Life is still
small, and we estimate its operating profit made up about 1% of the whole.
On the other hand, Communication & Sports and other internet services have been
putting pressure on Rakuten's overall profit. Communication & Sports includes the
messaging application Viber and the professional baseball team, the Rakuten Eagles.
Nomura estimates Viber lost JPY4-8bn and the Rakuten Eagles lost about JPY2bn in
2016. Nomura expects Communication & Sports operating losses to expand in 2017,
following the purchase of global sponsorship rights for FC Barcelona.
Other internet services are depressing Rakuten's profit the most. Other internet services
include Rakuten's overseas businesses. We speculate that Ebates, OverDrive and
Rakuten Marketing have secured operating profits. On the other hand, we consider
PRICEMINISTER in France, Play.com in the UK, Buy.com in the US as contributing
operating losses.
We expect Rakuten's operating margin to gently but steadily improve. Fig. 92 shows
changes in Rakuten's operating income margin. Rakuten's non-GAAP operating profit in
16/12 was 15.2%, with internet service at 9.9% and Fin Tech at 22.2%.
53
Nomura | Asia Pacific internet
14 February 2017
Fig. 91: Detail breakdown of operating income by segments
(¥bn)
100
Operating income (lhs)
37.2
80
60
(%)
40
Margin (rhs)
25.7
30
20
24.9
21.4
40
10
20
7.4
4.8
0
-8.1
-13.6
0
-10
-20
-20
Source: Nomura, based on company data
The operating profit margin of the internet service business was 18.4% in 15/12, but it fell
to 10.0% in 16/12. This was largely attributable to the deterioration of domestic EC
profitability. Rakuten's domestic EC introduced the SPU programme to compete against
Yahoo! Shopping’s aggressive point discount programme. Due to the introduction of the
SPU programme and the increase in expenses for improving the quality of Rakuten
Ichiba, we estimate that Rakuten's domestic EC expenses increased by JPY20-25bn
from the previous year.
Fig. 92: Rakuten: Trend of operating income margin
(%)
30
Total
25
Internet Services
24.9
24.3
23.2
21.7
FinTech
22.3
20.9
21.3
20
19.9
19.7
18.9
18.4
15.4
16.9
15
16.0
15.4
10
10.0
9.4
9.9
FY17E
FY18E
5
FY13
FY14
FY15
FY16E
Source: Nomura, based on company data
Profitability comparison: Yahoo Japan
Yahoo Japan can be divided by segment into the Marketing Solutions business and the
Consumer business. The Marketing Solutions business is the media business, and its
largest revenue source is advertisement sales. The Consumer business is related to EC,
and includes Yahoo! Shopping and Yahoo! Auctions.
Sales in 16/3 increased by 52.2% y-y to JPY652.3bn, attributable to the consolidation of
ASKUL Corporation in August 2015. Excluding the impact of this, sales increased about
10% more than in the previous year. The breakdown of sales was as follows: The
Marketing Solutions business increased by 6.5% to JPY277.3bn. The Consumer
business increased by 153.7% to JPY326.3bn including the consolidation of ASKUL.
Other business increased by 24.9% to JPY60.2bn.
54
Nomura | Asia Pacific internet
14 February 2017
Fig. 93: Breakdown of sales by segments
Fig. 94: Breakdown of operating profits by segments
Other
3%
Other
9%
Consumer
business
49%
Marketing
solutions
business
42%
Source: Nomura, based on company data
Consumer
business
44%
Marketing
solutions
business
53%
Source: Nomura, based on company data
Operating income in the 16/3 quarter was JPY225bn, up 14.1% y-y. However, excluding
the impact of approximately JPY57bn on remeasurement gains associated with ASKUL's
business consolidation, operating income was about JPY168bn, a decline of
approximately 15% y-y.
The breakdown of operating income was as follows: The marketing solutions business
increased 0.6% from the previous fiscal year to JPY144.5bn. We estimate the operating
profit of the Consumer business, excluding the above-mentioned effects of transient
profit, to be JPY62.6bn, a decrease of 9.1%. The percentage of operating income in the
16/3 period excluding temporary operating income was about 70% in the Marketing
Solutions business and about 30% in the Consumer business.
Fig. 95 shows changes in Yahoo's quarterly operating profit margin for the marketing
Solutions and Consumer businesses. The operating profit margin of the Marketing
Solutions business was stable at around 55% in FY16. On the other hand, the operating
profit margin of the Consumer business was around 50% before ASKUL was
consolidated, but it was around 15% afterward. Total operating margin after
consolidation has been at approximately 25%. However, we believe that Yahoo Japan’s
operating margin will rise, as we expect advertising sales will be favourable and EC
profitability to improve. Further details can be found in the Yahoo Japan company
section of this report.
Fig. 95: Yahoo: Quarterly OP margin trend
(%)
Fig. 96: Yahoo: Estimate of OP margin
(%)
80
60
70
50
48.1
46.0
60
40
50
40
26.3 27.8
23.9 25.1
30
30
20
34.5
Total
Marketing solutions business
29.5
31.3
33.2
20
10
10
Consumer business
0
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
14/3
15/3
16/3
17/3
Source: Nomura research, based on company data
(FY)
14/3 15/3 16/3 17/3 18/3 19/3 20/3 21/3 22/3 23/3
E
E
E
E
E
E
E
Source: Nomura research, based on company data
55
Nomura | Asia Pacific internet
14 February 2017
Korea: Except for eBay Korea, major e-commerce companies
are making losses
For the purpose of financial analysis, we look at two open market platforms, eBay Korea
and Interpark, and three social commerce players, Coupang, TicketMonster,
WeMakePrice. We could not include 11st for financial analysis, as its financials are
reported as a part of SK Planet, while SK Planet includes various businesses such as
11st, OK cashbag, Syrup Wallet.
Strong top-line growth hampered by heavy marketing costs
The combined revenue of five open market and social commerce players has grown at
46% CAGR in 2013-15 while the GMV growth is 41% CAGR. In terms of profitability,
eBay Korea has seen its operating margins increase at the expense of market share,
whereas the industry-wide losses have surged in the last several years due to the
aggressive marketing and investment by the social commerce companies. We expect
the industry-wide losses to continue into 2017-18F, as the battle for market share among
11st, Coupang, TMon and WeMakePrice continues. We note that Amazon had recorded
losses for eight years before turning to profits, while competition in Korea seems to be
much fiercer due to the limited market size.
Open market platforms’ margin could be at risk
Revenue growth of the Korea’s largest open market platform eBay Korea has slowed to
a single-digit rate since 2013. This is because social commerce players and 11st have
been focused on market share battles, whereas the dominant open market platforms
Gmarket and Auction have focused on profitability. However, if eBay Korea starts to see
GMV decline, it could change its strategy and decide to engage in price competition.
• eBay Korea: Enjoying highest profitability in the industry.
eBay Korea’s OPM has improved rapidly from 3% in 2012 to 10% in 2015. eBay Korea’s
OP temporarily slowed in 2012 as it increased marketing efforts amid commission rate
hike. Since then, its profitability has continued to improve on economies of scale and
efficient management of SG&A. We think Gmarket and Auction’s rational stance on not
engaging in a price competition is due to the parent company eBay’s stance that it wants
the Korean platforms to remain profitable.
We think it is hard for eBay Korea to be aggressive as it will impact on the P&L of eBay
Inc. Unless eBay Korea changes its strategy and engages in market share battles, we
expect it to post stable operating margin until 2018F. eBay Korea is a debt-free company
and has generated annual FCF of KRW100bn.
• SK Planet (which operates 11st): Losses to continue as it aims to become #1
player in Korea.
Due to the lack of financial disclosure, our analysis of 11st Street’s financial is limited.
Operating losses of 11st Street have increased in the past years, due mainly to the
aggressive market share target: 11st Street’s GMV is around KRW6.6tn in 2016 and it
became #1 during 4Q16. However, this came at the expense of profitability: In 2016,
11st’s operating loss is close to KRW200bn. Unless 11st changes its strategy and
focuses on profitability, we expect operating losses to continue.
• Interpark: Stagnant earnings owing to low market share.
Despite its competitive strengths in the tour and entertainment ticket sales, Interpark’s
GMV, revenue and operating profits have been all flattish since 2013. Of note, its first
three quarter operating profits in 2016 has fallen by 69% y-y with operating margin of
merely 1.7%. Given travel segment has become common target of various travel-related
O2O service providers and social commerce players, we expect Interpark to continue to
struggle with weak financials.
56
Nomura | Asia Pacific internet
Despite operating losses, social commerce players have spent heavy marketing
cost on the back of external funding
The combined operating losses for the social commerce companies have increased over
time. In 2015, it surged to KRW830bn due to the heavy investment into logistics and
price discounts. The mounting losses have led social commerce companies to look for
external funding and they have raised KRW2.1tn in 2014-16. Despite the external
funding, we estimate that the high level of losses will continue and this will likely force
Big3 to look for additional equity investment.
14 February 2017
Fig. 97: Coupang shareholding
structure
• Forward Ventures: Fast-track GMV gainer, but its 2015 operating loss is almost
double the combined OP loss of TMon and WeMakePrice.
Top-line of Forward Ventures, Coupang’s holding company, has grown sharply since
2013. This is driven by the introduction of 1P model and the company recognises the
entire value of purchased goods as revenue. However, operating loss went up
significantly due to heavy spending on the same-day delivery offerings. The company
says that it plans to continue the heavy investment by 2017, on the back of the
KRW1.4tn investment it secured in 2014-15 from Softbank (USD1bn in 2015), as well as
Sequoia Capital (USD0.1bn in 2014) and Blackrock (USD0.3bn in 2014).
• Ticket Monster: Losses had narrowed in 2012-14, but surged in 2015 due to
delivery war
As the first mover in the social commerce in Korea, Ticket Monster’s GMV and revenue
has been larger than Coupang’s until 2013. Thanks to the growing economies of scale,
the company’s operating losses had narrowed over 2012-14. However, the losses went
up again in 2015 as e-commerce players were engaged in price war. Yet, TMon was
able to receive external funding of USD400mn from investors: USD360mn from KKR and
Anchor Equity Partners (2015), and USD40mn from NHN Entertainment (2016).
• WeMakePrice: Hard fight with TMon for the #2 position
WeMakePrice’s revenue has been smaller than that of TMon until 2014, but its revenue
exceeded that of TMon’s in 2015. WeMakePrice noted that its operating losses came
Forward
Ventures
LLC,
100%
Note: Forward Ventures LLC is a US holding
company of Coupang and is mainly held by
Beom Kim and Softbank. However, their
stake holdings are not disclosed.
Source: DART, Nomura research
Fig. 98: TMon shareholding
structure
NHN
Entertainment
3%
Group
on
40%
KKR
and
Ancor
Equity
Partners
57%
from heavy marketing and advertising expenses, which we think is attributable to the
competition with TMon and Coupang. In terms of external funding, WeMakePrice
received the smallest amount among the three major companies: KRW100bn from
Nexon in 2015.
Note: TMon’s major shareholders are
LivingSocial Korea and Monster Holdings;
LivingSocial Korea is 100% owned by
Groupon, and Monster Holdings is owned by
KKR consortium and NHN Entertainment.
Source: DART, Nomura research
Fig. 99: WeMakePrice
shareholding structure
2014 IMM ICT Venture
Group
Fund
on
1%
40%
NXC
Corporation
11%
Min Heo
and
others
88%
Note: NXC Corporation is a major
shareholder of Nexon.
Source: DART, Nomura research
57
Nomura | Asia Pacific internet
14 February 2017
Fig. 100: Combined revenue of five Korean e-commerce companies
Open market
(KRWbn)
Social Commerce
2,800
46% CAGR
2,100
1,400
700
0
2013
2014
2015
Source: Company data, Nomura research
Fig. 101: Combined operating profit/(loss) of five Korean e-commerce companies
(KRWbn)
150
2013
2014
2015
(50)
(250)
(450)
(650)
(850)
Open market
Social Commerce
Source: Company data, Nomura research
Fig. 102: Social commerce companies’ external funding records
Company
Coupang
Ticket Monster
WeMakePrice
Funding (USDmn)
Total 1,400
1,000
100
300
Total 400
360
40
Total KRW100bn
KRW100bn
Timing
Investor
Jun-15
May-14
Nov-14
Softbank
Sequoia Capital
Blackrock
Apr-15
Apr-16
KKR, Anchor Equity Partners
NHN Entertainment
Aug-15
Nexon
Source: Nomura research
58
Nomura | Asia Pacific internet
14 February 2017
Fig. 103: Summary financials of open market platforms in Korea
Ebay Korea (Auction + GMarket)
(KRW bn)
2009
2010
2011
2012
2013
2014
2015
Revenue
540
619
444
628
662
734
799
Gross Profit
247
233
284
390
401
440
478
13
45
65
19
48
56
80
2.3%
7.3%
14.6%
3.1%
7.2%
7.7%
10.0%
Operating Profit
OPM (%)
Net Profit
Asset
(13)
15
(2)
48
32
46
54
1,289
1,347
1,360
1,475
1,519
1,634
1,750
Liability
379
415
419
477
477
536
586
Equity
910
932
941
998
1,041
1,098
1,164
SK Planet (11st)
(KRW bn)
Revenue
Operating Profit
OPM (%)
Net Profit
Asset
Liability
2011
2012
2013
2014
2015
2016
354
1,087
1,435
1,577
1,703
1,178
8
27
14
10
(7)
(365)
2.3%
2.5%
1.0%
0.6%
-0.4%
-31.0%
10
13
202
3
(78)
63
1,678
1,648
2,528
2,579
2,407
* 1,979
424
382
767
747
785
* 753
1,254
1,266
1,761
1,832
1,622
* 1,226
2010
2011
2012
2013
2014
2015
2016
375
(10)
#REF!
351
8
2.2%
356
15
4.3%
386
20
5.3%
407
17
4.2%
402
23
5.8%
466
9
2.0%
Equity
* 2016 balance sheet as of 3Q16
Interpark
(KRW bn)
Revenue
Operating Profit
OPM (%)
Net Profit
(9)
9
11
13
11
17
3
Asset
191
251
358
370
428
465
467
Liability
159
210
270
268
274
296
303
Equity
32
41
88
101
154
169
165
Note: SK Planet financials include not only 11st but other businesses such as marketing, OK Cashbag, Syrup Wallet; In 1Q16, SK Teckx/One store were split from SK Planet
while Commerce Planet was acquired by SK Planet
Source: Company data, Nomura research
59
Nomura | Asia Pacific internet
14 February 2017
Fig. 104: Summary financials of social commerce players in Korea
Forward Ventures (Coupang)
(KRW bn)
Revenue
Merchandising
2013
2014
2015
48
348
1,134
6
195
990
42
154
143
Gross Profit
43
159
145
Operating Profit
(0)
(122)
(547)
OPM (%)
-0.3%
-34.9%
-48.2%
Net Profit
(1)
(119)
(526)
Asset
105
343
1,067
Liability
113
319
625
Equity
(8)
24
424
Commission/Others
Ticket Monster
(KRW bn)
2010
2011
2012
2013
2014
2015
3
33
82
115
157
196
Merchandising
n.a.
n.a.
n.a.
113
126
113
Commission/Others
n.a.
n.a.
n.a.
2
31
83
3
21
54
84
130
81
(2)
(58)
(82)
(71)
(25)
(142)
-63.6%
(3)
-176.3%
(67)
-100.2%
(83)
-61.6%
(73)
-15.6%
(24)
-72.4%
(145)
12
11
1
33
64
(31)
33
64
(31)
58
128
(70)
101
189
(87)
197
421
(224)
2011
12
12
2012
23
22
2013
75
70
2014
126
118
2015
217
115
0
0
2
0
1
9
4
0
45
7
1
49
99
2
22
(18)
-147.6%
(20)
9
18
9
(7)
-30.3%
(8)
26
40
(14)
(36)
-48.4%
(39)
106
158
(52)
(29)
-23.1%
(29)
119
224
(82)
(142)
-65.8%
(145)
159
301
(115)
Revenue
Gross Profit
Operating Profit
OPM (%)
Net Profit
Asset
Liability
Equity
WeMakePrice
(KRW bn)
Revenue
Service
Merchandising
Manufactured goods
Gross Profit
Operating Profit
OPM (%)
Net Profit
Asset
Liability
Equity
Source: Company data, Nomura research
60
Yahoo Japan 4689.T
4689 JP
EQUITY: JAPAN INTERNET
Yahoo Shopping: key points to watch
Global Markets Research
Steady progress with cost effective promotional
activity
14 February 2017
Rating
Remains
Target price
Remains
Investment stance: we see considerable upside potential, reiterate Buy
rating
We reiterate our Buy rating with a target price for the next 12 months of ¥640,
which we calculate via a DCF model that assumes WACC of 8.85% and
terminal growth of 1.0%. This equates to around 23x our 18/3 EPS forecast of
¥27.7. We think that investors are likely to reassess the stock over the next 12
months. We see three potential catalysts for the share price: (1) a return to
positive growth in paid search advertising sales; (2) a return to stable growth in
premium ad sales; and (2) an improvement in margins at Yahoo Shopping. In
this report, we focus on the last of these three catalysts.
16/3
Actual
17/3E
Old
New
Co's
18/3E
Old
New
Closing price
10 February 2017
JPY 539.0
Potential upside
+18.7%
Catalyst
(1) Increased growth in
advertising sales as a result of
the use of video in advertising;
(2) sustained increases in and
wider margins on Yahoo
Shopping's gross merchandise
sales; and (3) wider use of
FinTech to include areas such as
the credit card business.
Near-term earnings forecasts: we forecast operating profit growth of
11.6% y-y in 18/3 despite sustained investment
As well as improved earnings at Yahoo Shopping, we also forecast a sharp
slowdown in the decline in paid search advertising sales. We forecast 18/3
operating profits of ¥224.7bn (up 11.6% y-y) despite increased costs as
management aims to expand its credit card operations. We also anticipate
synergies between card operations and shopping operations over the medium
term. We regard the stock as undervalued. In our view, we are now at an
inflection point for earnings and the share price, with the company overcoming
the fundamental shift from PCs to smartphones, creating a dynamic competitive
edge in both advertising and e-commerce, and shifting to value creation over
the medium term.
Currency: JPY
Research analysts
Japan internet & media
Yoshitaka Nagao - NSC
[email protected]
+81 3 6703 1175
19/3E
Old
JPY 640
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateway and
provide end-to-end ecosystem.
Prospect of positive changes at Yahoo Shopping
We think the company’s medium-term outlook is getting brighter. We envision a
steady improvement in margins at Yahoo Shopping as gross merchandise sales
rise on expansion of the product range and the partnership with Softbank Group
[9984] ensures efficient and effective promotional measures. We think that
gross merchandise sales at Yahoo Shopping will rise to over ¥1trn by 21/3.
Cons
Buy
New
Sales (bn)
652,327 852,200 852,200
N/A 901,700 901,700 960,000 960,000
Ope profits (bn)
224,997 201,000 201,000
N/A 224,400 224,400 253,500 253,500
EPS
30.2
24.1
24.1
N/A
27.7
27.7
31.3
31.3
P/E (x)
15.3
19.1
19.1
N/A
16.7
16.7
14.8
14.8
EV/EBITDA (x)
8.8
9.1
9.1
N/A
7.8
7.8
6.6
6.6
P/B (x)
3.1
2.8
2.8
N/A
2.5
2.5
2.3
2.3
Dividend yield (%)
1.9
1.9
1.9
N/A
1.9
1.9
1.9
1.9
Source: Company data, Nomura estimates
Key company data: See next page for company data, and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Yahoo Japan
14 February 2017
Key data on Yahoo Japan
Rating
Valuation and ratio analysis
Stock
Buy
Relative performance chart
(JPY)
EPS
BPS or NAV per share
DPS
ROE (%)
16/3
30.2
148.3
8.9
21.9
17/3E
24.1
163.5
8.9
15.4
18/3E
27.7
182.3
8.9
16.0
19/3E
31.3
204.7
8.9
16.1
16/3
652,327
224,997
255,694
226,585
17/3E
852,200
201,000
240,000
202,600
18/3E
901,700
224,400
265,500
226,000
19/3E
960,000
253,500
296,600
255,100
875
1,400
1,500
1,600
171,617
137,100
157,500
177,900
1,317
1,300
1,300
1,300
Income statement
(JPY bn)
Sales
Operating profits
EBITDA
Interest & dividend income
Interest expense
Recurring profits
Pretax profits
Profits attributable to
noncontrolling interests
Profits attributable to
owners of parent
(Equity in net income of
affiliates)
Source: ThomsonReuters, Nomura research
Balance sheet
Performance
(%)
Absolute
Relative to Russell/Nomura
Large Cap
1M
2.7
3M
10.0
12M
-2.7
2.9
-0.8
-9.9
Stock price data
Current stock price (JPY)
Market capitalization (JPY bn)
52-week low stock price (JPY)
52-week high stock price (JPY)
Shares out (mn)
Source: ThomsonReuters, Nomura research
539
3,069.8
385
539
5,695.4
(JPY bn)
Current assets
Operating receivables
Inventories
Non-current assets
Total assets
Operating payables
(Current)
Interest-bearing debt
Total liabilities
Net assets
Shareholders' equity
16/3
17/3E
18/3E
19/3E
806,380 918,500 1,053,200 1,210,400
305,758 345,800 385,800 425,800
536,419 547,400 556,300 563,200
1,342,799 1,465,900 1,609,500 1,773,600
270,766
305,800
340,800
375,800
0
0
0
0
430,035 465,000 500,000 535,000
912,764 1,000,900 1,109,500 1,238,600
844,165 930,900 1,038,000 1,165,500
Cash flow statement
(JPY bn)
16/3
Operating cash flow
105,409
Profits attributable to
171,617
owners of parent
Depreciation
30,697
Change in working capital
23,765
Investment cash flow
-110,537
Capex
-29,254
Free cash flow
-5,128
Financial cash flow
-49,357
Change in interest-bearing
0
debt
Dividend payments
-50,398
Change in cash &
-54,773
equivalents
17/3E
172,500
18/3E
195,100
19/3E
217,600
137,100
157,500
177,900
39,000
-5,008
-50,000
-50,000
122,500
-50,400
41,100
-5,000
-50,000
-50,000
145,100
-50,400
43,100
-5,000
-50,000
-50,000
167,600
-50,400
0
0
0
-50,400
-50,400
-50,400
72,100
94,700
117,200
Source: Company data, Nomura estimates
62
Nomura | Yahoo Japan
14 February 2017
Prospect of steady improvement in profitability
We forecast steady improvement in margins at Yahoo Shopping from 17/3
onwards
We think margins at Yahoo Shopping will improve steadily from 17/3 onwards. We also
think that the partnership with Softbank Group will help Yahoo Shopping to differentiate
itself from rival e-commerce sites. We identify three factors behind the prospective
improvement in margins: (1) strong growth in gross merchandise sales as the product
range expands; (2) reductions in reward points; and (3) efficient and effective
promotional activities stemming from the partnership with Softbank Group.
Growth in gross merchandise sales
Growth in gross merchandise sales at Yahoo Shopping has continued to improve
steadily as the range of products available for purchase on the site has expanded (Fig.
105). As of end-December 2016, Yahoo Shopping offered more items than any other
comparable site in Japan, reflecting a rise in the number of tenants. It seems that the
removal of payment fees in October 2013 has been a success. We expect gross
merchandising sales at Yahoo Shopping to rise 27.7% y-y in 17/3 and 29.9% in 18/3. We
think margins will improve steadily from 18/3 onwards as operating costs are kept in line
with growth in gross merchandise sales (Fig. 106).
Fig. 105: Gross merchandise sales and range of items
available at Yahoo Shopping
Fig. 106: Quarterly gross merchandise sales and promotional
costs at Yahoo Shopping
Larger merchandise range than at any other e-commerce site in Japan
Increasing gross merchandise sales while reining in costs
(¥bn)
0.3
Number of items available at Yahoo Shopping (lhs)
Gross merchandise sales at Yahoo Shopping (rhs)
(¥bn)
160
(¥bn)
Sales promotion costs (lhs)
20
(¥bn)
200
Shopping (rhs)
Nomura est
140
15
150
80
10
100
0.25
60
0.220.23
0.20
0.170.180.18
40
0.140.15
0.110.12
0.09
20
0.070.080.08
5
50
120
0.2
0.1
0.0
100
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
14/3
15/3
16/3
17/3 (FY)
Source: Nomura, based on company data
0
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
15/3
16/3
17/3
18/3E
(FY)
Source: Company data, Nomura estimates
Changes to reward points
The provision of reward points for Yahoo Premium members has a major bearing on
costs at Yahoo Shopping. In 2015, Yahoo Premium members received reward points
equivalent to 9% of their total purchases on Yahoo Shopping. Only 1% of this was
recouped from vendors, meaning that Yahoo Japan had to foot the remaining 8% itself.
Since 2016, Yahoo Japan has cut the reward point ratio for Premium members from 9%
to 5% and also raised the ratio charged to vendors from 1% to 2.5%, thereby reducing its
own liability from 8% to 2.5%. We think that Yahoo Shopping has turned profitable at the
gross profit level in 17/3. Our focus is on the way that growth in gross merchandise sales
has not slowed despite changes to reward point provision. This indicates that Yahoo
Shopping has started to attract a loyal customer base.
Possibility of efficient and effective promotional activities via partnership with
Softbank Group
Changes to reward point provision are not the only measure to have enabled Yahoo
Shopping to generate high gross merchandise sales while reining in costs. We also look
63
Nomura | Yahoo Japan
14 February 2017
for margins to benefit from a closer alliance with Softbank Group. Yahoo Shopping
spend among subscribers to Ymobile, which forms part of Softbank Group, more or less
tripled after a limited-period 10% reward points scheme for Ymobile users was
introduced in October 2016 (Fig. 107). As a result, Yahoo Japan decided to make this
campaign permanent, based on the view that the boost to gross merchandise sales
exceeded the money spent.
Fig. 107: Gross merchandise sales to Ymobile subscribers
Fig. 108: Outline of future sales promotion strategies
Spend roughly tripled following introduction of reward points scheme
Building on partnership with Softbank Group
Source: Nomura
Source: Nomura, based on company data
Campaigns for Softbank subscribers too
The partnership with Softbank Group has expanded to encompass Softbank mobile
subscribers as well as Ymobile subscribers. On 16 January, Softbank and Yahoo Japan
announced that they will be offering Softbank subscribers 10 times the normal number of
reward points (equivalent to a 10% discount) on Yahoo Shopping between 1 February
and 31 May. We think this scheme may also become permanent if it proves cost
effective. This would be a positive development from the perspective of improving
margins.
Potential measures
Yahoo Japan and Softbank Group have substantial customer assets at their disposal. To
give just one example, as of end-September there were around 5.6mn Yahoo broadband
subscribers using FTTH services supplied by Softbank. Yahoo Japan also has a user
base for Yahoo Auctions. Although it has not disclosed the number of users, we think
there must be a substantial number of them based on projected gross merchandise
sales of ¥902.9bn at Yahoo Auctions in 17/3. We think these users constitute an
excellent customer base for tie-ups with Yahoo Shopping, and look for further
promotional activities leveraging existing customer bases (Fig. 108). We think this is the
sort of promotional activity that only Yahoo Japan can carry out, and it constitutes an
effective way for it to differentiate itself from rivals.
Conclusion: positive changes for both advertising and shopping
As noted in our 2 December 2016 Global Research report Yahoo Japan (4689 JP) (Buy
from Neutral), we see good prospects for earnings from advertising operations,
particularly paid search advertising. We also see good prospects for e-commerce. We
see good prospects for both advertising and e-commerce operations at Yahoo Japan
from 17/3 onwards.
64
Nomura | Yahoo Japan
14 February 2017
Paid search advertising: positive changes in evidence in 17/3 Q3
Paid search advertising sales increased 6.0% y-y to ¥35.4bn in 17/3 Q3, marking a
positive growth rate from the 3.6% declined recorded in Q2. On our estimates, Q3 paid
search ad sales broke down as ¥17.6bn from smartphones (up 27.5% or ¥3.8bn) and
¥17.8bn from PCs (down 9.2% or ¥1.8bn).
Fig. 109: Yahoo Japan [4689]: quarterly paid search advertising sales
We expect return to sales growth from 17/3 Q4
(%)
10
7.2
7.8
8.6 8.5
8.1
6.0
5
3.4
1.9
0
0.8
Nomura est
-1.6
-2.1
-3.6
-5.5
-5
-10.2
-10
-15
-11.0
-12.8
Q1
Q2 Q3
15/3
Q4
Q1
Q2 Q3
16/3
Q4
Q1
Q2 Q3
17/3
Q4
Q1
Q2 Q3
18/3
Q4
Source: Company data, Nomura estimates
Similar changes at global search companies
Other online advertising companies around the world also appear to be seeing the
structural shift of smartphones overtaking PCs. Growth in search ad sales at Google of
the US and Korean company Naver has been accelerating since 2015. We think Yahoo
Japan has lagged this trend simply because the large size of its PC ad sales meant that
structural changes in the smartphone sphere did not come to the fore.
In our view, the stable growth in search ad sales from 17/3 Q3 reflects the start of a
virtuous cycle, in which growth in the number of searches on smartphones results in
more data being collected and improved relevancy in ads displayed, which in turn results
in a higher click-through rate, higher sales, and improved advertising efficiency, which
then attracts more advertisers.
Stable growth in premium ad sales on growth in shopping-related advertising
Our second point is for growth in shopping-related advertising. Shopping-related
advertising refers to ads for companies that have a presence on Yahoo Shopping (one of
the company’s so-called upfront investment-stage businesses) and that are shown on
the Yahoo Shopping site. This includes ItemMatch advertising, where the user is shown
product ads that match the merchandise or categories on the listing page. Yahoo Japan
categorizes shopping-related advertising under premium advertising, and we think
growth in shopping-related advertising (Fig. 110) will result in a turnaround from a
sustained decline in premium ad sales to stable growth (Fig. 111).
65
Nomura | Yahoo Japan
14 February 2017
Fig. 110: Shopping-related advertising and take rate
Fig. 111: Forecasting faster growth in premium advertising
sales
Shopping-related advertising starting to take off
We expect premium ad sales to stop falling and start rising
(¥bn)
6.8
90
Shopping-related advertising
sales (lhs)
80
6.3
20
10
40
79
2.2
30
4
5
3
0
64
1.5
51
1.1
2
40
28
10
0
6
15
3.6
50
20
25
5
4.5
60
(% y-y)
7
Y-y premium advertising sales
5.8
5.3
Take rate (%, rhs)
70
(%)
3
4
8
14/3
15/3
Act
16/3
-10
1
17
17/3
18/3
Source: Company data, Nomura estimates
19/3 20/3 21/3 22/3
Nomura est
(FY)
Nomura est
-5
0
-15
(FY)
-20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
15/3
16/3
17/3
18/3E
Source: Company data, Nomura estimates
Ongoing rise in ad sales to transaction value ratio (take rate) for Yahoo Shopping
Unlike rivals, Yahoo Shopping does not charge a flat commission rate based on sales.
Instead, it is monetized entirely by advertising. The take rate (shopping-related
advertising sales ÷ total transaction value at Yahoo Shopping) has risen steadily from
1.5% at end-15/3, to 2.2% at end-16/3, and 4.1% in 17/3 Q3.
We think the take rate will carry on rising (Fig. 110). This is because the rise in the
number of stores on Yahoo Shopping (Fig. 115) will likely encourage competition
between stores on the site and generate advertising demand. Moreover, we think that
once stores on the site start placing ads, they are unlikely to stop as they seek to
maintain sales. In addition, while the main advertising product at present is ItemMatch,
we think the company will come up with new products that leverage data from visitors to
Yahoo Japan, and forecast a sustained rise in the take rate.
Yahoo Shopping could turn from upfront investment-stage business to core
business again
Yahoo Japan has classified the shopping business as an upfront investment-stage
business. In 16/3, it awarded discount points worth up to 9% of purchase value to Yahoo
premium members under normal circumstances. However, it charged stores on the site
only 1%. It switched policy in 17/3, lowering its award to members to 5% but raising its
charge to site operators from 1% to 2.5%. By our calculations, this has reduced the cost
to Yahoo Japan of loyalty points from up to 8% in 16/3 (9% - 1%) to a maximum of 2.5%
in 17/3 (5% - 2.5%). We forecast a further rise in shopping-related advertising sales of
around ¥9bn in 18/3. We think Yahoo Shopping has already moved into the black at the
gross profit level in 17/3, and we expect a move into operating profits in 18/3.
66
Nomura | Yahoo Japan
14 February 2017
Fig. 112: Yahoo Japan [4689]: quarterly advertising sales
(¥mn, except where noted)
16/3
Q1
Total advertising-related revenues
% y-y
Display advertising
% y-y
Premium advertising
% y-y
Shopping-related advertising revenue
% y-y
Y-y change
Others
% y-y
Y-y change
YDN, other
% y-y
Search-linked advertising
% y-y
PCs
% y-y
Y-y change
Smartphones
% y-y
Y-y change
63,320
9.5%
27,100
29.7%
8,700
-8.4%
1,300
44.4%
400
7,400
-14.0%
-1,200
18,400
61.4%
36,200
-1.6%
22,300
-12.9%
-3,300
13,900
24.1%
2,700
Q2
Q3
Q4
17/3
Q1
Q2
65,758 66,089 71,742 65,384 69,475
8.6%
6.3%
3.5%
3.3%
5.7%
29,600 32,600 37,000 33,100 34,500
32.7% 31.5% 25.0% 22.1% 16.6%
8,000 10,200 11,200
8,400
8,800
-13.0%
1.0%
-1.8%
-3.4% 10.0%
1,400
3,000
2,600
2,900
3,100
75.0% 130.8% 136.4% 123.1% 121.4%
600
1,700
1,500
1,600
1,700
6,600
7,200
8,600
5,500
5,700
-21.4% -18.2% -16.5% -25.7% -13.6%
-1,800 -1,600 -1,700 -1,900
-900
21,500 22,400 25,800 24,600 25,700
64.1% 52.4% 42.5% 33.7% 19.5%
36,100 33,400 34,600 32,200 34,800
-5.5% -10.2% -12.8% -11.0%
-3.6%
21,200 19,600 19,300 17,000 17,600
-17.2% -20.3% -24.0% -23.8% -17.0%
-4,400 -5,000 -6,100 -5,300 -3,600
14,900 13,800 15,300 15,200 17,200
18.3%
9.5%
7.0%
9.4% 15.4%
2,300
1,200
1,000
1,300
2,300
Q3
Q4
Actual
E
72,967 76,400
10.4%
6.5%
37,500 39,300
15.0%
6.2%
12,000 12,000
17.6%
7.1%
5,800
5,400
93.3% 107.7%
2,800
2,800
6,200
6,600
-13.9% -23.3%
-1,000 -2,000
25,400 27,300
13.4%
5.8%
35,400 37,100
6.0%
7.2%
17,800 17,800
-9.2%
-7.8%
-1,800 -1,500
17,600 19,300
27.5% 26.1%
3,800
4,000
18/3
Q1
E
70,200
7.4%
35,500
7.3%
8,900
6.0%
5,300
82.8%
2,400
3,600
-34.5%
-1,900
26,600
8.1%
34,700
7.8%
15,500
-8.8%
-1,500
19,200
26.3%
4,000
Q2
E
77,200
11.1%
39,400
14.2%
10,700
21.6%
5,900
90.3%
2,800
4,800
-15.8%
-900
28,700
11.7%
37,800
8.6%
16,100
-8.5%
-1,500
21,700
26.2%
4,500
Q3
E
82,300
12.8%
43,900
17.1%
13,500
12.5%
8,300
43.1%
2,500
5,200
-16.1%
-1,000
30,400
19.7%
38,400
8.5%
16,300
-8.4%
-1,500
22,100
25.6%
4,500
Q4
E
86,600
13.4%
46,500
18.3%
13,200
10.0%
8,600
59.3%
3,200
4,600
-30.3%
-2,000
33,300
22.0%
40,100
8.1%
16,300
-8.4%
-1,500
23,800
23.3%
4,500
Note: (1) Sales breakdown estimated by Nomura. (2) Quarterly totals do not necessarily tally with full-year figures because of rounding.
Source: Company data, Nomura estimates
Fig. 113: Yahoo Japan [4689]: quarterly e-commerce transaction value
(¥mn, except where noted)
16/3
Q1
Domestic e-commerce transaction value
% y-y
Shopping-related
% y-y
Shopping
% y-y
Travel and others
% y-y
Auction-related
% y-y
ASKUL's BtoB-related revenue
% y-y
Q2
Q3
Q4
17/3
Q1
Q2
311,000 333,500 429,100 432,100 430,000 432,400
11.3% 18.5% 32.2% 41.6% 38.3% 29.7%
102,200 113,900 145,300 160,700 161,400 169,400
21.4% 27.3% 41.3% 67.2% 57.9% 48.7%
72,400 79,100 114,000 112,800 99,900 101,100
22.9% 30.1% 48.2% 61.8% 38.0% 27.8%
29,700 34,700 31,200 47,900 61,400 68,300
17.4% 20.9% 20.9% 82.1% 106.7% 96.8%
208,800 203,200 233,600 221,000 214,400 212,100
7.0%
5.8%
5.4%
5.7%
2.7%
4.4%
0 16,300 50,100 50,200 54,100 50,800
- 211.7%
Q3
Actual
503,900
17.4%
206,700
42.3%
140,700
23.4%
65,900
111.2%
242,100
3.6%
55,100
10.0%
Q4
E
487,100
12.7%
199,600
24.2%
141,700
25.6%
57,900
20.9%
234,300
6.0%
53,200
6.0%
18/3
Q1
E
485,000
12.8%
199,300
23.5%
129,900
30.0%
69,400
13.0%
227,300
6.0%
58,400
7.9%
Q2
E
492,600
13.9%
212,900
25.7%
136,600
35.1%
76,300
11.7%
224,800
6.0%
54,900
8.1%
Q3
E
571,400
13.4%
255,300
23.5%
181,400
28.9%
73,900
12.1%
256,600
6.0%
59,500
8.0%
Q4
E
551,800
13.3%
245,900
23.2%
180,000
27.0%
65,900
13.8%
248,400
6.0%
57,500
8.1%
Note: Shopping business is Yahoo!Shopping and Lohaco, the latter based on transaction value (books close on 20th of month) for Askul’s Lohaco business.
Source: Company data, Nomura estimates
67
Nomura | Yahoo Japan
14 February 2017
Fig. 114: Yahoo Japan [4689]: quarterly Yahoo! Shopping transaction value
(¥mn, except where noted)
16/3
Q1
Shopping transaction value
% y-y
Shopping-related advertising revenue
% y-y
Take rate
72,400
22.9%
1,300
44.4%
1.8%
Q2
Q3
Q4
79,100 114,000 112,800
30.1%
48.2%
61.8%
1,400
3,000
2,600
75.0% 130.8% 136.4%
1.8%
2.6%
2.3%
17/3
Q1
Q2
99,900 101,100
38.0%
27.8%
2,900
3,100
123.1% 121.4%
2.9%
3.1%
Q3
Q4
Actual
E
140,700 141,700
23.4%
25.6%
5,800
5,400
93.3% 107.7%
4.1%
3.8%
18/3
Q1
Q2
Q3
Q4
E
E
E
E
129,900 136,600 181,400 180,000
30.0%
35.1%
28.9%
27.0%
5,300
5,900
8,300
8,600
82.8%
90.3%
43.1%
59.3%
4.1%
4.3%
4.6%
4.8%
Note: (1) Shopping transaction value is the total for Yahoo!Shopping and Lohaco, the latter based on transaction value (books close on 20th of month) for Askul’s Lohaco
business. (2) Quarterly totals do not necessarily tally with full-year figures because of rounding.
Source: Company data, Nomura estimates
Fig. 115: Forecasts for tenant numbers at Yahoo Shopping
(¥mn, except where noted)
16/3
Q1
Shopping transaction value
% y-y
Term-end no of stores
% y-y
Net increase
Per-store transaction value (mth, ¥)
% y-y
Q2
Q3
Q4
17/3
Q1
Q2
72,400 79,100 114,000 112,800 99,900 101,100
22.9%
30.1%
48.2%
61.8%
38.0%
27.8%
317,778 346,888 374,812 399,333 423,519 447,214
136.4%
79.6%
53.7%
41.3%
33.3%
28.9%
35,241 29,110 27,924 24,521 24,186 23,695
75,944
-48.0%
76,009 101,384
-27.6%
-3.5%
94,157
14.5%
78,627
3.5%
75,355
-0.9%
Q3
Q4
Actual
E
140,700 141,700
23.4%
25.6%
481,621 501,621
28.5%
25.6%
34,407 20,000
97,379
-4.0%
94,157
0.0%
18/3
Q1
Q2
Q3
Q4
E
E
E
E
129,900 136,600 181,400 180,000
30.0%
35.1%
28.9%
27.0%
519,621 534,621 549,621 564,621
22.7%
19.5%
14.1%
12.6%
18,000 15,000 15,000 15,000
83,345
6.0%
85,152 110,039 106,256
13.0%
13.0%
12.9%
Source: Company data, Nomura estimates
68
Nomura | Yahoo Japan
14 February 2017
Fig. 116: Yahoo Japan [4689]: consolidated quarterly financial data
(¥mn, except where noted)
16/3
Q1
Sales
% y-y
Marketing solutions business
% y-y
Advertising
Business service
Personal service
Internal sales
Consumer business
% y-y
Advertising
Business service
Personal service
Internal sales
Other
Adjustments
COGS
Gross profits
% y-y
Gross margin (%)
SG&A expenses
As % of sales
Personnel expenses
Business commissions
Sales promotion costs
Depreciation expenses
Royalties
Content provider fees
Lease and utility expenses
Communication charges
Administrative and maintenance expenses
Packing and Freight
Other and adjustment
Revaluation gains from consolidation/other income
and expenses
Operating profits
% y-y
Operating margin (%)
Q2
Q3
17/3
Q1
Q4
Q2
110,576 138,295 196,426 207,028 204,260
10.6% 33.9% 82.6% 76.0% 84.7%
64,036 66,406 65,807 72,002 65,542
6.8%
5.5%
1.4%
-0.8%
2.4%
62,247 64,577 63,804 69,675 63,036
1,715
1,756
1,931
2,256
2,434
72
71
70
69
69
1
1
1
1
1
34,946 59,656 117,632 123,526 124,041
11.8% 89.4% 258.7% 273.3% 255.0%
1,062
1,187
2,596
2,303
2,643
9,717 32,071 81,348 86,366 84,997
22,336 24,451 31,753 32,925 34,795
1,830
1,945
1,932
1,931
1,605
14,346 15,110 16,196 14,637 17,449
-2,753 -2,877 -3,209 -3,137 -2,772
24,156 43,391 86,851 92,972 91,214
86,420 94,903 109,574 114,056 113,046
7.5% 15.0% 27.7% 21.0% 30.8%
78.2% 68.6% 55.8% 55.1% 55.3%
37,268 51,819 66,422 84,142 62,169
33.7% 37.5% 33.8% 40.6% 30.4%
12,110 15,293 16,526 20,543 18,085
4,775
5,626
8,289
9,334
8,876
3,803
8,789 12,276 16,614
5,049
4,746
5,708
7,850
8,876
8,107
3,009
3,109
3,196
3,335
3,289
1,593
1,908
1,708
2,154
1,816
2,267
2,744
3,884
3,955
4,196
1,425
1,565
1,683
1,886
1,816
1,019
1,092
1,341
1,309
1,457
30
1,185
3,708
3,554
4,083
2,491
4,800
5,961 12,582
5,395
-
205,335
48.5%
69,676
4.9%
66,906
2,699
68
1
122,108
104.7%
2,902
82,601
35,045
1,558
16,311
-2,761
89,741
115,593
21.8%
56.3%
66,084
32.2%
18,345
9,246
6,647
8,553
3,415
2,061
4,698
1,942
1,543
4,205
5,429
Q3
Q4
Actual
E
221,361 221,200
12.7%
6.8%
70,082 73,600
6.5%
2.2%
67,927 71,200
2,142
2,300
67
100
1
0
134,951 131,700
14.7%
6.6%
5,427
5,400
87,883 88,400
40,044 36,300
1,624
1,600
19,140 18,500
-2,867 -2,600
96,651 96,700
124,710 124,500
13.8%
9.2%
56.3% 56.3%
72,938 75,700
32.9% 34.2%
18,785 20,800
10,115
9,600
10,590 12,700
8,355
9,000
3,669
3,600
1,844
2,200
5,659
4,800
1,951
1,900
1,634
1,500
4,410
4,000
5,920
5,600
18/3
Q1
Q2
Q3
Q4
E
E
E
E
213,800 218,000 233,000 236,900
4.7%
6.2%
5.3%
7.1%
67,800 74,400 77,400 81,400
3.4%
6.8% 10.4% 10.6%
65,200 71,600 74,400 78,200
2,500
2,700
2,900
3,100
100
100
100
100
0
0
0
0
130,300 128,800 138,300 138,600
5.0%
5.5%
2.5%
5.2%
5,300
5,900
8,300
8,600
87,000 84,600 89,900 90,400
36,400 36,700 38,500 38,000
1,600
1,600
1,600
1,600
18,500 17,500 20,200 19,500
-2,800 -2,700 -2,900 -2,600
93,000 94,800 101,400 101,900
120,800 123,200 131,600 135,000
6.9%
6.6%
5.5%
8.4%
56.5% 56.5% 56.5% 57.0%
66,700 72,000 71,900 75,600
31.2% 33.0% 30.9% 31.9%
18,400 18,600 19,100 21,100
10,800 12,800
7,000
7,200
5,100
6,600 10,600 12,700
8,600
9,100
8,900
9,500
3,500
3,600
3,900
3,800
2,000
2,300
2,000
2,400
4,400
4,900
5,900
5,000
2,000
2,100
2,200
2,100
1,600
1,600
1,700
1,600
4,300
4,400
4,600
4,200
6,000
6,000
6,000
6,000
59,696
-
-
-
-
-
-
-
-
-
-
49,151 102,780
0.8% 123.2%
44.4% 74.3%
43,151
-13.7%
22.0%
29,914
-42.9%
14.4%
50,877
3.5%
24.9%
49,508
-51.8%
24.1%
51,772
20.0%
23.4%
48,800
63.1%
22.1%
54,100
6.3%
25.3%
51,200
3.4%
23.5%
59,700
15.3%
25.6%
59,400
21.7%
25.1%
Source: Company data, Nomura estimates
69
Nomura | Yahoo Japan
14 February 2017
Fig. 117: Yahoo Japan [4689]: advertising sales
(¥mn, except where noted)
Total advertising-related revenues
% y-y
Display advertising
% y-y
Premium advertising
% y-y
Shopping-related advertising revenue
% y-y
Y-y change
Others
% y-y
Y-y change
YDN, other
% y-y
Search-linked advertising
% y-y
PCs
% y-y
Y-y change
Smartphones
% y-y
Y-y change
14/3
232,530
81,700
47,000
2,700
44,300
34,600
150,800
-
15/3
249,828
7.4%
97,700
19.6%
40,200
-14.5%
4,100
51.9%
1,400
36,100
-18.5%
-8,200
57,400
65.9%
152,000
0.8%
101,200
50,700
-
16/3
266,911
6.8%
126,400
29.4%
38,100
-5.2%
8,300
102.4%
4,200
29,800
-17.5%
-6,300
88,200
53.7%
140,400
-7.6%
82,400
-18.6%
-18,800
57,900
14.2%
7,200
17/3E
283,700
6.3%
144,200
14.1%
41,200
8.1%
17,200
107.2%
8,900
24,000
-19.5%
-5,800
103,000
16.8%
139,500
-0.6%
70,200
-14.8%
-12,200
69,300
19.7%
11,400
18/3E
316,300
11.5%
165,300
14.6%
46,300
12.4%
28,100
63.4%
10,900
18,200
-24.2%
-5,800
119,000
15.5%
151,000
8.2%
64,200
-8.5%
-6,000
86,800
25.3%
17,500
19/3E
352,400
11.4%
189,400
14.6%
54,400
17.5%
40,200
43.1%
12,100
14,200
-22.0%
-4,000
135,000
13.4%
163,000
7.9%
58,200
-9.3%
-6,000
104,800
20.7%
18,000
20/3E
387,600
10.0%
211,600
11.7%
62,600
15.1%
51,400
27.9%
11,200
11,200
-21.1%
-3,000
149,000
10.4%
176,000
8.0%
53,200
-8.6%
-5,000
122,800
17.2%
18,000
21/3E
427,300
10.2%
237,300
12.1%
72,300
15.5%
64,100
24.7%
12,700
8,200
-26.8%
-3,000
165,000
10.7%
190,000
8.0%
49,200
-7.5%
-4,000
140,800
14.7%
18,000
22/3E
472,000
10.5%
267,000
12.5%
84,000
16.2%
78,800
22.9%
14,700
5,200
-36.6%
-3,000
183,000
10.9%
205,000
7.9%
46,200
-6.1%
-3,000
158,800
12.8%
18,000
Note: (1) Sales breakdown estimated by Nomura. (2) Quarterly totals do not necessarily tally with full-year figures because of rounding, with a maximum error of ¥0.1bn.
Source: Company data, Nomura estimates
Fig. 118: Yahoo Japan [4689]: e-commerce transaction value
(¥mn, except where noted)
Domestic e-commerce transaction value
% y-y
Shopping-related
% y-y
Shopping
% y-y
Travel and others
% y-y
Auction-related
% y-y
ASKUL's BtoB-related revenue
% y-y
14/3
1,106,900
353,700
250,900
102,800
753,200
-
15/3
1,190,800
7.6%
372,700
5.4%
266,300
6.1%
106,300
3.4%
818,100
8.6%
-
16/3
1,505,900
26.5%
522,300
40.1%
378,600
42.2%
143,700
35.2%
866,700
5.9%
116,800
-
17/3E
1,853,000
23.0%
736,900
41.1%
483,400
27.7%
253,500
76.4%
902,900
4.2%
213,200
82.5%
18/3E
2,100,800
13.4%
913,400
24.0%
627,900
29.9%
285,500
12.6%
957,100
6.0%
230,300
8.0%
19/3E
2,329,400
10.9%
1,068,500
17.0%
755,000
20.2%
313,500
9.8%
1,014,500
6.0%
246,400
7.0%
20/3E
2,558,300
9.8%
1,221,700
14.3%
883,200
20.2%
338,500
9.8%
1,075,400
6.0%
261,200
6.0%
21/3E
2,794,300
9.2%
1,377,500
12.8%
1,014,000
17.0%
363,500
8.0%
1,139,900
6.0%
276,900
6.0%
22/3E
3,044,600
9.0%
1,542,800
12.0%
1,154,300
14.8%
388,500
7.4%
1,208,300
6.0%
293,500
6.0%
Note: Shopping transaction value is the total for Yahoo Shopping and Lohaco, the latter based on transaction value (books close on 20th of month) for Askul’s Lohaco business.
Source: Company data, Nomura estimates
70
Nomura | Yahoo Japan
14 February 2017
Fig. 119: Yahoo Japan [4689]: consolidated income statement
(¥mn, except where noted)
Sales
% y-y
Marketing solutions business
% y-y
Advertising
Business service
Personal service
Internal sales
Consumer business
% y-y
Advertising
Business service
Personal service
Internal sales
Other
Adjustments
COGS
Gross profits
% y-y
Gross margin (%)
SG&A expenses
As % of sales
Personnel expenses
Business commissions
Sales promotion costs
Depreciation expenses
Royalties
Content provider fees
Lease and utility expenses
Communication charges
Administrative and maintenance expenses
Packing and Freight
Other and adjustment
Revaluation gains from consolidation/other
income and expenses
Operating profits
% y-y
Operating margin (%)
Net other nonoperating income
Pretax profits
Corporation tax, etc
Tax rate (%)
Net profits
Noncontrolling interests
Profits attributable to owners of parent
Shares out (FY-avg, mn)
Basic EPS (¥)
BPS (¥)
DPS (¥)
14/3
408,514
283,088
229,097
38,810
14,971
208
104,838
4,276
25,376
72,170
3,014
28,530
-7,942
75,860
332,653
81.4%
136,215
33.3%
45,687
16,721
14,113
10,817
11,225
8,734
7,346
5,985
2,869
0
12,718
15/3
428,487
4.9%
260,397
-8.0%
246,327
7,553
6,440
69
128,638
22.7%
3,485
37,035
82,734
5,375
48,226
-8,777
85,501
342,986
3.1%
80.0%
145,774
34.0%
48,618
18,123
15,266
13,940
11,604
11,310
9,137
5,605
3,685
50
8,436
16/3
652,327
52.2%
277,329
6.5%
260,199
8,252
7,034
1,842
326,356
153.7%
7,255
208,930
104,716
5,453
60,226
-11,584
247,372
404,955
18.1%
62.1%
239,653
36.7%
64,472
28,024
41,482
27,180
12,649
7,363
12,850
6,559
4,761
8,477
8,532
17/3E
852,200
30.6%
279,000
0.6%
269,100
9,600
300
0
512,900
57.2%
16,400
343,900
146,200
6,400
71,300
-11,000
374,400
477,800
18.0%
56.1%
276,800
32.5%
76,000
37,800
35,000
34,000
14,000
7,900
19,400
7,600
6,100
16,700
22,300
18/3E
901,700
5.8%
301,000
7.9%
289,400
11,200
400
0
536,000
4.5%
28,100
351,900
149,600
6,400
75,700
-11,000
391,100
510,600
6.9%
56.6%
286,200
31.7%
77,200
37,800
35,000
36,100
14,800
8,700
20,200
8,400
6,500
17,500
24,000
19/3E
20/3E
21/3E
22/3E
960,000 1,020,200 1,082,200 1,149,600
6.5%
6.3%
6.1%
6.2%
328,200 352,700 380,200 410,700
9.0%
7.5%
7.8%
8.0%
313,400 337,400 364,400 394,400
14,400
14,900
15,400
15,900
400
400
400
400
0
0
0
0
563,100 596,800 629,300 664,200
5.1%
6.0%
5.4%
5.5%
40,200
51,400
64,100
78,800
359,900 376,100 389,600 403,200
156,600 161,900 167,200 172,800
6,400
7,400
8,400
9,400
79,700
81,700
83,700
85,700
-11,000 -11,000 -11,000
-11,000
410,300 427,900 445,200 463,700
549,700 592,300 637,000 685,900
7.7%
7.7%
7.5%
7.7%
57.3%
58.1%
58.9%
59.7%
296,200 306,400 315,800 325,500
30.9%
30.0%
29.2%
28.3%
78,400
79,400
80,400
81,400
37,800
37,800
37,800
37,800
35,000
35,300
35,500
35,800
38,100
38,700
38,700
38,700
15,600
16,400
16,800
17,200
9,500
10,500
11,500
12,500
21,000
21,400
21,400
21,400
9,200
9,700
9,700
9,700
7,300
8,100
8,100
8,100
18,300
19,100
19,900
19,900
26,000
30,000
36,000
43,000
-
-
59,696
-
-
-
-
-
-
196,437
48.1%
11,880
208,224
78,555
37.7%
129,667
1,062
128,605
5,733
22.4
108.8
4.4
197,212
0.4%
46.0%
9,413
208,298
74,365
35.7%
133,933
881
133,051
5,693
23.4
127.5
8.9
224,997
14.1%
34.5%
270
226,585
54,092
23.9%
172,492
875
171,617
5,692
30.2
148.3
8.9
201,000
-10.7%
23.6%
300
202,600
64,100
31.6%
138,500
1,400
137,100
5,692
24.1
163.5
8.9
224,400
11.6%
24.9%
300
226,000
67,000
29.6%
159,000
1,500
157,500
5,692
27.7
182.3
8.9
253,500
13.0%
26.4%
300
255,100
75,600
29.6%
179,500
1,600
177,900
5,692
31.3
204.7
8.9
285,900
12.8%
28.0%
300
287,500
85,200
29.6%
202,300
1,700
200,600
5,692
35.2
231.1
8.9
321,200
12.3%
29.7%
300
322,800
95,700
29.6%
227,100
1,800
225,300
5,692
39.6
261.9
8.9
360,400
12.2%
31.4%
300
362,000
107,300
29.6%
254,700
1,800
252,900
5,692
44.4
297.4
8.9
Source: Company data, Nomura estimates
71
Nomura | Yahoo Japan
14 February 2017
Fig. 120: Yahoo Japan [4689]: consolidated balance sheet
(¥mn)
Current assets
Cash & deposits
Accounts receivable
Other financial assets
Other current assets
Long-term assets
Property and equipment
Goodwill
Intangible assets
Investments accounted for using the equity method
Other financial assets
Deferred tax assets
Other
Total assets
Current liabilities
Accounts payable—trade
Other financial liabilities
Unpaid corporate income tax
Provisions
Other
Long-term liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Other
Total liabilities
Total equity
Noncontrolling interests
Total equity attributable to owners of parent
Total liabilities & net assets
14/3
658,706
482,336
160,396
12,313
3,661
191,281
60,145
15,808
17,860
34,364
49,532
12,468
1,104
849,987
218,335
142,562
5,108
45,655
2,951
22,059
3,933
128
2,655
37
1,113
222,269
627,718
8,036
619,682
849,987
15/3
741,827
503,937
217,736
15,901
4,253
265,774
67,465
27,673
32,382
61,671
58,104
15,105
3,374
1,007,602
239,772
158,979
9,671
33,071
6,398
31,653
27,276
920
22,841
28
3,487
267,048
740,554
14,551
726,002
1,007,602
16/3
806,380
449,164
305,758
30,118
21,340
536,419
121,133
156,362
128,711
34,257
70,321
23,331
2,304
1,342,799
366,022
270,766
18,287
30,782
12,547
33,640
64,012
10,562
20,089
27,515
5,846
430,035
912,764
68,598
844,165
1,342,799
17/3E
918,500
521,300
345,800
30,100
21,300
547,400
132,100
156,400
128,700
34,300
70,300
23,300
2,300
1,465,900
401,000
305,800
18,300
30,800
12,500
33,600
64,000
10,600
20,100
27,500
5,800
465,000
1,000,900
70,000
930,900
1,465,900
18/3E
1,053,200
616,000
385,800
30,100
21,300
556,300
141,000
156,400
128,700
34,300
70,300
23,300
2,300
1,609,500
436,000
340,800
18,300
30,800
12,500
33,600
64,000
10,600
20,100
27,500
5,800
500,000
1,109,500
71,500
1,038,000
1,609,500
19/3E
1,210,400
733,200
425,800
30,100
21,300
563,200
147,900
156,400
128,700
34,300
70,300
23,300
2,300
1,773,600
471,000
375,800
18,300
30,800
12,500
33,600
64,000
10,600
20,100
27,500
5,800
535,000
1,238,600
73,100
1,165,500
1,773,600
20/3E
1,401,000
883,800
465,800
30,100
21,300
559,500
144,200
156,400
128,700
34,300
70,300
23,300
2,300
1,960,500
506,000
410,800
18,300
30,800
12,500
33,600
64,000
10,600
20,100
27,500
5,800
570,000
1,390,500
74,800
1,315,700
1,960,500
21/3E
1,616,400
1,059,200
505,800
30,100
21,300
555,800
140,500
156,400
128,700
34,300
70,300
23,300
2,300
2,172,200
541,000
445,800
18,300
30,800
12,500
33,600
64,000
10,600
20,100
27,500
5,800
605,000
1,567,200
76,600
1,490,600
2,172,200
22/3E
1,859,400
1,262,200
545,800
30,100
21,300
552,100
136,800
156,400
128,700
34,300
70,300
23,300
2,300
2,411,500
576,000
480,800
18,300
30,800
12,500
33,600
64,000
10,600
20,100
27,500
5,800
640,000
1,771,500
78,400
1,693,100
2,411,500
16/3
105,409
226,585
30,697
657
-39,865
40,522
-66,361
-110,537
-29,254
-17,343
-49,357
0
-50,398
-5,128
-54,773
17/3E
172,500
202,600
39,000
-5,000
-40,000
35,000
-64,100
-50,000
-50,000
0
-50,400
0
-50,400
122,500
72,100
18/3E
195,100
226,000
41,100
-5,000
-40,000
35,000
-67,000
-50,000
-50,000
0
-50,400
0
-50,400
145,100
94,700
19/3E
217,600
255,100
43,100
-5,000
-40,000
35,000
-75,600
-50,000
-50,000
0
-50,400
0
-50,400
167,600
117,200
20/3E
241,000
287,500
43,700
-5,000
-40,000
35,000
-85,200
-40,000
-40,000
0
-50,400
0
-50,400
201,000
150,600
21/3E
265,800
322,800
43,700
-5,000
-40,000
35,000
-95,700
-40,000
-40,000
0
-50,400
0
-50,400
225,800
175,400
22/3E
293,400
362,000
43,700
-5,000
-40,000
35,000
-107,300
-40,000
-40,000
0
-50,400
0
-50,400
253,400
203,000
Source: Company data, Nomura estimates
Fig. 121: Yahoo Japan [4689]: consolidated cash flow
(¥mn)
Operating cash flow
Pretax profits
Depreciation
Change in working capital
Change in inventory assets
Change in accounts receivable
Corporation tax paid
Investment cash flow
Expenditures on property and equipment
Expenditures on investment securities
Financial cash flow
Treasury stock
Dividends
Free cash flow
Change in cash
14/3
132,793
208,224
13,452
4,881
-16,325
21,206
-76,526
-7,274
-19,747
-7,031
-53,129
-29,999
-23,035
125,519
72,748
15/3
126,239
208,298
16,935
-6,735
-22,535
15,800
-83,190
-67,864
-17,096
-20,977
-37,166
-794
-25,204
58,375
21,600
Note: Change in working capital here is defined differently from that on page 2. Estimated change in working capital figures and change in interest-bearing debt may also differ
from those on page 2 because of rounding.
Source: Company data, Nomura estimates
72
Nomura | Yahoo Japan
14 February 2017
Fig. 122: Yahoo Japan [4689]: Yahoo! Shopping transaction value
(¥mn, except where noted)
Shopping transaction value
% y-y
Shopping-related advertising revenue
% y-y
Take rate
14/3
250,900
2,700
1.1%
15/3
266,300
6.1%
4,100
51.9%
1.5%
16/3
378,600
42.2%
8,300
102.4%
2.2%
17/3E
483,400
27.7%
17,200
107.2%
3.6%
18/3E
627,900
29.9%
28,100
63.4%
4.5%
19/3E
755,000
20.2%
40,200
43.1%
5.3%
20/3E
21/3E
22/3E
883,200 1,014,000 1,154,300
17.0%
14.8%
13.8%
51,400
64,100
78,800
27.9%
24.7%
22.9%
5.8%
6.3%
6.8%
Note: Shopping transaction value is the total for Yahoo Shopping and Lohaco, the latter based on transaction value (books close on 20th of month) for Askul’s Lohaco business.
Source: Company data, Nomura estimates
Fig. 123: Forecasts for tenant numbers at Yahoo Shopping
(¥mn, except where noted)
Shopping transaction value
% y-y
Term-end no of stores
% y-y
Net increase
Per-store transaction value (mth, ¥)
% y-y
14/3
250,900
78,307
57,770
267,005
-
15/3
266,300
6.1%
282,537
260.8%
204,230
78,544
-70.6%
16/3
378,600
42.2%
399,333
41.3%
116,796
79,007
0.6%
17/3E
483,400
27.7%
501,621
25.6%
102,288
80,306
1.6%
18/3E
627,900
29.9%
541,621
8.0%
40,000
96,608
20.3%
19/3E
755,000
20.2%
571,621
5.5%
30,000
110,100
14.0%
20/3E
21/3E
22/3E
883,200 1,014,000 1,154,300
17.0%
14.8%
13.8%
591,621
606,621
616,621
3.5%
2.5%
1.6%
20,000
15,000
10,000
124,400
139,300
156,000
13.0%
12.0%
12.0%
Source: Company data, Nomura estimates
73
Alibaba Group Holding
BABA.N BABA US
EQUITY: INTERNET & NEW MEDIA
Dominant e-commerce giant
Global Markets Research
Maintain Buy with USD133 target price
14 February 2017
Rating
Remains
China commerce retail – To unveil monetisation potential
Alibaba reported better-than-expected 3QFY17 revenues (+54% y-y), above
consensus by 6%, driven by higher China commerce retail revenue (+42%
y-y). We expect China commerce retail to continue this trend, driven by
ongoing rising monetisation capability and resilient growth of GMV, thanks to
increasing volume of clicks and better conversion rates from online marketing
and stable average commission rates. We believe through providing more and
better marketing services and products, Alibaba will likely effectively
incentivise increasing advertising spend from merchants, boosting online
marketing revenue.
FY16
Actual
Revenue (mn)
FY17F
Old
New
FY18F
Old
New
Vanessa Liu - NIHK
[email protected]
+852 2252 1431
New
101,143 156,641 156,641 206,682 206,682 251,185 251,185
39,597
51,445
51,445
65,676
65,676
Normalised net profit (mn)
42,912
60,138
60,138
70,437
70,437
86,040
86,040
16.75
23.41
23.41
27.39
27.39
33.44
33.44
19.9
39.8
39.8
17.0
17.0
22.1
22.1
FD normalised P/E (x)
39.4
N/A
29.7
N/A
26.2
N/A
21.5
EV/EBITDA (x)
26.7
N/A
18.3
N/A
14.3
N/A
11.4
Price/book (x)
7.5
N/A
6.4
N/A
5.3
N/A
4.3
ROE (%)
Net debt/equity (%)
+29.9%
Andrew Orchard - NIHK
[email protected]
+852 2252 1400
39,597
Dividend yield (%)
Potential upside
Jialong Shi - NIHK
[email protected]
+852 2252 1409
71,460
FD norm. EPS growth (%)
USD 102.36
China Internet & New Media
Reported net profit (mn)
FD normalised EPS
Closing price
10 February 2017
Research analysts
FY19F
Old
USD 133.00
Nomura vs consensus
Our FY17/18F non-GAAP EPS
are below consensus owing to
more conservative operating
margin forecasts.
Maintain Buy with USD133 target price (with 30% upside)
We maintain our Buy rating with USD133 target price unchanged. The stock
trades at 26x CY2017 P/E. Our TP is based on SOPV methodology; we
value Alibaba’s core commerce business at USD291bn, or USD113/share,
based on 21X CY17 EV/EBIT, and the cloud business at USD6.7bn based on
5x CY17 sales. The benchmark index for this stock is MSCI China.
Currency (CNY)
Target Price
Remains
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateways
and provide an end-to-end
ecosystem.
Cloud service – Gaining market share
Alibaba’s cloud service has seen strong revenue growth of over 100% y-y in
the past year, driven by customer growth. Alibaba cut prices for its core cloud
services by up to 50% for customers with three-year contracts in late 2016.
We think this price cut is a pre-emptive move in view of growing competition
from new entrants such as Tencent (700 HK), AWS (Amazon Web Services)
and Microsoft Azure, in order to gain more market share in a fast-growing
market. The increasing operating leverage for Alibaba’s cloud business gives
it steep leeway on pricing. But we are also wary of margin pressure from
potentially growing competition.
Year-end 31 Mar
Buy
na
N/A
na
N/A
na
N/A
na
39.3
16.3
16.3
17.1
17.1
17.6
17.6
Carson Lo, CFA - NIHK
[email protected]
+852 2252 1552
net cash net cash net cash net cash net cash net cash net cash
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Alibaba Group Holding
14 February 2017
Key data on Alibaba Group Holding
Relative performance chart
Cashflow statement (CNYmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (USD)
Absolute (USD)
Rel to MSCI China
1M
5.8
5.8
0.9
3M
8.5
8.5
2.9
12M
65.7
65.7
39.2
M cap (USDmn)
253,231.3
Free float (%)
15.0
3-mth ADT (USDmn)
1,030.5
FY15
FY16
FY17F
FY18F
FY19F
76,204 101,143 156,641 206,682 251,185
-23,834 -34,355 -59,710 -81,809 -101,895
52,370 66,788
96,931 124,872 149,290
-20,383 -25,607 -37,037 -45,147 -51,872
-8,852 -12,079 -12,176 -12,616 -12,616
23,135
29,102
47,718
67,110
84,802
27,550
35,803
57,783
79,976
99,937
-2,326
-3,770
-5,525
-6,877
-7,856
-2,089
-2,931
-4,539
-5,989
-7,279
23,135
29,102
47,718
67,110
84,802
334
2,574
-2,745
-3,776
-3,776
8,857
32,326
-6,416
25,910
-59
9,071
49,792
81,468
-8,449
73,019
171
-30,278
9,277
54,250
-11,622
42,628
2,352
15,158
5,619
68,952
-14,139
54,813
1,632
13,992
5,942
86,969
-17,925
69,044
1,632
15,365
34,922
-10,773
24,149
42,912
28,548
71,460
60,138
-20,541
39,597
70,437
-18,992
51,445
86,040
-20,365
65,676
24,149
71,460
39,597
51,445
65,676
61.3
42.4
45.3
na
38.4
10.1
41.9
49.8
68.7
36.2
30.4
31.7
19.8
0.0
27.5
20.5
22.7
37.8
39.4
na
29.8
7.5
26.7
32.9
66.0
35.4
28.8
70.7
10.4
0.0
39.3
14.4
43.5
28.7
29.7
na
23.1
6.4
18.3
22.2
61.9
36.9
30.5
25.3
21.4
0.0
16.3
18.3
34.6
25.3
26.2
na
24.1
5.3
14.3
17.1
60.4
38.7
32.5
24.9
20.5
0.0
17.1
24.4
27.2
20.8
21.5
na
15.8
4.3
11.4
13.5
59.4
39.8
33.8
26.1
20.6
0.0
17.6
29.3
45.1
3.7
15.3
15.6
32.7
30.0
16.8
19.9
54.9
61.4
38.9
39.8
31.9
38.4
16.9
17.0
21.5
25.0
22.1
22.1
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
FY15
27,550
12,471
1,196
41,217
6,904
48,121
-28,736
FY16
35,803
6,318
14,715
56,836
-5,557
51,279
-61,966
FY17F
57,783
17,661
1,703
77,147
-16,796
60,351
0
-3,443
4,452
-32,631
-12,237
0
61,708
26,044
-1,693
1,967
24,418
14,005
0
693
2,478
0
0
0
60,351
0
0
0
FY18F
FY19F
79,976
99,937
1,041
25,212
-4,681
-8,142
76,336 117,006
-22,161 -26,933
54,175
90,073
0
0
0
0
0
54,175
0
0
0
0
0
0
90,073
0
0
0
-367 -18,551
0
0
0
87,385 -15,380
0
0
0
75,148
-1,375
60,351
54,175
90,073
33,045 108,193 106,818 167,169 221,344
108,193 106,818 167,169 221,344 311,417
-55,600 -49,047 -109,398 -163,573 -253,646
Balance sheet (CNYmn)
Income statement (CNYmn)
Year-end 31 Mar
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minorities
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Year-end 31 Mar
EBITDA
Change in working capital
Other operating cashflow
CF from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
Source: Company data, Nomura estimates
As at 31 Mar
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
FY15
FY16
FY17F
FY18F
FY19F
108,193 106,818 167,169 221,344 311,417
16,445
6,046
6,046
6,046
6,046
835
0
0
0
0
16,636
21,206
21,482
32,174
29,860
142,109 134,070 194,697 259,564 347,324
48,488 120,853 120,853 120,853 120,853
9,139
13,629
24,899
40,184
59,261
41,933
81,645
81,645
81,645
81,645
6,575
5,370
831
-5,159 -12,438
7,190
8,883
8,883
8,883
8,883
255,434 364,450 431,809 505,970 605,528
1,990
4,304
4,304
4,304
4,304
19,834
27,334
35,534
42,641
46,905
17,848
20,401
30,138
34,764
53,398
39,672
52,039
69,976
81,709 104,607
50,603
53,467
53,467
53,467
53,467
7,088
9,055
9,055
9,055
9,055
97,363 114,561 132,498 144,231 167,129
11,974
32,552
30,200
28,568
26,936
0
0
0
0
0
118,953 134,741 134,741 134,741 134,741
24,842
78,752 130,525 194,586 272,878
2,302
3,844
3,844
3,844
3,844
146,097 217,337 269,110 333,171 411,463
255,434 364,450 431,809 505,970 605,528
Liquidity (x)
Current ratio
Interest cover
3.58
na
2.58
na
2.78
17.4
3.18
17.8
3.32
22.5
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
net cash net cash net cash net cash net cash
net cash net cash net cash net cash net cash
Per share
Reported EPS (CNY)
Norm EPS (CNY)
FD norm EPS (CNY)
BVPS (CNY)
DPS (CNY)
10.33
14.94
13.97
62.51
0.00
29.07
17.46
16.75
88.42
0.00
15.97
24.25
23.41
108.50
0.00
20.70
28.34
27.39
134.04
0.00
26.41
34.60
33.44
165.47
0.00
33.5
1.5
0.0
251.3
-249.7
0.0
0.0
192.2
-192.2
0.0
0.0
174.4
-174.4
0.0
0.0
160.4
-160.4
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
242.9
-209.4
Source: Company data, Nomura estimates
75
Naver Corporation 035420.KS
035420 KS
EQUITY: INTERNET & NEW MEDIA
Shopping is key to advertising growth
Global Markets Research
Dominant positioning in two secular trends:
e-commerce and video
14 February 2017
Rating
Remains
Action: Reiterate Buy, with TP trimmed to KRW950,000 reflecting LINE
We revise down our 2017/18F EPS by 12%/11% and SOTP-based TP by 5%,
as we factor in LINE’s weak performance advertising. Yet, we estimate
Naver’s consolidated EPS to see 30% CAGR until 2018F, attributable to the
standalone parent company’s shopping advertising revenue growth as well as
LINE’s normalising stock-based compensation to employees. For the parent
company in particular, we expect key growth drivers to be Naver Shopping
and Naver Pay which will likely generate 23% of revenue by 2018F from 14%
in 2017, and help reaccelerate advertising business.
FY15
Actual
Old
New
Old
New
Old
New
Revenue (bn)
3,254
4,137
4,023
4,871
4,556
5,458
5,173
519
859
763
1,223
1,076
1,479
1,306
596
874
775
1,223
1,076
1,479
1,306
23,762
21,054
33,019
29,048
39,579
34,965
39.5
46.4
29.7
39.0
38.0
19.9
20.4
FD normalised P/E (x)
49.0
N/A
37.8
N/A
27.4
N/A
22.7
EV/EBITDA (x)
25.7
N/A
19.4
N/A
14.9
N/A
12.0
Price/book (x)
10.9
N/A
6.4
N/A
5.1
N/A
4.1
Dividend yield (%)
ROE (%)
Net debt/equity (%)
+19.5%
FY18F
16,231
FD norm. EPS growth (%)
Potential upside
Angela Hong - NFIK
[email protected]
+82 2 3783 2360
Year-end 31 Dec
FD normalised EPS
KRW 795,000
South Korea Internet & New Media
Currency (KRW)
Normalised net profit (bn)
Closing price
10 February 2017
Research analysts
Valuation: SOTP-based TP KRW950,000 implies 23x 2017F PE
Our fair value of Naver at KRW31tn comprises four components: 1) the standalone parent company in Korea (KRW21tn); 2) a 72.8% stake in LINE
(KRW6.3tn); 3) cash holdings at the stand-alone parent company discounted
by 20% (KRW1.6tn); and 4) Snow (KRW3tn). Key downside risk to our TP is
emergence of a market-dominant e-commerce player and people skipping
price comparison on Naver.
Reported net profit (bn)
KRW 950,000
Nomura vs consensus
Our 2017/18F NP is 9%/12%
above consensus, as we are
bullish about advertising revenue
growth and accelerating interest
income generated by net cash.
We think Snow will be ready to start monetisation by end-2017 or 1H18
We estimate Snow MAU to reach 163mn by end-2017. Considering LINE
started real-time bidding for ads when its global MAU was 220mn and MAU of
key four countries was 157mn, we estimate LINE to start monetisation in late
2017 or 1H18. With the March IPO of Snapchat worth USD25bn, we expect
investors to gradually appreciate Snow’s value, which we estimate at KRW3tn.
FY17F
Target Price
From 1,000,000
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateway and
provide end-to-end ecosystem.
Catalyst: Naver Shopping revenue to grow 49% CAGR until 2018F
Amid heated e-commerce competition, we expect consumers to prefer
shopping on search engines where they can compare prices of various ecommerce platforms. We estimate Korea’s e-commerce traffic that goes
through Naver to be 15% in 2016. In 2018, we estimate this to increase to
19% thanks to the convenience of Naver Pay and reward points. As such, we
expect Naver Shopping revenue to see 49% CAGR until 2018F.
FY16F
Buy
0.1
N/A
0.1
N/A
0.2
N/A
0.2
26.5
28.9
26.6
28.4
26.6
27.3
26.1
net cash net cash net cash net cash net cash net cash net cash
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Naver Corporation
14 February 2017
Key data on Naver Corporation
Relative performance chart
Cashflow statement (KRWbn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (KRW)
Absolute (USD)
Rel to MSCI Korea
1M
0.4
4.3
-1.9
3M
-1.4
-1.4
-9.0
12M
32.7
38.1
14.4
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
22,798.8
72.0
54.9
FY14
2,758
0
2,758
-1,971
-29
758
897
-139
FY15
3,254
0
3,254
-2,319
-105
830
983
-153
FY16F
4,023
0
4,023
-2,819
-102
1,102
1,265
-163
FY17F
4,556
0
4,556
-3,119
-21
1,417
1,590
-174
FY18F
5,173
0
5,173
-3,441
-21
1,711
1,898
-187
758
17
-1
-115
659
-237
422
3
830
22
-2
-28
823
-229
594
2
1,102
29
-4
5
1,132
-353
779
-4
1,417
51
-4
-2
1,461
-380
1,081
-6
1,711
66
-4
0
1,772
-461
1,311
-6
424
30
454
-23
431
596
-77
519
-32
487
775
-12
763
-33
730
1,076
0
1,076
-45
1,031
1,306
0
1,306
-52
1,253
57.7
61.8
68.3
0.1
34.6
13.0
28.5
33.7
100.0
32.5
27.5
16.5
36.0
5.1
27.8
35.8
50.5
44.0
49.0
0.1
34.1
10.9
25.7
30.5
100.0
30.2
25.5
15.9
27.8
6.2
26.5
33.8
34.4
33.8
37.8
0.1
31.2
6.4
19.4
22.3
100.0
31.4
27.4
19.0
31.2
4.3
26.6
36.3
24.4
24.4
27.4
0.2
21.8
5.1
14.9
16.7
100.0
34.9
31.1
23.6
26.0
4.2
26.6
41.2
20.1
20.1
22.7
0.2
18.9
4.1
12.0
13.3
100.0
36.7
33.1
25.2
26.0
4.0
26.1
47.5
22.1
43.7
31.1
31.1
18.0
9.6
40.5
39.5
23.6
28.7
30.0
29.7
13.3
25.7
38.9
38.0
13.5
19.3
21.4
20.4
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
FY14
897
153
-214
837
-266
570
92
FY15
983
201
-328
856
-134
723
-152
FY16F
1,265
-125
-201
939
-201
737
-31
FY17F
1,590
-11
-228
1,352
-228
1,124
-55
FY18F
1,898
-72
-259
1,568
-259
1,309
-60
10
-6
-266
400
-22
0
158
-178
9
-336
66
-23
0
187
-402
-89
503
717
-32
0
30
61
-46
20
1,104
-33
0
-6
-93
112
20
1,289
-45
0
2
-141
-5
395
731
1,126
-670
390
554
619
1,126
1,745
-1,078
509
507
1,224
1,745
2,969
-2,290
-277
-315
789
2,969
3,758
-3,143
-343
-386
903
3,758
4,661
-4,043
FY14
1,126
337
422
0
61
1,946
263
901
FY15
1,745
315
527
0
53
2,639
437
864
FY16F
2,969
324
761
0
146
4,200
459
863
FY17F
3,758
356
800
0
160
5,074
482
845
FY18F
4,661
392
943
0
176
6,172
506
836
121
164
3,394
213
472
396
1,081
243
0
274
1,597
1
103
343
4,386
518
549
617
1,684
150
0
283
2,116
145
112
745
6,379
436
669
698
1,804
243
0
194
2,241
536
114
683
7,199
430
748
662
1,840
184
0
147
2,172
536
117
776
8,407
432
838
660
1,930
185
0
259
2,374
536
150
2,584
150
3,069
1,234
3,817
1,234
4,865
1,234
6,132
-937
1,796
3,394
-1,094
2,125
4,386
-1,449
3,601
6,379
-1,609
4,490
7,199
-1,870
5,496
8,407
1.80
na
1.57
na
2.33
na
2.76
na
3.20
na
Balance sheet (KRWbn)
Income statement (KRWbn)
Year-end 31 Dec
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Year-end 31 Dec
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
Source: Company data, Nomura estimates
As at 31 Dec
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
Liquidity (x)
Current ratio
Interest cover
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
net cash net cash net cash net cash net cash
net cash net cash net cash net cash net cash
Per share
Reported EPS (KRW)
Norm EPS (KRW)
FD norm EPS (KRW)
BVPS (KRW)
DPS (KRW)
13,788
12,872
11,638
60,950
782
15,736
23,138
32,632
39,609
18,079
23,497
32,632
39,609
16,231
21,054
29,048
34,965
72,733 123,602 155,395 192,272
1,100
1,119
1,547
1,834
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
24.4
na
na
na
53.2
na
na
na
58.6
na
na
na
62.5
na
na
na
61.5
na
na
na
Source: Company data, Nomura estimates
77
Nomura | Naver Corporation
14 February 2017
Fig. 124: Our KRW950,000 TP comprises four components
Target price (KRW)
Total shares outstanding (mn)
Naver SOTP (KRW bn)
(1) Naver parent
Naver standalone NP (2017F)
Target PE
(2) LINE (Naver's stake in LINE: 72.8%)
LINE value (2017F)
Naver's stake in LINE
(3) Discounted net cash (2017F)
Net cash - Parent
Discount
(4) SNOW (2017F)
Value per MAU ('000 KRW)
MAU of Snow (mn)
950,000
33.0
31,367
20,565
894
23
6,257
8,590
72.8%
1,578
1,973
20%
2,967
18
163
Source: Company data, Nomura estimates
78
Nomura | Naver Corporation
14 February 2017
Fig. 125: Naver – earnings estimate revisions
(KRWbn)
Sales
Naver parent
Advertising
Contents
Others
LINE
Advertising
Contents
Communication
Others
OP
Naver parent
LINE
NP
Naver parent
LINE
Margin
OPM
Naver parent
LINE
NPM
Naver parent
LINE
Growth
Sales
Naver parent
Advertising
Contents
Others
LINE
Advertising
Contents
Communication
Others
OP
Naver parent
LINE
NP
Naver parent
LINE
New
4,556
2,912
2,763
106
43
1,633
701
444
297
190
1,417
1,162
265
1,081
894
186
Old
4,871
2,999
2,824
129
47
1,892
888
506
361
137
1,604
1,182
433
1,223
923
304
31.1%
39.9%
16.2%
23.7%
30.7%
11.4%
32.9%
39.4%
22.9%
25.1%
30.8%
16.1%
2017F
Chg. (%)
-6%
-3%
-2%
-18%
-7%
-14%
-21%
-12%
-18%
39%
-12%
-2%
-39%
-12%
-3%
-39%
Consensus
4,685
diff. (%)
-3%
1,749
-7%
1,403
1%
317
989
-16%
9%
204
-9%
29.9%
18.1%
21.1%
11.6%
13.3%
16.6%
17.2%
5.0%
15.0%
4.9%
20.7%
-6.4%
-4.3%
0.2%
28.5%
20.0%
25.7%
38.8%
37.2%
122.0%
16.5%
New
5,173
3,316
3,157
111
48
1,844
864
455
304
220
1,711
1,361
370
1,311
1,048
259
Old
5,458
3,392
3,205
135
52
2,090
1,060
506
377
148
1,953
1,381
584
1,479
1,079
409
33.1%
41.0%
20.1%
25.4%
31.6%
14.1%
35.8%
40.7%
27.9%
27.1%
31.8%
19.6%
2018F
Chg. (%)
-5%
-2%
-1%
-18%
-8%
-12%
-18%
-10%
-19%
49%
-12%
-1%
-37%
-11%
-3%
-37%
27.3%
50.0%
26.9%
142.8%
diff. (%)
-3%
2,044
-10%
1,684
2%
436
1,176
-15%
12%
286
-9%
31.7%
21.4%
22.1%
14.0%
13.5%
13.9%
14.3%
5.0%
10.0%
12.9%
23.2%
2.5%
2.5%
15.7%
20.8%
17.1%
39.4%
21.3%
17.2%
39.3%
12.4%
Consensus
5,313
13.4%
16.8%
20.0%
37.8%
18.9%
40.4%
Source: Company data, Bloomberg consensus, Nomura estimates
Fig. 126: MAU of Snow to reach 163mn by end-2017F
(mn)
180
163
150
135
110
120
100
80
80
60
50
40
40
62
60
(mn)
100
60
85
90
30
Fig. 127: Downloads of Snow
43
20
25
30
20
10
0
0
Jul-16
3Q16F
4Q16F 1Q17F 2Q17F
Source: Company data, Nomura estimates
3Q17F 4Q17F
20 Feb 13 May 7 June 25 Jun 16 July 7 Aug
2016 2016 2016 2016 2016 2016
1 Oct 15 Dec
2016 2016
Source: Company data, Nomura estimates
79
Softbank Group 9984.T
9984 JP
EQUITY: JAPAN TELECOMMUNICATIONS
Deeper ties between mobile/e-commerce in Japan
Global Markets Research
Strong performance everywhere, including Japan
14 February 2016
Rating
Remains
Buy
Investment stance: stock looks undervalued; reiterating Buy as one of our
two top picks within telecommunications sector
All of Softbank Group's major businesses — including mobile
telecommunications, e-commerce, and semiconductor design — are faring well
in all regions — including Japan, the US, and China — and we forecast
sustained profit growth in 18/3 and thereafter. The company is strengthening
the ties between Yahoo Japan [4689] and its two mobile brands in Japan,
SoftBank and Ymobile, and we expect an increase in subscription share for the
Ymobile brand for its low-priced services even as more SoftBank brand users
opt for the JPY6,000/month 20GB data plan. We therefore maintain our Buy
rating on the company as one of our top two picks in the telecommunications
sector. The shares continue to appear undervalued versus our sum-of-theparts-based target price of JPY11,790.
Target price
Remains
Both SoftBank and Ymobile brands’ increasing collaboration with Yahoo
Japan
As the first of these collaborative efforts with Yahoo Japan, Softbank Group
announced a campaign to be rolled out from 1 Feb through 31 May under which
SoftBank users receive 10 times the normal number of shopping points (equivalent
to a 10% discount) when using shopping services such as Yahoo Shopping and
Lohaco. The second such effort is a service to be launched on 1 Feb under which
Ymobile users are offered the same services as the JPY462/month Yahoo
Premium subscription at no cost on a permanent basis. We think the two
companies will split the expenses for these points based on the benefits each will
derive from the campaign, and we intend to closely monitor any developments, as
we think these campaigns could be effective promotions for both companies.
Potential catalysts include growth in
free cash flow at Sprint and
improvement in capex efficiency for
the next-generation mobile network.
We look for Alibaba to expand its
operations over the medium term.
JPY 11,790.0
Closing price
10 February 2017
JPY 8,792.0
Potential upside
+34.1%
Anchor themes
We recommend investing in leading
e-commerce platforms which control
traffic gateway and provide end-toend ecosystem.
Catalyst
Research analysts
Japan telecommunications
Daisaku Masuno, CFA - NSC
[email protected]
+81 3 6703 1180
Future e-commerce investment likely to be via the Softbank Vision Fund
In October 2016, Softbank Group announced plans to establish the SoftBank
Vision Fund, in which the company will invest at least USD25bn over the next
five years and targets a total size of up to USD100bn. We think Softbank
Group's future investments in e-commerce and fintech are likely to be via the
fund, and we will be watching for synergies with the company's existing
investments.
Cons
16/3
17/3E
18/3E
19/3E
Actual
Old
New
Co's
Old
New
Old
New
9,153.5
8,921.8
8,921.8
N/A
9,454.5
9,454.5
9,861.4
9,861.4
Ope profits (bn)
999.5
1,062.7
1,062.7
N/A
1,277.9
1,277.9
1,398.7
1,398.7
EPS
395.3
436.7
436.7
N/A
529.3
529.3
637.6
637.6
22.2
20.1
20.1
N/A
16.6
16.6
13.8
13.8
EV/EBITDA (x)
7.1
7.2
7.2
N/A
6.3
6.3
5.7
5.7
P/B (x)
3.9
3.9
3.9
N/A
3.1
3.1
2.5
2.5
Dividend yield (%)
0.5
0.5
0.5
N/A
0.5
0.5
0.5
0.5
Currency: JPY
Sales (bn)
P/E (x)
Source: Company data, Nomura estimates (See the bottom of page 2 for further notes to this table.)
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Softbank Group
14 February 2017
Key data on Softbank Group
Rating
Valuation and ratio analysis
Stock
Buy
Relative performance chart
(JPY)
EPS
Adjusted EPS
BPS or NAV per share
DPS
Adjusted ROE (%)
16/3
402.4
395.3
2,278.9
41.0
17.1
17/3E
832.1
436.7
2,233.3
44.0
20.1
18/3E
637.0
529.3
2,826.4
44.0
21.7
19/3E
789.2
637.6
3,571.5
44.0
20.7
16/3
9,153.5
999.5
2,439.0
440.7
1,005.7
17/3E
8,921.8
1,062.7
2,544.7
463.8
967.9
18/3E
9,454.5
1,277.9
2,792.9
510.9
1,044.0
19/3E
9,861.4
1,398.7
2,921.5
497.5
1,252.1
84.0
60.1
101.1
121.9
474.1
930.2
693.7
859.4
375.3
239.9
267.1
340.9
16/3
5,550
1,915
359
15,157
20,707
17/3E
6,049
1,915
480
17,466
23,515
18/3E
6,329
1,885
480
17,933
24,262
19/3E
6,672
1,855
480
18,523
25,195
1,621
1,621
1,621
1,621
11,922
17,202
3,505
2,614
13,842
20,131
3,384
2,432
13,842
20,131
4,131
3,078
13,842
20,131
5,064
3,889
16/3
940
17/3E
1,399
18/3E
2,073
19/3E
2,193
474
930
694
859
1,401
-270
-1,652
-1,361
-712
43
1,452
-120
-3,035
-1,014
-1,637
2,100
1,515
30
-1,715
-1,215
358
-48
1,523
30
-1,773
-1,273
420
-48
315
1,920
0
0
Income statement
(JPY bn)
Sales
Operating profits
EBITDA
Interest & dividend income
Interest expense
Recurring profits
Pretax profits
Profits attributable to
noncontrolling interests
Profits attributable to
owners of parent
(Equity in net income of
affiliates)
Source: ThomsonReuters, Nomura research
Balance sheet
Performance
(%)
Absolute
Relative to Russell/Nomura
Large Cap
1M
4.4
3M
33.7
12M
91.0
4.1
21.2
69.3
Stock price data
Current stock price (JPY)
Market capitalization (JPY bn)
52-week low stock price (JPY)
52-week high stock price (JPY)
Shares out (mn)
Source: ThomsonReuters, Nomura research
8,792
9,677.0
4,133
9,066
1,100.7
(JPY bn)
Current assets
Operating receivables
Inventories
Non-current assets
Total assets
Operating payables
(Current)
Interest-bearing debt
Total liabilities
Net assets
Shareholders' equity
Cash flow statement
(JPY bn)
Operating cash flow
Profits attributable to
owners of parent
Depreciation
Change in working capital
Investment cash flow
Capex
Free cash flow
Financial cash flow
Change in interest-bearing
debt
Dividend payments
Change in cash &
equivalents
-47
-48
-48
-48
-733
672
310
372
Source: Company data, Nomura estimates
Note: We assume USD/JPY of 114. Figures for 17/3 onward are on an ongoing operations basis. Adjusted figures factor out one-time
gains/losses and apply a normalized tax rate. EV/EBITDA ratio on front page is on adjusted proportionate basis and includes Alibaba.
81
Nomura | Softbank Group
14 February 2017
Pursuing e-commerce and fintech business on a global scale
Deeper ties between Yahoo Japan and Japanese mobile
services
E-commerce point campaign by SoftBank brand and Yahoo Japan
On 16 January 2017, Softbank Group announced a campaign in partnership with Yahoo
Japan, slated to be offered from 1 February through 31 May, under which users of
Softbank’s mobile brands receive 10 times the normal number of shopping points
(equivalent to a 10% discount) when using shopping services such as Yahoo Shopping and
Lohaco. These points can be used in combination with points from other campaigns. We
think the two companies will split the expenses for these points based on the benefits each
derives from the campaign.
Ongoing marketing partnership between Ymobile brand and Yahoo Japan
On 18 January 2017, Softbank Group's second brand Ymobile announced that from 1
February it will offer Yahoo Premium for Ymobile, which will offer Ymobile brand users the
same services as the JPY462/month Yahoo Premium subscription for no cost on a
permanent basis. In February and March it will also run a promotion offering five times the
regular number of loyalty points from Yahoo Shopping and Lohaco.
We expect continued strong performance at Ymobile and further promotion of 20GB
plans for SoftBank brand
Ymobile smartphones broke into the top ten in BCN’s weekly sales rankings (based on
surveys of big-box retailers) in 2016. According to BCN data, Ymobile smartphone sales
volumes increased 150% y-y in Apr-Dec 2016, and Ymobile said that its own research
showed that it had gained a 40% share of the market for inexpensive smartphones by
volume, excluding the big three carriers, over the same period. In 2017, we expect
continued gains in subscription share for the Ymobile brand in the discount segment, while
we expect a boost to ARPU at the SoftBank brand from the JPY6,000/month 20GB data
plan launched in September 2016, which has been well received by consumers.
Global investment in wide range of e-commerce/fintech
businesses
Aggressive investment in fintech as well as e-commerce
The Softbank Group has positioned e-commerce and fintech as core fields alongside the
transportation business. The Softbank Group includes subsidiary Yahoo Japan and equitymethod affiliate Alibaba Group Holding in China. In the e-commerce business, it also has
stakes in Indonesia's Tokopedia (USD100mn), India's Snapdeal (further investment on top
of an initial USD627mn), and South Korea's Coupang (USD1bn), and Alibaba has also
invested in Snapdeal. In fintech, the company has indirect ties with China's Ant Financial
and India's One97 Communications via Alibaba, and the Softbank Group has directly
invested USD1bn in US fintech major Social Finance (SoFi), which operates a lending
business.
Softbank Vision Fund moving forward with investments
In October 2016, Softbank Group announced plans to establish the Softbank Vision Fund as
a means to invest in technology, and that it plans to invest at least USD25bn in the fund
from retained earnings over the next five years. The purpose of the fund is to enable largescale growth without the constraints of the finances of the Softbank Group. Softbank Group
also announced that it has concluded a memorandum of understanding with the Public
Investment Fund (PIF) of the Kingdom of Saudi Arabia, and that the PIF will consider
investing up to USD45bn in the Softbank Vision Fund. Apple has also confirmed that it will
contribute USD1bn to the fund. The fund is expected to reach up to USD100bn in size, and
can be leveraged up to around 2x for investments such as leveraged buyouts. The fund has
a closed period of at least 10 years, and it can invest in a variety of areas including
technology companies, internet services companies, telecommunications carriers, and
renewable energy companies. Companies in which the Softbank Group is already investing
cannot be sold to the fund, but additional investment in those companies via the fund is
82
Nomura | Softbank Group
14 February 2017
possible. We expect a number of investments priced in the trillions, hundreds of billions, and
tens of billions of yen, but with fund assets/liabilities and earnings likely to be disclosed
separately from existing operations, fund liabilities will be nonrecourse.
Fig. 128: Softbank Group's investments in e-commerce and fintech
Region
EC
27％
China
Alibaba Group Holding
6 countries
Singpore
Malaysia
Thailand
Indonesia
Viet Nam
Philippines
ASEAN
$100mn
$1bn
Ant Financial
（Alipay)
(Most recently disclosed stock
valuation was $60bn)
Lazada
32％
Indonesia
Tokopedia
Softbank Group
India
FinTec
37.5% share or profit or 33% of shares at
IPO assuming approval by authorities
8％
One 97 Communications
（Paytm)
$627mn/additional
investment
Snapdeal
43.0％
Yahoo Japan
Japan
$1bn
Korea
Coupang
$1bn
jointly/additional
investment
US
Social Finance
Source: Nomura research, based on company data
83
Rakuten 4755.T
4755 JP
EQUITY: JAPAN INTERNET
Key points to watch for Rakuten Ichiba
Global Markets Research
Sales and profits nearing exit from bottom
14 February 2017
Rating
Remains
Investment stance: we forecast steady improvement at domestic
e-commerce business, reiterate our "Buy" rating
While some industry watchers have raised concerns about a potential
escalation of competition to offer loyalty point discounts in the domestic ecommerce business, we think the competitive environment for this business is
becoming more stable in 2017 and expect operating conditions to support the
generation of profits. We make no change to our 12-month target price of
¥1,400. Our 17/12 forecast for adjusted non-GAAP EPS is ¥55.9, to which we
apply a valuation multiple of 25x. This multiple looks appropriate to us because
we think the stock can trade around the middle of its P/E range over the past
two years (18-32x) if investors increasingly look to profit growth via steady
improvements in gross transaction value growth, the growth potential of the
fintech segment (primarily Rakuten Card), and a bottoming out in earnings.
Currency: JPY
Sales (mn)
Ope profits (mn)
Actual
17/12E
Old
New
781,916 910,100 910,100
77,977 117,400 117,400
Co's
18/12E
Old
JPY 1,400.0
Closing price
13 February 2017
JPY 1,128.5
Potential upside
+24.1%
We recommend investing in leading
e-commerce platforms which control
traffic gateway and provide end-toend ecosystem.
Catalyst
Potential catalysts include: (1) faster
growth in gross transaction value for
domestic e-commerce; (2) profit
growth at the credit card business;
and (3) improved earnings overseas.
Research analysts
Japan internet & media
Yoshitaka Nagao - NSC
[email protected]
+81 3 6703 1175
We expect earnings to start growing again in 17/12
There had been concerns about Rakuten's gross transaction value from ecommerce in Japan, but we think it is on a recovery track, with rising numbers of
orders, purchasers, and new and returning purchasers. We also look to an
improvement in profitability via growth in advertising sales, as well as the
introduction of the Super Point Up (SPU) program running its course in 17/12. We
expect the profitability of the company’s domestic e-commerce business to improve
from 17/12 onwards. We also forecast strong earnings at the fintech segment in
17/12 on the back of brisk growth at Rakuten Card and firm performance at
securities and banking operations. Meanwhile, the share price appears to be
around the bottom of its range and we see plenty of upside potential.
16/12
Target price
Remains
Anchor themes
Q4 results: resurgence in domestic e-commerce gross merchandise sales
In Q4, non-GAAP operating profits, which are adjusted for one-time
gains/losses such as losses on impairment of goodwill at overseas subsidiaries,
were ¥30.5bn, roughly in line with our ¥33.0bn forecast. The main takeaway
from Q4 results for us is that domestic e-commerce gross merchandise sales
rose 14.7% y-y, exceeding our forecast for 12.2% growth. The effect of
launching the Super Point Up campaign has steadily emerged. The resurgence
of gross merchandise sales is consistent with our expectations and we expect
improvement in profitability in the domestic e-commerce business.
Cons
19/12E
New
Old
Buy
New
N/A 1,003,800 1,003,800 1,010,700 1,010,700
N/A
132,600
132,600
153,400
153,400
Adjusted EPS
42.9
55.9
55.9
N/A
62.3
62.3
71.0
71.0
Adjusted P/E (x)
26.3
20.2
20.2
N/A
18.1
18.1
15.9
15.9
P/B (x)
2.4
2.2
2.2
N/A
2.0
2.0
1.8
1.8
Dividend yield (%)
0.4
0.4
0.4
N/A
0.4
0.4
0.4
0.4
Source: Company data, Nomura estimates (See the bottom of the next page for further notes to this table.)
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Rakuten
14 February 2017
Key data on Rakuten
Rating
Valuation and ratio analysis
Stock
Buy
Relative performance chart
(JPY)
EPS
Adjusted EPS
BPS or NAV per share
DPS
Capital adequacy ratio(%)
ROE (%)
16/3
26.7
42.9
476.9
4.5
14.8
5.7
17/3E
48.5
55.9
521.0
4.5
15.6
9.7
18/3E
55.0
62.3
571.5
4.5
16.6
10.1
19/3E
63.7
71.0
630.7
4.5
17.6
10.6
Income statement
(JPY bn)
Sales
Operating profits
Pretax profits
Profits attributable to
noncontrolling interests
Profits attributable to
owners of parent
16/3
781,916
77,977
73,923
17/3E
18/3E
19/3E
910,100 1,003,800 1,010,700
117,400 132,600 153,400
117,400 132,600 153,400
6
1,200
1,200
1,200
37,995
69,200
78,400
90,800
Balance sheet
(JPY bn)
Total assets
Total liabilities
Net assets
Source: ThomsonReuters, Nomura research
16/3
17/3E
18/3E
19/3E
4,604,672 4,749,300 4,921,000 5,105,400
3,924,326 4,004,800 4,103,300 4,202,100
680,346
744,500
817,700
903,300
Performance
(%)
Absolute
Relative to Russell/Nomura
Large Cap
1M
-4.2
3M
-0.1
12M
12.4
-4.7
-12.8
-16.9
Source: Company data, Nomura estimates
Stock price data
Current stock price (JPY)
Market capitalization (JPY bn)
52-week low stock price (JPY)
52-week high stock price (JPY)
Shares out (mn)
1,128.5
1,616.5
942.7
1,462.0
1,432.4
Source: ThomsonReuters, Nomura research
Note: Adjusted EPS is based on non-GAAP operating profits adjusted for (1) amortization expenses, (2) share-based payments, and (3)
nonrecurring items, and a normal tax rate.
85
Nomura | Rakuten
14 February 2017
Rakuten Ichiba looks set to improve
Competition to offer loyalty points is stabilizing
Rakuten Ichiba faced all-out competition to offer loyalty point discounts in 2015 and 2016
as business conditions for e-commerce in Japan were affected by Softbank and Yahoo
Japan [4689] strengthening their cooperative efforts in service provision. As a result,
some industry watchers have voiced concerns about the possibility of a further
deterioration in earnings at Yahoo Japan and Rakuten. However, we think the
e-commerce business in Japan will avoid excessive price competition in 2017 and that
stable operating conditions will support the generation of profits from this business.
Summary of situation with point discounts (1): point offerings at Yahoo! Shopping
and Rakuten Ichiba are stable
Point discount rates at Yahoo! Shopping and Rakuten Ichiba are nearly on a par, and
any differences are narrowing. We compare the point discount rates offered to Yahoo!
Premium members (excluding limited-time-only offers from Yahoo Japan) and under the
Rakuten Ichiba Super Point Up (SPU) program in Fig. 129. Yahoo Japan offered a 9%
discount in 2015, but at present only offers a 5% discount. Conversely, Rakuten offered
a 4% discount in 2015 but now offers 7%. That said, we note that Rakuten members
accessing a discount above 5% must be either (1) Rakuten Premium Club cardholders,
with gold card or higher status, or (2) users of Rakuten Mobile (a discount smartphone
service). We think it safe to say the point discount rate for Rakuten customers without
such privileges is 5%, on par with that for Yahoo Japan.
Fig. 129: Rakuten Ichiba and Yahoo! Shopping discount
point programs
Fig. 130: Share of Rakuten Ichiba transactions paid for with a
Rakuten Card
Competitive conditions are stabilizing
Steady rise since introduction of SPU
Source: Nomura, based on company data
Source: Nomura, based on company data
Summary of situation with point discounts (2): overview of campaigns at Yahoo!
Shopping
Competition to offer point discounts had already calmed down in 2016 H2. Indeed, our
research finds no major long-term campaigns since April 2016, after the Yahoo!
Shopping 100mn point back campaign started in July 2015, the quintuple point campaign
started in November 2015, and others. Instead, Yahoo Japan appears to be targeting
Ymobile users with discount campaigns and sales promotions aimed at only select
customers (see our 18 January 2017 Global Research report Ymobile announces new
handsets and services).
Timing for confirmation of SPU's impact
Rakuten Ichiba customers must sign up for a Rakuten Card to benefit from the SPU
program. The degree to which SPU, launched in January 2016, has been taken up by
86
Nomura | Rakuten
14 February 2017
Rakuten Ichiba users is evident in the share of Rakuten Ichiba transactions paid for with
a Rakuten Card. This ratio was around 40% through 2015 but had risen to 49.0% as of
end-September 2016. We think this trend shows broad support for the SPU program (Fig.
130).
Fig. 131: Annual per-user sales to
Rakuten Card members
Fig. 132: Ratio of new and returning
purchasers
Fig. 133: Number of customers and
number of orders
Cardholders shop more
Sharp change at Rakuten Ichiba
Growth in number of customers making
purchases on Rakuten Ichiba
(% y-y)
(%)
Per-user sales amount
12
2.22x
10
15
Rakuten Card holders
Non-Rakuten
Card holders
Rakuten Card holders
1.85x
Non-Rakuten
Card holders
20
2016
Source: Nomura, based on company data
17.0%
Number of orders
8
6
10
10.9%
4
5
2
0
0
-2
(yy/m)
-4
2015
Total unique monthly
purchasers
15/7 15/9 15/11 16/1 16/3 16/5
Source: Nomura, based on company data
(yy/m)
-5
15/11 16/1 16/3 16/5 16/7 16/9
Source: Nomura, based on company data
We think these changes bode well for gross transaction value at Rakuten Ichiba. This is
because the value of annual per-user sales to Rakuten Card holders is around double
that to non-cardholders (Fig. 131). Furthermore, since the introduction of the SPU
program, the number of new and returning customers has risen continuously, indicating
that Rakuten Ichiba's sales structure is steadily becoming less dependent on a base of
the same customers (Fig. 132). Moreover, the total number of customers making
purchases and the number of orders are both rising steadily (Fig. 133), which we think
bodes well for growth in Rakuten Ichiba's gross transaction value.
Conclusion: sales and profits nearing exit from bottom, stable profit growth likely
in 2018
At the e-commerce business in Japan, the competitive environment and earnings are
improving, in our view. Factoring in projected profit growth from the fintech business,
centering on Rakuten Card, we forecast 11.4% y-y growth in non-GAAP operating profits
in 2018. We think Rakuten's sales and profits are set to exit their bottom, and we see
bright prospects for earnings growth.
87
Nomura | Rakuten
14 February 2017
Rakuten [4755]: quarterly earnings by segment
(¥mn, except where noted)
Domestic e-commerce GMS (¥bn)
% y-y
16/12
Q1
688.2
12.5%
Q2
711.3
10.7%
Q3
755.4
10.0%
Sales
% y-y
Internet services
% y-y
Domestic EC
Communication & Sports
Other internet services
FinTech
% y-y
Credit card
Banking
Securities
Life insurance
Other and adjustment items
Adjustment
Non-GAAP operating profits
% y-y
Operating profits
% y-y
Margin (%)
Internet services
% y-y
Domestic EC
Communication & Sports
Other internet services
FinTech
% y-y
Credit card
Banking
Securities
Life insurance
Other and adjustment items
Adjustment
Non-GAAP adjustment
180,300
13.5%
125,571
18.7%
71,239
13,812
40,521
71,544
9.3%
32,288
16,318
12,162
8,153
2,624
-16,816
26,696
-16.8%
22,934
-21.0%
12.7%
11,837
-28.5%
18,891
-3,384
-3,670
15,669
-1.5%
7,102
3,676
4,661
211
19
-810
-3,762
188,606
8.9%
133,218
14.3%
72,527
17,349
43,342
74,201
6.6%
34,024
16,706
12,233
8,496
2,742
-18,813
31,682
2.5%
25,850
-1.5%
13.7%
13,800
-12.6%
17,508
-484
-3,224
17,971
6.4%
7,846
4,397
5,077
658
-7
-89
-5,832
190,451
4.2%
135,937
8.1%
77,333
18,838
39,766
73,045
5.3%
35,223
16,549
10,326
8,123
2,823
-18,530
30,235
-12.1%
26,419
-4.5%
13.9%
14,743
-25.2%
20,688
-1,145
-4,799
15,525
2.5%
7,724
4,163
3,279
377
-19
-34
-3,816
Q4
854.5
14.7%
17/12E
Q1
773.2
12.3%
Q2
820.1
15.3%
Q3
877.7
16.2%
Q4
961.0
12.5%
222,559
11.9%
165,829
14.6%
90,063
17,467
58,299
77,276
9.2%
37,718
17,111
11,403
8,142
2,902
-20,546
30,467
-44.3%
2,774
-76.4%
1.2%
15,188
-60.9%
20,423
-3,989
-1,246
16,421
2.9%
7,177
4,776
4,353
396
-279
-1,142
-27,693
210,800
16.9%
148,700
18.4%
87,400
16,000
45,300
78,900
10.3%
36,700
18,900
12,000
8,700
2,600
-16,800
27,000
1.1%
23,100
0.7%
11.0%
11,300
-4.5%
18,800
-3,000
-4,500
16,500
5.3%
6,900
4,300
5,000
300
0
-800
-3,900
223,100
18.3%
160,000
20.1%
92,200
19,500
48,300
81,900
10.4%
38,600
19,300
12,200
9,100
2,700
-18,800
33,200
4.8%
29,300
13.3%
13.1%
15,800
14.5%
19,800
-1,000
-3,000
17,500
-2.6%
7,600
4,600
5,000
300
0
-100
-3,900
225,200
18.2%
163,300
20.1%
97,500
21,000
44,800
80,400
10.1%
39,900
18,700
10,300
8,700
2,800
-18,500
34,900
15.4%
31,000
17.3%
13.8%
17,100
16.0%
22,900
-2,800
-3,000
17,800
14.7%
8,000
4,500
5,000
300
0
0
-3,900
251,000
12.8%
186,500
12.5%
106,000
17,200
63,300
85,000
10.0%
42,700
19,300
11,500
8,600
2,900
-20,500
37,900
24.4%
34,000
1125.7%
13.5%
19,500
28.4%
23,900
-4,400
0
19,000
15.7%
9,100
4,600
5,000
300
0
-600
-3,900
Note: Total of quarterly figures may not match full-year figures as a result of rounding. The largest such discrepancy is around ¥100mn.
Source: Company data, Nomura estimates
88
Nomura | Rakuten
14 February 2017
Rakuten [4755]: consolidated financial data by segment
(¥mn, except where noted)
Domestic e-commerce GMS (¥bn)
% y-y
Sales
% y-y
Internet services
% y-y
FinTech
% y-y
Adjustment
Operating profits
% y-y
Margin (%)
Internet services
% y-y
FinTech
% y-y
Adjustment
Non-GAAP adjustment
Amortization expenses
Share-based payments
Nonrecurring items
Non-GAAP operating profits
% y-y
14/12
2,434
8.9%
15/12
2,687
10.4%
16/12
3,009
12.0%
17/12E
3,432
14.0%
18/12E
3,880
13.1%
19/12E
4,347
12.0%
598,565
15.4%
405,196
28.5%
236,520
17.4%
-43,151
106,397
17.9%
17.8
68,627
15.3%
49,496
13.4%
-32
-11,695
-6,327
-2,315
-3,053
118,092
14.3%
713,555
19.2%
492,837
21.6%
275,136
16.3%
-54,417
94,689
-11.0%
13.3
90,909
32.5%
63,899
29.1%
-2,655
-57,464
-8,322
-6,088
-43,054
152,153
28.8%
781,916
9.6%
560,555
13.7%
296,066
7.6%
-74,705
77,977
-17.6%
10.0
55,568
-38.9%
65,587
2.6%
-2,075
-41,103
-7,789
-7,344
-25,970
119,080
-21.7%
910,100
16.4%
658,500
17.5%
326,200
10.2%
-74,600
117,400
50.6%
12.9
63,700
14.6%
70,800
7.9%
-1,500
-15,600
-8,000
-7,600
0
133,000
11.7%
1,003,800
10.3%
735,100
11.6%
353,300
8.3%
-84,600
132,600
12.9%
13.2
72,000
13.0%
77,600
9.6%
-1,500
-15,500
-8,000
-7,500
0
148,100
11.4%
1,010,700
0.7%
727,500
-1.0%
377,800
6.9%
-94,600
153,400
15.7%
15.2
84,500
17.4%
85,900
10.7%
-1,500
-15,500
-8,000
-7,500
0
168,900
14.0%
Source: Company data, Nomura estimates
89
Nomura | Rakuten
14 February 2017
Rakuten [4755]: consolidated income statement
(¥mn, except where noted)
Sales
% y-y
Internet services
% y-y
Domestic EC
Communication & Sports
Other internet services
FinTech
% y-y
Credit card
Banking
Securities
Life insurance
Other and adjustment items
Adjustment
Non-GAAP operating profits
% y-y
Operating profits
% y-y
Margin (%)
Internet services
% y-y
Margin (%)
Domestic EC
Communication & Sports
Other internet services
FinTech
% y-y
Margin (%)
Credit card
Banking
Securities
Life insurance
Other and adjustment items
Adjustment
Non-GAAP adjustment
Pretax profits
Corporation tax, etc
Tax rate (%)
Net profits
Noncontrolling interest
Profits attributable to owners of parent
Shares out (FY-avg, mn)
Shares out (FY-end, mn)
Basic EPS (¥)
Non-GAAP EPS (¥)
BPS (¥)
DPS (¥)
ROE (%)
14/12
598,565
15.4%
405,196
28.5%
263,867
42,445
98,883
236,520
17.4%
98,163
50,442
43,506
32,025
12,384
-43,151
118,092
14.3%
106,397
17.9%
17.8
68,627
15.3%
16.9%
92,129
190
-23,692
49,496
13.4%
20.9%
18,529
9,674
19,393
1,439
461
-32
-11,695
104,245
33,142
31.8%
71,103
489
70,614
1,321
1,323
53.5
61.0
318.7
4.5
19.6
15/12
713,555
19.2%
492,837
21.6%
284,569
52,093
156,175
275,136
16.3%
117,503
61,002
50,365
32,301
13,964
-54,417
152,153
28.8%
94,689
-11.0%
13.3
90,909
32.5%
18.4%
96,406
-8,599
3,102
63,899
29.1%
23.2%
24,124
14,716
22,732
1,427
900
-2,655
-57,464
91,987
47,707
51.9%
44,280
-156
44,436
1,375
1,424
32.3
53.3
464.8
4.5
8.2
16/12
781,916
9.6%
560,555
13.7%
311,162
67,465
181,928
296,066
7.6%
139,252
66,685
46,124
32,914
11,091
-74,705
119,080
-21.7%
77,977
-17.6%
10.0
55,568
-38.9%
9.9%
77,509
-9,002
-12,939
65,587
2.6%
22.2%
29,848
17,012
17,370
1,642
-286
-2,075
-41,103
73,923
35,922
48.6%
38,001
6
37,995
1,425
1,426
26.7
42.9
476.9
4.5
5.7
17/12E
910,100
16.4%
658,500
17.5%
383,100
73,700
201,700
326,200
10.2%
157,900
76,200
46,000
35,100
11,000
-74,600
133,000
11.7%
117,400
50.6%
12.9
63,700
14.6%
9.7%
85,400
-11,200
-10,500
70,800
7.9%
21.7%
31,600
18,000
20,000
1,200
0
-1,500
-15,600
117,400
47,000
40.0%
70,400
1,200
69,200
1,426
1,426
48.5
55.9
521.0
4.5
9.7
18/12E
1,003,800
10.3%
735,100
11.6%
432,100
81,100
221,900
353,300
8.3%
174,500
83,800
43,700
36,900
14,400
-84,600
148,100
11.4%
132,600
12.9%
13.2
72,000
13.0%
9.8%
96,300
-14,800
-9,500
77,600
9.6%
22.0%
36,500
19,800
20,000
1,300
0
-1,500
-15,500
132,600
53,000
40.0%
79,600
1,200
78,400
1,426
1,426
55.0
62.3
571.5
4.5
10.1
19/12E
1,010,700
0.7%
727,500
-1.0%
483,400
89,200
244,100
377,800
6.9%
191,000
92,200
41,500
38,700
14,400
-94,600
168,900
14.0%
153,400
15.7%
15.2
84,500
17.4%
0.1
107,800
-14,800
-8,500
85,900
10.7%
22.7
42,200
21,800
20,000
1,400
500
-1,500
-15,500
153,400
61,400
40.0%
92,000
1,200
90,800
1,426
1,426
63.7
71.0
630.7
4.5
10.6
Source: Company data, Nomura estimates
90
Nomura | Rakuten
14 February 2017
Rakuten [4755]: consolidated balance sheet
(¥mn)
Cash & deposits
Accounts receivable
Financial assets at securities business
Lending at card business
Securities at banking business
Lending at banking business
Securities at insurance business
Derivative assets
Marketable securities
Other financial assets
Equity-method investments
Property, plant and equipment
Intangible long-term assets
Deferred tax assets
Other
Total assets
Accounts payable
Deposits at banking business
Financial liabilities at securities business
Derivative liabilities
Bonds and borrowings
Other financial liabilities
Unpaid corporate income tax
Provisions
Insurance policy reserves at insurance business
Deferred tax liabilities
Other liabilities
Total liabilities
Total shareholders' equity
Total liabilities and shareholders' equity
14/12
428,635
88,871
1,110,888
692,886
222,297
321,877
12,205
13,927
50,506
144,283
8,932
34,811
490,679
35,006
24,892
3,680,695
137,042
1,137,195
995,141
11,769
589,927
242,616
27,129
43,969
19,847
12,437
35,537
3,252,609
428,086
3,680,695
15/12
501,029
104,011
1,109,299
833,820
257,769
444,044
15,308
21,312
151,237
161,640
16,912
48,442
514,752
28,252
62,126
4,269,953
162,606
1,366,784
987,244
10,623
649,195
268,448
24,718
54,129
21,635
20,417
40,141
3,605,940
664,013
4,269,953
16/12
548,269
117,088
1,120,684
1,014,708
157,315
585,800
18,071
21,813
173,076
137,678
41,130
53,271
506,087
25,681
84,001
4,604,672
181,279
1,505,946
1,059,639
6,598
711,104
297,489
12,674
65,235
24,462
17,428
42,472
3,924,326
680,346
4,604,672
17/12E
623,000
128,700
1,112,000
1,079,000
157,300
588,400
18,100
21,800
173,100
137,700
41,100
53,300
506,100
25,700
84,000
4,749,300
200,100
1,641,300
1,020,700
6,600
676,300
297,500
12,700
65,200
24,500
17,400
42,500
4,004,800
744,500
4,749,300
18/12E
694,100
141,900
1,056,400
1,163,300
157,300
647,100
18,100
21,800
173,100
137,700
41,100
53,300
506,100
25,700
84,000
4,921,000
220,700
1,805,000
969,700
6,600
641,500
297,500
12,700
65,200
24,500
17,400
42,500
4,103,300
817,700
4,921,000
19/12E
755,900
142,900
1,003,200
1,273,300
157,300
711,900
18,100
21,800
173,100
137,700
41,100
53,300
506,100
25,700
84,000
5,105,400
222,300
1,985,900
920,800
6,600
606,700
297,500
12,700
65,200
24,500
17,400
42,500
4,202,100
903,300
5,105,400
Source: Company data, Nomura estimates
91
Nomura | Rakuten
14 February 2017
Rakuten [4755]: consolidated cash flow
(¥mn)
14/12
111,860
104,245
30,140
2,301
-658
-1,901
-148,572
177,383
-82,060
17,917
132,864
-106,851
-48,424
35,476
15/12
78,245
91,987
40,122
38,135
-12,498
-11,475
-140,933
229,626
-122,167
22,692
38,306
-44,128
-50,576
-846
16/12
30,700
73,923
44,257
25,359
11,133
-10,702
-180,741
139,162
-141,756
14,867
-11,725
71,708
-53,264
48,479
17/12E
135,900
117,400
20,000
0
0
-11,600
-64,300
135,400
-2,600
18,800
8,700
-38,900
-47,000
0
18/12E
132,300
132,600
20,000
0
0
-13,200
-84,300
163,700
-58,700
20,600
55,600
-51,000
-53,000
0
19/12E
123,000
153,400
20,000
0
0
-1,000
-110,000
180,900
-64,800
1,600
53,200
-48,900
-61,400
0
Investment cash flow
Fixed-term deposit-related
Deposit-related expenditure
Revenues from refunds
L-T asset (PPE/intangible) acquisition
Spending on property, plant and equipment
Spending on intangible assets
Banking-related
Expenditure on acquiring marketable securities
Proceeds from sales and redemption of securities at banking business
-261,085
-3,025
-11,187
8,162
-36,742
-9,959
-26,783
-23,697
-365,787
-224,078
-2,346
-14,785
12,439
-54,248
-19,688
-34,560
-34,634
-378,355
-26,841
-2,571
-17,681
15,110
-54,982
-12,657
-42,325
98,790
-249,291
-20,000
0
0
0
-20,000
-5,000
-15,000
0
0
-20,000
0
0
0
-20,000
-5,000
-15,000
0
0
-20,000
0
0
0
-20,000
-5,000
-15,000
0
0
342,090
343,721
348,081
0
0
0
Insurance-related
Expenditure on acquiring marketable securities
Proceeds from sales and redemption of securities at banking business
-1,926
-8,522
-2,974
-6,795
-1,551
-11,310
0
0
0
0
0
0
Operating cash flow
Pretax profits
Depreciation
Impaired losses
Other income (minus is profits)
Change in operating receivables (minus is growth)
Change in lending at card business (minus is growth)
Change in deposits at banking business (minus is fall)
Change in lending at banking business (minus is growth)
Change in operating payables (minus is fall)
Change in financial assets at securities business (minus is growth)
Change in financial liabilities at securities business (minus is fall)
Corporation tax paid
Other
Expenditure related to acquisition of subsidiaries
Change in securities
Acquisition-related expenditure
Proceeds from sales and redemption
Other
Financial cash flow
Net change in short-term borrowings (minus is fall)
Increase in commercial paper (minus is fall)
Proceeds from long-term borrowings
Spending on repayment of long-term loans
Expenditure related to redemption of bonds
Dividend payments
Proceeds from issuance of common stock
Other
Free cash flow
Change in cash & deposits
Balance of cash & equivalents at FY-end
6,596
3,821
9,759
0
0
0
-174,469
4,062
-8,845
12,907
-25,288
189,512
8,126
-10,300
251,860
-82,817
0
-5,251
3,169
24,725
-149,225
44,627
428,635
-60,607
-62,044
-69,706
7,662
-7,225
221,831
-1,597
-32,500
158,352
-65,831
0
-5,952
182,550
-13,191
-145,833
72,394
501,029
-33,612
-32,361
-53,213
20,852
-554
45,200
-57,529
28,000
212,100
-163,832
0
-6,408
549
32,320
3,859
47,240
548,269
0
0
0
0
0
-41,200
0
0
50,000
-80,000
-4,800
-6,400
0
0
115,900
74,700
622,969
0
0
0
0
0
-41,200
0
0
50,000
-80,000
-4,800
-6,400
0
0
0
0
0
-41,200
0
0
50,000
-80,000
-4,800
-6,400
0
112,300
71,100
694,069
0
103,000
61,800
755,869
Source: Company data, Nomura estimates
92
JD.com JD.OQ
JD US
EQUITY: MEDIA & INTERNET
Margin improvement amid FMCG investment
Global Markets Research
Maintain Buy with USD32 target price
14 February 2017
Rating
Remains
Core e-commerce seeing continued margin expansion
JD’s core e-commerce has witnessed margin expansion in the past year, and
we expect to see further core e-commerce margin improvement, driven by: 1)
stronger bargaining power from suppliers thanks to company’s large sales
scale; 2) a recovery in the high-margin 3P business, after cracking down on
fake transactions and scaling back on virtual item sales in 2016; but this may
be partially offset by FMCG investment in a bid to grab more share of that
market. We believe competition in the FMCG battle between China’s two ecommerce giants, ie, Alibaba (BABA US, Buy) and JD will last into 2017F, as
FMCG is one of the few categories under-penetrated by e-commerce.
Currency (CNY)
Revenue (mn)
Reported net profit (mn)
Normalised net profit (mn)
Actual
FY16F
Old
New
FY17F
Old
New
Vanessa Liu - NIHK
[email protected]
+852 2252 1431
New
-9,378
-3,245
-3,245
-1,553
-1,553
2,775
2,775
-27
1,470
1,470
5,713
5,713
-1.89c
1.01
1.01
3.70
3.70
-307.2
na
na
na
na
266.9
266.9
FD normalised P/E (x)
na
N/A
na
N/A
188.7
N/A
51.4
EV/EBITDA (x)
na
N/A
194.6
N/A
62.0
N/A
27.9
Price/book (x)
8.5
N/A
8.6
N/A
8.2
N/A
7.3
Net debt/equity (%)
Carson Lo, CFA - NIHK
[email protected]
+852 2252 1552
181,287 255,849 255,849 357,214 357,214 473,894 473,894
-27
ROE (%)
+8.9%
Andrew Orchard - NIHK
[email protected]
+852 2252 1400
-1.89c
Dividend yield (%)
Potential upside
Jialong Shi - NIHK
[email protected]
+852 2252 1409
-850
FD norm. EPS growth (%)
USD 29.38
China Internet & New Media
-62.19c
FD normalised EPS
Closing price
10 February 2017
Research analysts
FY18F
Old
USD 32.00
Nomura vs consensus
Our FY17F non-GAAP EPS are
below current consensus, owing
to factoring investments in
FMCG.
Maintain Buy and USD32 target price
We maintain our Buy rating and USD32 target price, which implies 0.9x FY17F
P/S. Our TP is based on a DCF methodology, assuming a 10.7% WACC and
3% terminal growth rate. The benchmark index is MSCI China. Risks include:
1) high entry barriers for category expansion through direct sales; 2)
uncertainty in realizing its logistics value.
FY15
Target Price
Remains
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateway and
provide end-to-end ecosystem.
Divestment of JD Finance positive for share price
JD has proposed the disposal of its ~86% stake in JD Finance in 3Q16, a
move to transform JD Finance from a foreign venture company into a pure
China-resident company, so that JD Finance can conduct certain licensed
financial services. JD Finance dragged down JD’s operating margin by roughly
40bp. We believe this proposed deal is positive for JD’s share price, as it
enables JD to: 1) shed a financial burden; 2) sharpen its focus on its core
business; 3) capture upside potential, as JD will still be entitled to 40% of JD
Finance’s pre-tax profit (if positive), and has the option to convert this
economic interest into a direct 40% stake in JD Finance if there are no
regulatory hurdles.
Year-end 31 Dec
Buy
na
N/A
na
N/A
na
N/A
na
-27.6
-10.5
-10.5
-4.8
-4.8
7.5
7.5
net cash net cash net cash net cash net cash net cash net cash
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | JD.com
14 February 2017
Key data on JD.com
Relative performance chart
Cashflow statement (CNYmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (USD)
Absolute (USD)
Rel to MSCI China
1M 3M 12M
9.2 20.5 26.4
9.2 20.5 26.4
4.3 14.9 -0.1
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
42,404.5
10.0
188.0
FY14
FY15
FY16F
FY17F
FY18F
115,002 181,287 255,849 357,214 473,894
-101,631 -157,008 -216,022 -300,311 -397,106
13,371 24,279
39,827
56,902
76,788
-13,814 -25,343 -38,322 -53,903 -70,572
-5,359
-5,395
-3,831
-3,957
-3,872
-5,802
-6,459
-2,326
-958
2,344
-4,152
-3,840
1,370
4,203
9,190
-1,651
-2,619
-3,696
-5,161
-6,846
-5,802
609
-6,459
332
-2,326
143
-958
675
2,344
901
216
-4,977
-19
-4,996
0
5,359
-3,275
-9,402
14
-9,388
10
8,528
-716
-2,899
-69
-2,969
-276
3,219
-1,200
-1,483
-69
-1,553
0
3,023
-400
2,845
-69
2,775
0
2,938
363
-13,317
-12,954
-850
-8,528
-9,378
-27
-3,219
-3,245
1,470
-3,023
-1,553
5,713
-2,938
2,775
-12,954
-9,378
-3,245
-1,553
2,775
na
na
-297.6 -10,086.6
na
na
na
na
na
94.6
8.5
8.6
na
194.6
na
na
13.4
15.6
-2.1
0.5
-3.6
-0.9
-5.2
-1.3
na
na
na
na
-27.6
-10.5
-11.1
-3.3
na
188.7
188.7
na
18.9
8.2
62.0
na
15.9
1.2
-0.3
-0.4
na
na
-4.8
-1.1
105.8
51.4
51.4
na
19.2
7.3
27.9
109.5
16.2
1.9
0.5
0.6
2.4
0.0
7.5
2.2
57.6
na
-307.2
-307.2
39.6
206.8
na
na
32.7
118.7
266.9
266.9
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
na
594.2
594.2
na
212.6
5.8
na
na
11.6
-3.6
-5.0
-11.3
na
na
-55.4
-17.9
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
FY14
-4,152
1,317
3,850
1,015
-2,479
-1,464
-11,409
FY15
-3,840
423
1,606
-1,812
-4,374
-6,186
10,305
FY16F
1,370
1,256
207
2,833
-6,173
-3,340
0
FY17F
4,203
7,110
3,362
14,675
-8,619
6,056
0
FY18F
9,190
1,787
4,303
15,281
-11,434
3,847
0
-2,368
3,053
-12,188
0
17,448
1,891
0
-1,048
18,291
6,102
10,812
16,915
-15,024
-10,529
2,705
-389
-4,094
0
146
8,205
0
-3,307
5,043
949
16,915
17,864
-11,490
0
-2,705
2,705
-3,340
0
0
-2,754
0
0
-2,754
-6,094
17,864
11,770
-8,150
0
0
0
6,056
0
0
0
0
0
0
6,056
11,770
17,827
-14,206
0
0
0
3,847
0
0
0
0
0
0
3,847
17,827
21,674
-18,053
FY14
16,915
15,200
2,436
12,191
3,200
49,942
0
2,408
2,622
6,878
4,643
66,493
1,891
16,364
10,741
28,995
0
FY15
17,864
4,895
9,508
20,540
5,661
58,468
0
6,233
29
5,264
15,172
85,166
3,620
29,819
15,589
49,029
2,754
FY16F
FY17F
FY18F
11,770
17,827
21,674
4,895
4,895
4,895
11,520
15,882
17,875
23,257
37,628
45,057
6,362
6,658
7,507
57,805
82,891
97,007
0
0
0
8,701
12,146
16,716
29
29
29
5,273
5,286
5,303
15,172
15,172
15,172
86,979 115,523 134,227
3,620
3,620
3,620
33,722
54,612
62,194
18,373
23,622
28,098
55,715
81,855
93,912
0
0
0
0
28,995
0
2,705
54,488
138
0
55,715
0
81,855
0
93,912
47,132
-9,272
48,393
-18,691
48,393
-18,105
48,393
-15,701
48,393
-9,054
-361
37,498
66,493
838
30,541
85,166
1.72
na
1.19
na
Balance sheet (CNYmn)
Income statement (CNYmn)
Year-end 31 Dec
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minorities
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Year-end 31 Dec
EBITDA
Change in working capital
Other operating cashflow
CF from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
65.9
-715.9
-715.9
Source: Company data, Nomura estimates
41.1
na
na
na
As at 31 Dec
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
976
976
976
31,264
33,668
40,316
86,979 115,523 134,227
Liquidity (x)
Current ratio
Interest cover
1.04
na
1.01
na
1.03
na
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
na
na net cash net cash net cash
net cash net cash net cash net cash net cash
Per share
Reported EPS (CNY)
Norm EPS (CNY)
FD norm EPS (CNY)
BVPS (CNY)
DPS (CNY)
-10.71
30.02c
30.02c
30.10
0.00
-6.86
-62.19c
-62.19c
21.69
0.00
-2.30
-1.89c
-1.89c
22.20
0.00
-1.07
1.01
1.01
23.10
0.00
1.80
3.70
3.70
26.12
0.00
4.7
33.4
49.2
-11.1
12.0
38.0
53.7
-3.6
15.0
37.1
53.8
-1.7
14.0
37.0
53.7
-2.7
13.0
38.0
53.7
-2.7
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
Source: Company data, Nomura estimates
94
VIPSHOP VIPS.N
VIPS US
EQUITY: MEDIA & INTERNET
Fine-tune to balanced and quality growth
Global Markets Research
Maintain Buy with USD16.40 target price
14 February 2017
Rating
Remains
Fine-tune to balance between growth and quality of new customers
We have witnessed decelerated (+20% y-y) new customers’ growth in 3Q16,
vs. 49% y-y in 2Q16, likely due to 1) distractions from the Olympics, which
spanned almost the entire month of August; ) fine-tuning marketing KPIs from
growth first to a balance of growth and quality of new customers. The
adjustment was aimed at acquiring high-potential customers, whose lifetime
value (LTV) should eventually be able to catch up with or even surpass that of
existing customers, in our view. The company targets to maintain the 20-30%
y-y new customer growth for 2017F, driven by further penetration from lowertier cities. Vipshop has 39% of active customers from Tier 2 cities, followed by
26% from Tier 3 and 22% from Tier 4. Comparatively, Vipshop believes there
is ample potential in Tier 3 and 4 cities, where demand for affordable branded
apparel is building up but barely satisfied.
USD 12.48
Potential upside
+31.4%
China Internet & New Media
Jialong Shi - NIHK
[email protected]
+852 2252 1409
Andrew Orchard - NIHK
[email protected]
+852 2252 1400
Year-end 31 Dec
FY15
Actual
Old
New
Old
New
Old
New
40,203
55,895
55,895
69,796
69,796
83,617
83,617
Reported net profit (mn)
1,590
1,882
1,882
2,292
2,292
2,809
2,809
Normalised net profit (mn)
FY18F
2,199
2,744
2,744
3,201
3,201
3,837
3,837
FD normalised EPS
3.66
4.51
4.51
5.37
5.37
6.39
6.39
FD norm. EPS growth (%)
78.2
23.4
23.4
19.0
19.0
18.9
18.9
FD normalised P/E (x)
21.7
N/A
18.3
N/A
16.0
N/A
13.7
EV/EBITDA (x)
9.8
N/A
8.5
N/A
8.5
N/A
6.4
Price/book (x)
13.2
N/A
7.5
N/A
5.0
N/A
3.6
Dividend yield (%)
Closing price
10 February 2017
Research analysts
Currency (CNY)
Revenue (mn)
USD 16.40
Nomura vs consensus
Our FY17/18F earnings are
below current consensus
estimates due to our lower
margin forecasts.
Maintain Buy with USD16.40 target price
We maintain our Buy rating and USD16.40 target price. The stock looks
attractive, trading at 16x FY17F P/E or 0.7x PEG, vs 17x FY17F P/E or 1.0
PEG for global retailer peers’ average. Our TP is based on 21x FY17F P/E,
which implies 1.0 PEG. Our target multiple represents a 25% discount to
VIPS's historical average. The benchmark index for this stock is the MSCI
China.
FY17F
Target Price
Remains
Anchor themes
We recommend investing in
leading e-commerce platform
companies which have high user
engagement and are not
dependent on any upstream
traffic.
Internet finance venture puts pressure on operating margins
Vipshop’s core e-commerce business reported continued margin expansion
on the ongoing leverage from fulfilment and marketing expenses in 3Q16. But
non-GAAP G&A and technology expenses surged substantially (68% and 50%
y-y, respectively), mainly owing to internet finance investments. We estimate a
30% EBIT lift and cash flow improvement if there is deconsolidation in the
internet finance business in 3Q.
FY16F
Buy
na
N/A
na
N/A
na
N/A
na
ROE (%)
50.4
37.3
37.3
27.9
27.9
23.2
23.2
Net debt/equity (%)
22.9 net cash net cash net cash net cash net cash net cash
Vanessa Liu - NIHK
[email protected]
+852 2252 1431
Carson Lo, CFA - NIHK
[email protected]
+852 2252 1552
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | VIPSHOP
14 February 2017
Key data on VIPSHOP
Relative performance chart
Cashflow statement (CNYmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (USD)
Absolute (USD)
Rel to MSCI China
1M
8.0
8.0
3.0
3M 12M
-3.3 9.2
-3.3 9.2
-8.8 -17.3
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
7,337.2
34.6
71.3
FY14
23,129
-17,378
5,751
-4,846
-225
680
1,041
-110
-251
680
213
FY15
40,203
-30,307
9,896
-7,831
-303
1,762
2,346
-291
-292
1,762
181
FY16F
55,895
-42,476
13,419
-10,668
-492
2,259
2,956
-405
-292
2,259
16
FY17F
69,796
-53,233
16,563
-13,215
-603
2,745
3,523
-485
-292
2,745
4
FY18F
83,617
-64,120
19,497
-15,496
-722
3,279
4,127
-556
-292
3,279
7
105
998
-245
753
89
393
23
1,966
-458
1,509
81
609
126
2,400
-573
1,827
54
862
150
2,899
-667
2,232
60
909
150
3,437
-821
2,616
60
1,161
1,234
-393
841
2,199
-609
1,590
2,744
-862
1,882
3,201
-909
2,292
3,837
-1,028
2,809
841
1,590
1,882
2,292
2,809
51.5
35.1
37.2
na
14.1
16.4
41.7
63.9
24.9
4.5
2.9
3.6
24.6
0.0
40.3
8.2
29.0
20.9
21.7
na
25.0
13.2
9.8
13.0
24.6
5.8
4.4
4.0
23.3
0.0
50.4
12.2
25.5
17.5
18.3
na
6.6
7.5
8.5
11.1
24.0
5.3
4.0
3.4
23.9
0.0
37.3
11.8
21.9
15.7
16.0
na
20.3
5.0
8.5
10.9
23.7
5.0
3.9
3.3
23.0
0.0
27.9
12.2
18.3
13.4
13.7
na
5.5
3.6
6.4
8.0
23.3
4.9
3.9
3.4
23.9
0.0
23.2
12.7
122.0
193.3
196.9
197.2
73.8
125.4
74.4
78.2
39.0
26.0
24.7
23.4
24.9
19.2
15.9
19.0
19.8
17.2
18.9
18.9
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
FY14
1,041
2,392
-170
3,263
-1,701
1,562
-1,473
FY15
2,346
-445
14
1,915
-2,311
-396
66
FY16F
2,956
4,112
594
7,662
-1,563
6,098
-626
FY17F
3,523
-1,754
758
2,527
-1,961
566
-626
FY18F
4,127
4,491
996
9,614
-2,371
7,244
-626
-472
243
-850
-991
0
12
0
3,836
-93
3,755
2,764
2,026
4,791
-936
-738
-45
90
-1,022
0
10
95
0
-549
-444
-1,466
4,791
3,324
829
0
0
0
5,472
0
0
0
0
0
0
5,472
3,324
8,796
-4,643
0
0
0
-60
0
0
0
0
0
0
-60
8,796
8,736
-4,583
0
0
0
6,617
0
0
0
0
0
0
6,617
8,736
15,353
-11,200
FY14
4,791
3,769
155
3,588
918
13,220
41
2,119
60
1,039
472
16,951
0
6,121
4,034
10,155
3,855
FY15
3,324
1,807
351
4,567
2,103
12,153
1,936
3,883
109
744
1,210
20,036
95
6,645
5,426
12,166
4,058
FY16F
8,796
1,807
322
7,769
2,279
20,974
2,563
4,875
109
618
1,210
30,348
95
13,836
5,694
19,626
4,058
FY17F
8,736
1,807
595
7,691
2,339
21,169
3,189
6,135
109
541
1,210
32,353
95
11,541
6,492
18,128
4,058
FY18F
15,353
1,807
504
10,052
2,517
30,234
3,816
7,670
109
529
1,210
43,567
95
18,675
6,296
25,066
4,058
243
14,253
198
16,422
198
23,882
198
22,384
198
29,323
2,538
27
1,994
1,616
1,994
4,523
1,994
8,086
1,994
12,422
133
2,698
16,951
3
3,613
20,036
-51
6,466
30,348
-111
9,969
32,353
-171
14,244
43,567
1.30
na
1.00
na
1.07
na
1.17
na
1.21
na
Balance sheet (CNYmn)
Income statement (CNYmn)
Year-end 31 Dec
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minorities
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Year-end 31 Dec
EBITDA
Change in working capital
Other operating cashflow
CF from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
Source: Company data, Nomura estimates
As at 31 Dec
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
Liquidity (x)
Current ratio
Interest cover
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
net cash
net cash
0.35 net cash net cash net cash
22.94 net cash net cash net cash
Per share
Reported EPS (CNY)
Norm EPS (CNY)
FD norm EPS (CNY)
BVPS (CNY)
DPS (CNY)
1.49
2.18
2.05
4.76
0.00
2.75
3.80
3.66
6.24
0.00
3.25
4.74
4.51
11.16
0.00
3.93
5.49
5.37
17.09
0.00
4.78
6.53
6.39
24.23
0.00
1.4
54.9
94.6
-38.4
2.3
49.1
76.9
-25.5
2.2
53.1
88.2
-32.9
2.4
53.0
87.0
-31.6
2.4
50.5
86.0
-33.1
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
Source: Company data, Nomura estimates
96
SK Telecom 017670.KS
017670 KS
EQUITY: TELECOMS
Cash cow telecom earnings lessened by 11st
Global Markets Research
Strategic focus of SK Planet’s new CEO key to SKT
share price
14 February 2017
Rating
Remains
Action: Remain Neutral until 11st clarifies its e-commerce strategy
SKT’s core wireless and fixed-line earnings have improved since 2013, thanks
to stabilised market competition. However, 11st’s aggressive target to become
the #1 e-commerce platform in Korea has led SKT’s consolidated OP to
decline for three consecutive years since 2014. Although 11st guides that it
will narrow losses in 2017 and turn around by 2019, we think such a forecast
is too optimistic unless it steps back from the aggressive market share target.
Given that we expect Korea’s telecom competition to remain stable and SK
Hynix to triple its NP in 2017F, we think 11st’s strategic focus will be a key
swing factor for SKT’s earnings and share price.
Catalyst: Strategic focus of SK Planet’s new CEO key to SKT’s earnings
In 2016, 11st’s GMV growth was double the growth of Korea’s total ecommerce GMV, driven by discount promotions exclusively available on 11st.
While the aggressive promotion could help 11st to achieve its near-term target
to become #1 in GMV, we are concerned that the market share gain came at
the huge expense of profitability and whether the market share is sustainable.
Going forward, we are interested to see if the new CEO, Mr. Suh, appointed in
December 2016, would retain the long-term GMV target of KRW12tn by 2019
vs. KRW6.6tn currently. If he maintains such an aggressive GMV target,
11st’s GMV will need to grow at 20%+ CAGR and this will require continuous
deterioration in profitability and/or acquisition of competitor(s).
Valuation: New TP of KRW240,000, based on SOTP methodology
We introduce SOTP methodology to value consolidated SKT. Our new TP of
KRW240,000 implies target market cap of KRW19tn, which comprises four
components: 1) stand-alone SKT (KRW11tn); 2) SK Broadband (KRW1tn); 3)
30% discounted value to the 20.1% holding on SK Hynix (KRW6.4tn); and 4)
50% discount to other non-core assets (KRW450bn). We give zero value to
currently loss-making SK Planet, as its cash balance of KRW300bn could burn
quickly if it continues to pursue market share gain.
New
Old
New
Old
New
Revenue (bn)
17,137
17,228
17,092
17,423
17,005
17,562
17,337
1,519
1,548
1,676
1,429
2,311
1,532
1,851
+5.5%
FY18F
1,519
1,548
1,676
1,429
2,311
1,532
1,851
18,812
19,172
20,756
17,696
28,620
18,978
22,928
-15.7
2.1
10.3
-7.7
37.9
7.2
-19.9
12.1
N/A
11.0
N/A
7.9
N/A
9.9
EV/EBITDA (x)
4.5
N/A
4.4
N/A
4.0
N/A
4.4
Price/book (x)
1.2
N/A
1.1
N/A
1.0
N/A
1.0
Dividend yield (%)
4.4
N/A
4.4
N/A
4.4
N/A
4.4
ROE (%)
9.9
9.8
10.6
8.6
13.7
8.8
10.1
39.9
40.0
35.0
41.5
36.3
40.6
35.4
Net debt/equity (%)
Potential upside
Angela Hong - NFIK
[email protected]
+82 2 3783 2360
Old
FD normalised P/E (x)
KRW 227,500
South Korea Telecoms
FY15
FD norm. EPS growth (%)
Closing price
10 February 2017
Research analysts
Actual
FD normalised EPS
KRW 240,000
Nomura vs consensus
We are bearish about earnings
outlook for SK Planet, while
bullish about outlook for SK
Hynix.
Year-end 31 Dec
Normalised net profit (bn)
FY17F
Target Price
Increased from 230,000
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateway and
provide end-to-end ecosystem.
Currency (KRW)
Reported net profit (bn)
FY16F
Neutral
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | SK Telecom
14 February 2017
Key data on SK Telecom
Relative performance chart
Cashflow statement (KRWbn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (KRW)
Absolute (USD)
Rel to MSCI Korea
1M
1.1
5.1
-1.2
3M 12M
3.4 8.1
3.4 12.4
-4.2 -10.2
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
15,981.6
55.0
27.2
FY14
17,163
FY15
17,137
FY16F
17,092
FY17F
17,005
FY18F
17,337
17,163
-15,339
17,137
-15,429
17,092
-15,556
17,005
-15,420
17,337
-15,721
1,825
4,716
-2,891
1,709
4,701
-2,993
1,536
4,604
-3,068
1,585
4,658
-3,073
1,616
4,781
-3,165
1,825
-263
775
-83
2,254
-454
1,800
2
1,709
-252
786
-207
2,036
-520
1,516
3
1,536
-236
841
-45
2,096
-436
1,660
16
1,585
-206
1,593
-21
2,951
-649
2,302
9
1,616
-213
964
-10
2,357
-519
1,839
13
1,802
1,519
1,676
2,311
1,851
1,802
-664
1,138
1,519
-706
813
1,676
-706
970
2,311
-706
1,605
1,851
-706
1,145
10.2
10.2
10.2
4.1
5.0
1.2
4.4
9.2
100.0
27.5
10.6
10.5
20.2
36.8
12.2
10.1
12.1
12.1
12.1
4.4
4.9
1.2
4.5
9.8
100.0
27.4
10.0
8.9
25.5
46.5
9.9
9.3
11.0
11.0
11.0
4.4
4.4
1.1
4.4
10.1
100.0
26.9
9.0
9.8
20.8
42.1
10.6
8.4
7.9
7.9
7.9
4.4
4.3
1.0
4.0
7.8
100.0
27.4
9.3
13.6
22.0
30.6
13.7
10.6
9.9
9.9
9.9
4.4
4.0
1.0
4.4
9.7
100.0
27.6
9.3
10.7
22.0
38.1
10.1
8.1
3.4
-2.4
25.5
25.5
-0.1
-0.3
-15.7
-15.7
-0.3
-2.1
10.3
10.3
-0.5
1.2
37.9
37.9
2.0
2.6
-19.9
-19.9
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
FY14
4,716
-698
-340
3,677
-3,008
669
-953
FY15
4,701
34
-957
3,778
-2,479
1,299
-859
FY16F
4,604
771
-1,175
4,200
-2,708
1,492
-120
FY17F
4,658
360
-776
4,242
-2,771
1,471
-1,018
FY18F
4,781
670
-911
4,540
-2,855
1,685
-1,485
-164
144
298
-6
-667
0
411
-89
-84
630
898
-664
0
695
-277
868
-879
1,084
-706
0
35
-385
-1,148
2,057
976
-706
0
944
-536
-36
1,623
1,251
-706
0
454
-206
-461
-467
1,765
1,298
5,652
-721
-690
208
1,298
1,505
6,140
116
-555
529
1,505
2,034
5,638
-1,054
-816
160
2,034
2,194
6,430
-782
-1,034
216
2,194
2,410
6,667
FY14
1,298
0
3,083
268
435
5,083
7,255
10,583
FY15
1,505
0
3,019
274
363
5,160
8,114
10,386
FY16F
2,034
0
3,362
260
340
5,997
8,234
10,374
FY17F
2,194
0
3,170
265
321
5,950
9,252
10,362
FY18F
2,410
0
3,321
267
304
6,302
10,737
10,350
4,402
619
27,941
1,151
1,757
2,512
5,420
5,799
4,213
707
28,581
1,084
1,986
2,187
5,257
6,561
5,709
984
31,298
1,193
2,646
2,605
6,444
6,479
5,916
1,370
32,849
1,141
2,302
3,102
6,545
7,482
5,911
1,906
35,206
1,159
2,515
3,695
7,369
7,918
1,474
12,693
1,390
13,207
2,259
15,181
1,110
15,137
1,074
16,361
3,368
14,189
3,364
15,008
3,359
15,953
3,359
17,549
3,359
18,681
-2,308
15,248
27,941
-2,998
15,374
28,581
-3,196
16,116
31,298
-3,196
17,712
32,849
-3,196
18,845
35,206
0.94
6.9
0.98
6.8
0.93
6.5
0.91
7.7
0.86
7.6
1.20
37.1
1.31
39.9
1.22
35.0
1.38
36.3
1.39
35.4
Balance sheet (KRWbn)
Income statement (KRWbn)
Year-end 31 Dec
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Year-end 31 Dec
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
Source: Company data, Nomura estimates
As at 31 Dec
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
Liquidity (x)
Current ratio
Interest cover
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
Per share
Reported EPS (KRW)
Norm EPS (KRW)
FD norm EPS (KRW)
BVPS (KRW)
DPS (KRW)
22,312
18,812
20,756
28,620
22,928
22,312
18,812
20,756
28,620
22,928
22,312
18,812
20,756
28,620
22,928
188,842 190,401 199,595 219,355 233,383
9,400
10,000
10,000
10,000
10,000
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
63.6
63.6
65.0
na
na
na
68.3
na
na
na
70.1
na
na
na
68.3
na
na
na
Source: Company data, Nomura estimates
98
Nomura | SK Telecom
14 February 2017
Strategic focus of SK Planet’s new CEO key to SKT’s
earnings in 2017
11st’s GMV has grown 33% to roughly KRW6.6tn in 2016, almost double the total ecommerce GMV growth for Korea of 18%, driven by discount promotions exclusively
available on 11st. Thanks to the aggressive promotion, the company achieved its nearterm target to become #1 in e-commerce GMV. However, we are concerned that the
market share gain came at the huge expense of profitability. Going forward, we are
interested to see if the new CEO, Mr. Suh, appointed in December 2016, would continue
to retain 11st’s long-term GMV target of KRW12tn by 2019 vs. KRW6.6tn currently. If he
maintains such an aggressive GMV target, 11st GMV will need to grow at 20%+ CAGR
and this will require continuous deterioration in profitability and/or acquisition of
competitor(s).
Fig. 134: SKT earnings estimate breakdown
(KRWbn)
2016
2017F
2018F
17,092
17,005
17,337
SKT parent
12,351
12,211
12,110
SK Broadband
2,943
3,079
3,315
SK Planet
1,178
1,260
1,360
1,536
1,585
1,616
SKT parent
1,783
1,793
1,763
SK Broadband
SK Planet
NP
SKT parent
82
(365)
1,660
1,226
93
(315)
2,302
1,211
108
(272)
1,839
1,211
Sales
OP
SK Broadband
25
28
31
SK Planet
63
(254)
(268)
558
1,662
1,014
Equity method income from SK Hynix
Margin
OPM
9.0%
9.3%
9.3%
SKT parent
14.4%
14.7%
14.6%
SK Broadband
SK Planet
2.8%
-31.0%
3.0%
-25.0%
3.3%
-20.0%
NPM
9.7%
13.5%
10.6%
SKT parent
9.9%
9.9%
10.0%
SK Broadband
0.8%
0.9%
0.9%
SK Planet
5.4%
-20.1%
-19.7%
Growth
Sales
SKT parent
SK Broadband
SK Planet
OP
SKT parent
SK Broadband
SK Planet
NP
SKT parent
SK Broadband
SK Planet
Equity method income from SK Hynix
-0.3%
-0.5%
2.0%
-1.6%
-1.1%
-0.8%
7.8%
4.6%
7.7%
-27.5%
7.0%
8.0%
-10.1%
7.5%
28.2%
n.a.
9.5%
10.8%
129.2%
n.a.
-33.7%
3.2%
0.6%
13.6%
n.a.
38.6%
-1.2%
14.3%
n.a.
197.6%
1.9%
-1.7%
16.3%
n.a.
-20.1%
-0.1%
10.0%
n.a.
-39.0%
Source: Company data, Nomura estimates
99
Nomura | SK Telecom
14 February 2017
11st’s potential pursuit to consolidate e-commerce industry
may require involvement of strategic investor or SK Telecom
During the 4Q16 analyst briefing, SK Planet stated that it does not rule out the possibility
of the company pursuing consolidation of the e-commerce industry. Given that 11st has
set an aggressive GMV target for 2019 and such an organic growth would require huge
marketing expenses, we think 11st will keep an eye on inorganic growth opportunities
through M&A.
We think SK Planet could look to acquire one of the three social commerce players, if
they are keen on achieving the GMV target. This is because the e-commerce market
leader eBay Korea (GMV: KRW13tn) is too big in scale for SK Planet to acquire. If SK
Planet acquires one of the three social commerce players, it will be able to add KRW34tn in GMV, in addition to its own GMV of KRW6.6tn, and stand at a position close to
eBay Korea.
What is at issue is funding. As of 2016, SK Planet is making losses and we estimate its
retained earnings are negative at around –KRW160bn. Although it has a cash balance of
KRW300bn, the company would need this for working capital. With this financial status,
we think it would be difficult for SK Planet to pursue a leveraged buyout on its own. As
such, it needs involvement of a strategic investor and/or SK Telecom, in our view.
Fig. 135: SK Planet: Summary financials
(KRWbn)
Income statement
Revenue
OP
NP
2013
1,435
14
202
Margin (%)
OPM
NPM
1.0%
14.1%
Growth (%)
Revenue
OP
NP
32%
-49%
1501%
Balance Sheet
Total Assets
Cash and equivalents
Total Liabilities
Debt
Total Equity
Common stock
Retained Earnings
2,528
805
767
0
1,761
1,502
220
2014
2015
2016
1,703
(7)
(78)
1,178
(365)
63
0.6%
0.2%
-0.4%
-4.6%
-31.0%
5.4%
10%
-29%
-99%
8%
TTL
TTL
-31%
n.a.
n.a.
2,407
482
785
0
1,622
1,487
(97)
* 1,979
300
* 753
0
* 1,226
1,487
(160)
1,577
10
3
2,579
459
747
0
1,832
1,502
214
Note: * as of 3Q16; Source: Company data, Nomura estimates
Valuation: New TP of KRW240,000, based on SOTP
methodology
We introduce SOTP methodology to value consolidated SKT. Our new TP of
KRW240,000 implies a target market cap of KRW19tn, which comprises four
components: 1) stand-alone SKT (KRW11tn) based on 4x 2017F EV/EBITDA; 2) SK
Broadband (KRW1tn) based on 4x 2017F EV/EBITDA; 3) 30% discount to the 20.1%
holding on SK Hynix (KRW6.4tn); 4) 50% discount to book value of other non-core
assets (KRW450bn) including PS&Marketing, SK Telink, SKtechx, KB Financials, SK
Communications and iRiver. We assign zero-value to SK Planet, as it is making losses
and its cash balance of KRW300bn could burn quickly if it continues to pursue market
share gain. (Note: Our previous TP of KRW230,000 was based on DCF methodology,
using a WACC of 7.9% and 0% terminal growth.)
100
Nomura | SK Telecom
14 February 2017
Our 2017/18F operating profit is broadly in line with consensus estimates, while net
profits estimates are higher than consensus by 36%/4% due to Nomura’s bullish
earnings outlook for SK Hynix. As such, we estimate equity method earnings from SK
Hynix to represent 72%/55% of SKT’s consolidated net profits in 2017/18F.
The key upside risk to our TP would arise if SK Planet finds a strategic partner to invest
in its e-commerce business. This would alleviate investor concerns on SKT’s further
capital injection in the loss-making e-commerce company and will lower SKT’s holdings
in SK Planet. The key downside risk is SKT’s investment in non-core assets.
Fig. 136: SK Telecom: SOTP valuation
Target Price (KRW)
Total shares outstanding (mn)
SKT SOTP (KRWbn)
(1) SKT parent
2017F EBITDA
Applied EV/EBITDA
2017F net debt
(2) SK Broadband (100% owned)
2017F EBITDA (KRWbn)
Applied EV/EBITDA
2017F net debt
(3) SK Hynix (after discount)
SK Hynix target market cap (2017F)
SKT's stake in Hynix
Discount
(3) SK Planet (11st) (98.1% owned)
(4) Other non-core asset (after discount)
a. Sum of marketable shares
PS&Marketing (100%)
SK Telink (83.5%)
SKtechx (100%)
KB Financial (0.91%)
SK Communications (64.5%)
iRiver (48.9%)
b. Discount
Book Value
Book Value
Book Value
Market Value
Market Value
Market Value
240,000
80.7
19,004
11,232
4,142
4.0x
5,335
974
668
4.0x
1,698
6,351
45,136
20.1%
30%
0
447
894
213
206
167
166
78
64
50%
Source: Company data, Nomura estimates
Fig. 137: SKT – earnings estimate revisions
2017F
(KRWbn)
2018F
New
Old
Chg. (%)
Consensus
diff. (%)
New
Old
Chg. (%)
Consensus
Sales
17,005
17,423
-2%
17,430
-2%
17,337
17,562
-1%
17,779
-2%
OP
1,585
1,801
-12%
1,653
-4%
1,616
1,843
-12%
1,779
-9%
Equity method income
1,593
297
436%
964
366
163%
NP
2,302
1,429
61%
1,691
36%
1,839
1,532
20%
1,775
4%
OPM
NPM
9.3%
13.5%
10.3%
8.2%
9.3%
10.6%
10.5%
8.7%
9.5%
9.7%
diff. (%)
10.0%
10.0%
Source: Company data, Bloomberg consensus, Nomura estimates
101
Kakao Corp. 035720.KQ
035720 KS
EQUITY: INTERNET & NEW MEDIA
Low user engagement
Global Markets Research
Limited opportunity for e-commerce and ads
14 February 2017
Rating
Remains
Neutral
Action: Maintain Neutral on unproven e-commerce and ad strategy
Kakao has announced that its mid-term strategic focus is to turn around its
advertising business and to introduce an end-to-end e-commerce service on its
Plus Friend service. While we believe that this is the right strategy by Kakao
management in an attempt to capture economics within the advertising and ecommerce industries in Korea, we remain on the sidelines while monitoring any
success of ads on Channel and Page as well as shopping on Plus Friends.
Target Price
Remains
KRW 80,000
Closing price
10 February 2017
KRW 85,000
E-commerce traffic on Plus Friends unproven
Kakao plans to launch AI-based shopping functions on Plus Friends that offer
an integrated shopping service from placing orders to paying. We think
management wants to find a way to go around the weak traffic on Daum’s
shopping platform and chose Plus Friends to leverage messaging traffic.
However, the concept of shopping on Plus Friends is not a proven one yet. We
believe that this initiative would only gain traction if it can truly target
consumers in items they want to buy.
Anchor themes
We recommend investing in
leading e-commerce platforms
which control traffic gateways
and provide an end-to-end
ecosystem.
Potential downside
Nomura vs consensus
Our FY17F/18F EPS estimates
are 12%/6% lower than
consensus.
Monetization of advertising on Channel and Page could remain low
Since Kakao recently shifted its strategic focus to ad business from O2O, it has
placed more ads on ‘Channel’ and ‘Page’ tabs on the Kakao platform. Although
management expects its ads revenue to grow 10%+ in 2017F, we expect it to
continue to fall due to low user engagement. We expect Kakao to put more
emphasis on video through Kakao TV, as video ads are a global trend.
However, competition among Kakao, Naver TV and CJ E&M’s TVING is likely
to be intense, in our view.
Research analysts
South Korea Internet & New Media
Angela Hong - NFIK
[email protected]
+82 2 3783 2360
Valuation: TP maintained at KRW80,000, based on 1xPEG
We recently fine-tuned 2017/18F EPS by -4%/1%, and our 1x PEG-based TP
remained unchanged at KRW80,000. The key upside risk to our TP is solid
execution of integrating the Daum and Kakao platforms; a downside risk is
increasing competition on ads from rival social platforms such as Facebook
and Twitter.
Year-end 31 Dec
FY15
Currency (KRW)
Actual
Old
New
Old
New
Old
New
Revenue (bn)
932
1,472
1,472
1,741
1,741
1,896
1,896
82
67
67
108
108
157
157
Reported net profit (bn)
Normalised net profit (bn)
FY16F
FY17F
FY18F
82
67
67
108
108
157
157
FD normalised EPS
1,372
1,025
1,025
1,536
1,536
2,236
2,236
FD norm. EPS growth (%)
-46.3
-25.3
-25.3
49.8
49.8
45.6
45.6
FD normalised P/E (x)
62.0
N/A
82.9
N/A
55.3
N/A
38.0
EV/EBITDA (x)
35.2
N/A
27.7
N/A
20.1
N/A
16.4
Price/book (x)
2.0
N/A
1.7
N/A
1.6
N/A
1.5
Dividend yield (%)
0.2
N/A
0.2
N/A
0.2
N/A
0.2
ROE (%)
3.3
2.2
2.2
3.1
3.1
4.3
4.3
net cash
10.3
10.3
13.3
13.3
9.6
9.6
Net debt/equity (%)
-5.9%
Source: Company data, Nomura estimates
Key company data: See next page for company data and detailed price/index chart.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Kakao Corp.
14 February 2017
Key data on Kakao Corp.
Relative performance chart
Cashflow statement (KRWbn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (KRW)
Absolute (USD)
Rel to MSCI Korea
1M
3.7
7.7
1.3
3M
6.6
6.6
-1.0
12M
-21.9
-18.8
-40.2
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
5,003.7
81.0
22.8
FY14
898
FY15
932
FY16F
1,472
FY17F
1,741
FY18F
1,896
898
-689
932
-844
1,472
-1,356
1,741
-1,577
1,896
-1,672
209
263
-54
89
164
-75
116
230
-114
164
313
-149
223
379
-155
209
13
-5
-39
178
-28
150
0
89
10
-4
15
110
-31
79
3
116
-8
0
-8
100
-33
67
0
164
-17
10
-10
148
-40
108
0
223
-16
11
-9
209
-52
157
0
150
-12
138
-15
123
82
0
82
-12
70
67
0
67
-12
56
108
0
108
-12
96
157
0
157
-12
145
36.2
33.3
33.3
0.2
22.7
2.0
20.5
26.0
100.0
29.3
23.3
15.4
15.7
10.9
9.1
14.2
62.0
62.0
62.0
0.2
31.3
2.0
35.2
66.7
100.0
17.6
9.5
8.8
28.1
14.2
3.3
3.3
82.9
82.9
82.9
0.2
19.6
1.7
27.7
54.9
100.0
15.6
7.9
4.6
32.9
17.2
2.2
3.0
55.3
55.3
55.3
0.2
27.9
1.6
20.1
37.2
100.0
18.0
9.4
6.2
27.0
10.8
3.1
3.5
38.0
38.0
38.0
0.2
25.2
1.5
16.4
27.2
100.0
20.0
11.8
8.3
25.0
7.4
4.3
4.6
21.1
35.3
-28.9
-28.9
3.8
-37.7
-46.3
-46.3
57.9
40.2
-25.3
-25.3
18.3
36.3
49.8
49.8
8.9
20.9
45.6
45.6
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
FY14
263
54
-97
220
-23
198
-32
FY15
164
30
-31
162
-76
86
-214
FY16F
230
159
-104
285
-113
171
88
FY17F
313
-47
-53
214
-50
164
-33
FY18F
379
33
-175
237
-50
187
-19
32
58
137
393
-15
22
0
-35
10
-100
-252
-12
1
222
-79
94
-1,052
-777
-12
4
774
26
18
-32
142
-12
0
-150
128
20
-135
180
-12
0
-100
-59
-52
341
110
451
-451
-13
198
-54
451
397
-175
255
1,021
244
397
642
355
-247
-409
-266
642
375
471
-54
-166
14
375
390
357
FY14
451
185
108
FY15
397
373
89
FY16F
642
237
195
FY17F
375
249
209
FY18F
390
261
228
54
798
44
197
111
970
69
219
151
1,224
117
254
156
989
139
267
159
1,037
145
275
1,689
40
2,768
0
109
119
227
0
1,856
75
3,188
22
90
205
316
200
3,733
154
5,482
200
261
339
800
796
3,920
128
5,442
0
192
380
572
846
4,116
0
5,573
0
209
418
627
746
77
305
9
87
603
33
181
1,777
271
199
1,617
271
219
1,592
271
2,288
190
2,304
256
3,139
306
3,139
414
3,139
571
-23
2,455
2,768
-8
2,552
3,188
-10
3,435
5,482
1
3,554
5,442
1
3,711
5,573
3.51
na
3.07
na
1.53
14.7
1.73
9.4
1.66
14.1
net cash net cash
net cash net cash
1.54
10.3
1.50
13.3
0.94
9.6
Balance sheet (KRWbn)
Income statement (KRWbn)
Year-end 31 Dec
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Year-end 31 Dec
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
Source: Company data, Nomura estimates
As at 31 Dec
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
Liquidity (x)
Current ratio
Interest cover
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
Per share
Reported EPS (KRW)
Norm EPS (KRW)
FD norm EPS (KRW)
BVPS (KRW)
DPS (KRW)
2,350
2,554
2,554
42,218
173
1,372
1,372
1,372
42,472
167
1,025
1,025
1,025
51,256
173
1,536
1,536
1,536
53,032
173
2,236
2,236
2,236
55,374
173
32.7
na
na
na
38.6
na
na
na
35.3
na
na
na
42.4
na
na
na
42.0
na
na
na
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
Source: Company data, Nomura estimates
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14 February 2017
E-commerce traffic on Plus Friends unproven
Currently, Kakao lacks a channel such as Naver Shopping to drive e-commerce activities
on its platform. To increase e-commerce activities and mindshare among users, it plans
to launch AI-based shopping functions on Plus Friends that offer an end-to-end shopping
service, from placing orders to paying.
While we believe this is the right strategy by Kakao’s management in an attempt to
capture economics within the e-commerce industry in Korea, the ‘Plus Friends’ concept
is not yet a proven one. We believe that this initiative would only gain traction if it can
truly target consumers in items they want to buy. We remain on the sidelines while
monitoring any success of Plus Friends.
Fig. 138: Kakao’s various e-commerce platforms
Source: Company data, Nomura research
Monetisation of ads on Channel and Page could remain low
Since Kakao recently shifted its strategic focus to the ad business from O2O, it has
placed more ads on ‘Channel’ and ‘Page’ tabs on the Kakao platform. However, in
2017F, we expect Kakao’s ads revenues to continue to fall due to low user engagement
on those tabs. We expect Kakao to put more emphasis on video through Kakao TV, as
video ads are a global trend. However, competition among Kakao TV, Naver TV and CJ
E&M’s TVING, which offers CJ E&M’s contents for free, is likely to be intense, in our
view.
Fig. 139: Kakao platforms for mobile ads revenue
Source: Company data, Nomura research
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14 February 2017
TP maintained at KRW80,000, based on 1x PEG
Our TP of KRW80,000 is based on 1x PEG to 2017F EPS of KRW1,536. We recently
fine-tuned 2017/18F EPS by -4%/1%, and our 1x PEG based TP remained unchanged at
KRW80,000. Our target 1x PEG is equivalent to 51x 2017F P/E, based on the 2017-18F
EPS CAGR of 51%.
A key upside risk to our TP is solid execution of integrating Daum and Kakao platforms;
downside risks include increasing competition on ads from rival social platforms such as
Facebook and Twitter, as well as higher-than-expected marketing spending for ecommerce initiatives on its Plus Friends.
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Appendix A-1
Analyst Certification
I, Angela Hong, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about
any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be
directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my
compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,
Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The terms "Nomura" and "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura
Securities International, Inc. ('NSI') and Instinet, LLC('ILLC'), U. S. registered broker dealers and members of SIPC.
Materially mentioned issuers
Issuer
Kakao Corp.
Yahoo Japan
Rakuten
Softbank Group
Alibaba Group Holding
Baidu
JD.com
VIPSHOP
Ticker
035720 KS
4689 JP
4755 JP
9984 JP
BABA US
BIDU US
JD US
VIPS US
Subject issuer
SK Telecom
Naver Corporation
Ticker
017670 KS
035420 KS
Price
KRW 84,100
JPY 546
JPY 1,128.5
JPY 8,659
USD 103.10
USD 184.31
USD 29.52
USD 12.29
Price date
13-Feb-2017
13-Feb-2017
13-Feb-2017
13-Feb-2017
13-Feb-2017
13-Feb-2017
13-Feb-2017
13-Feb-2017
Price
KRW 229,500
KRW 795,000
Stock rating
Neutral
Buy
Buy
Buy
Buy
Neutral
Buy
Buy
Previous rating
Not Rated
Neutral
Rating Suspended
Rating Suspended
Not Rated
Buy
Neutral
Not Rated
Price date
Stock rating
13-Feb-2017 Neutral
13-Feb-2017 Buy
Date of change Sector rating
25-Feb-2016
N/A
02-Dec-2016
N/A
15-Dec-2011
N/A
29-Oct-2014
N/A
29-Oct-2014
N/A
22-Jan-2016
N/A
22-Jan-2016
N/A
05-Mar-2014
N/A
Sector rating
N/A
N/A
Disclosures
A10
A4,A5,A6,A7
A4
The Nomura Group has had an investment banking services client relationship with the subject company during the past 12 months.
A5
The Nomura Group has received compensation for investment banking services from the subject company in the past 12 months.
A6
The Nomura Group expects to receive or intends to seek compensation for investment banking services from the subject company in the
next three months.
A7
The Nomura Group has managed or co-managed a public or private offering of the subject company's securities in the past 12 months.
A10 The Nomura Group is a registered market maker in the securities / related derivatives of the issuer.
SK Telecom (017670 KS)
KRW 229,500 (13-Feb-2017) Neutral (Sector rating: N/A)
Rating and target price chart (three year history)
Date
02-Feb-16
02-Feb-16
20-Apr-15
12-Jan-15
02-Aug-14
25-Jun-14
Rating Target price
Neutral
230,000.00
340,000.00
320,000.00
310,000.00
283,000.00
Closing price
216,500.00
216,500.00
274,500.00
267,000.00
257,500.00
240,500.00
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of KRW240,000 implies target market cap of KRW19tn, which comprises four components: 1)
the stand-alone SKT (KRW11tn) based on 4x 2017F EV/EBITDA; 2) SK Broadband (KRW1tn) based on 4x 2017F EV/EBITDA;
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14 February 2017
3) 30% discount to the 20.1% holding on SK Hynix (KRW6.3tn); 4) 50% discount to book value of other non-core assets
(KRW450bn) including PS&Marketing, SK Telink, SKtechx, KB Financials, SK Communications and iRiver. The benchmark
index for this stock is MSCI Korea.
Risks that may impede the achievement of the target price The key upside risk to our TP would arise if SK Planet finds a
strategic partner to invest in its e-commerce business. This would alleviate investor concerns on SKT’s further capital injection in
the loss-making e-commerce company and will lower SKT’s holdings in SK Planet. The key downside risk is SKT’s investment
in non-core assets.
Naver Corporation (035420 KS)
KRW 795,000 (13-Feb-2017) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
07-Sep-16
12-Aug-16
12-Aug-16
12-Dec-15
16-Jul-14
11-Apr-14
Rating
Target price Closing price
1,000,000.00
872,000.00
Buy
782,000.00
900,000.00
782,000.00
Not Rated
640,000.00
Suspended
799,000.00
970,000.00
741,000.00
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our fair value of Naver at KRW31tn comprises four components: 1) the stand-alone parent company in
Korea (KRW21tn); 2) a 72.8% stake in LINE (KRW6.5tn); 3) cash holdings at the stand-alone parent company discounted by
20% (KRW1.6tn); and 4) Snow (KRW3tn). Our fair value estimate gives us a target price of KRW950,000/share. The benchmark
index for this stock is the MSCI Korea index.
Risks that may impede the achievement of the target price The key downside risk to our TP is a competitor's successful
launch of a similar video communication app.
Rating and target price changes
Issuer
Ticker
Old stock rating
New stock rating
Old target price
New target price
SK Telecom
Naver Corporation
017670 KS
035420 KS
Neutral
Buy
Neutral
Buy
KRW 230,000
KRW 1,000,000
KRW 240,000
KRW 950,000
Important Disclosures
Online availability of research and conflict-of-interest disclosures
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The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
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Distribution of ratings (Nomura Group)
The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
109
Nomura | Asia Pacific internet
14 February 2017
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 39% of companies with this
rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services** by the Nomura Group.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 52% of companies with
this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 7% of companies with this
rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services by the Nomura Group.
As at 31 December 2016.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
** As defined by the EU Market Abuse Regulation
Distribution of ratings (Instinet, LLC)
The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
53% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
5% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
Definition of Nomura Group's equity research rating system and sectors
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
Target Price
A Target Price, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part the analyst's
estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and
by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
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110
Nomura | Asia Pacific internet
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