THIS MATERIAL IS A MARKETING COMMUNICATION.
China E-Commerce and Logistics 1H22 Review
E-Commerce: Focusing on Quality Growth
China’s e-commerce sales showed recovery in the first two months of the year until the resurgence of Omicron in March. Retail sales slowed down sharply in April with lockdowns in key cities, particularly in Shanghai, causing supply chain and logistics disruptions and impacting online retail sales. The situation improved sequentially in May and June, along with earlier than expected reopening in early June. Total online physical retail sales grew +7% year-on-year (yoy) in May compared to -5% yoy decline in April, according to the National Bureau of Statistics (NBS) of China.1 Sales during the 618 shopping festival were also stronger than market expectations. While the dynamic zero-covid policy is to stay for a while, it is unlikely that there’ll be another citywide lockdown as in Shanghai earlier this year. We expect to see gradual consumption recovery going forward.
In terms of categories, consumer staples like fast moving consumer goods have been performing better than discretionary such as apparel and home appliances as many consumers had to stay home during the lockdowns. That said, premiumization seems to be still the major trend rather than trade down. For example, JD’s overall sales grew 10% during the 618 festival, but the company saw high-end appliances sales surging nearly five folds compared to a year ago.2 While many e-commerce companies have not provided 2QCY22 guidance due to uncertainties from Covid, VIP Shop provided revenue guidance of 20-25% yoy decline in 2QCY223. However, performance in June seemed better than expected as supply chain and logistics had returned to near-normal levels. The company expects a gradual recovery in 2HCY22, compared to the sharp recovery seen in 2HCY20, as consumer demand is weaker now than two years ago.
Despite the weak consumption environment amid the resurgence of Omicron, major platform companies have reported better than expected 1QCY22 results thanks to their focus on profitability this year. E-commerce companies were in an investment mode in CY21, but turned to focusing on profitability and aiming for quality growth in CY22. E-commerce penetration reached 35% of total retail sales in China4 and the industry is becoming more mature with a much larger base. Alibaba shared that they would have to tackle different categories differently by looking at subcategories, assortments, increasing direct sales, and focusing more on quality growth going forward.
Local services such as food delivery still have a robust growth outlook with lower penetration than that of physical goods e-commerce. For example, Meituan’s total revenue grew +25% yoy with food delivery revenue growth of +17% yoy in 1QCY225 amid the resurgence of Omicron in March. According to Morgan Stanley estimates, penetration of the food delivery market will grow from 21% in CY21 to 35% in CY25 out of China’s total catering industry, while Meituan’s food delivery revenue is forecast to grow 26% CAGR over the same period.6 Moreoever, we see an improving competitive landscape leading to better unit economics for food delivery businesses, albeit slower order volume growth in 1QCY22.
The Chinese government has emphasized several times this year that the regulation of the platform economy is largely done, and it has created a better playing field for all industry players to focus on quality and sustainable growth. The e-commerce industry is expected to show gradual recovery under a benign competitive landscape with government support to boost domestic consumption in the latter half of this year.
Logistics: Focusing on Margin Recovery
Since the beginning of 2022, there have been concerns around parcel volume growth for the year as it is uncertain whether the property market slowdown and overall economic weakness would lead to marginally slower consumption. Parcel volumes were hit heavily by lockdowns, and volume concerns still hold true after gradual reopening, but the market focus is shifting towards volume recovery and corporate margin improvement. According to recent company results conference calls, logistics companies have cut their full-year volume guidance and industry outlook to factor in the lockdown impact.
There was a decent recovery in parcel volume growth, with May data +0.2% yoy vs. -12% yoy in April, according to the State Post Bureau.7 By cities, yoy trend of parcel volume in Shanghai, Beijing, Hangzhou, and Shenzhen improved to -74%/-22%/-15%/-10% yoy respectively in May, from -90%/-23%/-20%/-15% in April. Daily nationwide parcel volumes were up by mid-to-high single digit for the first 18 days of June vs. +24% yoy last year.8
As we highlighted in our last review, we believe we are seeing an inflexion point on logistics parcel pricing and competition. Throughout 1H22, top logistics companies are prioritizing quality and profitability over quantity. This is particularly obvious during an economic downturn after lockdown to ensure profitability, cash flow, and employment. The average parcel price grew by 8% yoy in 1Q22, according to data from the State Post Bureau.9 We expect the trend to persist this year despite some regional pricing adjustments. There is also generally tight regulatory oversight on healthy logistics industry competition. Corporate capex is modest post lockdown. Companies are enjoying reasonable market share gains this year, part of which comes from the share loss after the merger between J&T and Best. With that market share gain in mind, top logistics companies can be less aggressive in price competition this year.
We believe top logistics companies are focusing more on non-price competition. The benefits of economies of scale will gradually fade when the industry further consolidates and top players have built a certain business scale. We expect future competition to rely on services categorization and companies’ ability to charge premium prices for premium services. Logistics services have become the major battleground in the fierce competition to improve customer satisfaction and GMV for e-commerce platforms.
Staying Ahead with Mirae Asset’s Latest Insights
1. NBS, May, June, 2022
2. Company data, June 19, 2022
3. Company data, May 19, 2022
4. Morgan Stanley, June 22, 2022
5. Company Earnings call, June 2, 2022
6. Morgan Stanley, June 21, 2022
7. State Post Bureau, April 2022
8. State Post Bureau, April 2022
9. State Post Bureau, April 2022
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary/.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Hong Kong: It is intended is for Hong Kong investors. Before making any investment decision to invest in the Fund, Investors should read the Fund’s Prospectus and the information for Hong Kong investors (of applicable) of the Fund for details and the risk factors. The individual and Mirae Asset Global Investments (Hong Kong) Limited may hold the individual securities mentioned. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Singapore: It is not intended for general public distribution. The investment is designed for Institutional investors and/or Accredited Investors as defined under the Securities and Futures Act of Singapore. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Monetary Authority of Singapore. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Australia: The information contained in this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempted from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. The contents of this document is prepared by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission.
Swiss investors: This document is intended for Professional Investors only. This is an advertising document. The Swiss Representative is 1741 Fund Solutions AG, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent is Tellco AG, Bahnhofstrasse 4, CH-6431 Schwyz. The Prospectus and the Supplements of the Funds, the KIIDs, the Memorandum and Articles of Association as well as the annual and interim reports of the Company are available free of charge from the Swiss Representative.
UK investors: This document is intended for Professional Investors only. The Company is a Luxembourg registered UCITS, recognised in the UK under section 264 of the Financial Services and Markets Act 2000. Compensation from the UK Financial Services Compensation Scheme will not be available in respect of the Fund. The taxation position affecting UK investors is outlined in the Prospectus. This document has been approved for issue in the United Kingdom by Mirae Asset Global Investments (UK) Ltd, a company incorporated in England & Wales with registered number 06044802, and having its registered office at 4th Floor, 4-6 Royal Exchange Buildings, London EC3V 3NL, United Kingdom. Mirae Asset Global Investments (UK) Ltd. is authorised and regulated by the Financial Conduct Authority with firm reference number 467535.
Copyright 2023. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.