Vipshop Holdings Ltd – ADR (VIPS) PT Raised After Earnings Results

Vipshop Holdings Ltd – ADR (VIPS) PT Raised After Earnings Results
Source: Made with Photoshop

Vipshop Holdings Ltd (ADR) (NYSE:VIPS) released its fourth quarter earnings report on Tuesday, posting strong results and spurring at least one price target increase. Analysts John Choi and Liz Zeng of Daiwa Capital Markets have increased their 2014 and 2015 earnings per share estimates by 16% to 18%.

Vipshop’s latest results encouraging

They believe Tuesday’s earnings report demonstrates how Vipshop Holdings Ltd (ADR) (NYSE:VIPS) can “deliver robust top-line growth and at the same time enhance its operating leverage to achieve margin expansion.” The Daiwa team is predicting strong growth between this year and 2016, with the main drivers being continued improvements in gross margins because of the company’s strong bargaining power over brand vendors and enhancements in operating margins because of better operating leverage.

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The analysts note that Vipshop Holdings Ltd (ADR) (NYSE:VIPS)’s competition in China’s ecommerce industry is intensifying, but the company continues to see more than 70% of its customers order from it more than once. They predict that Vipshop will continue to take market share over the next few quarters as it expands its customer base and offers more and more products.

They note that sales over mobile devices made up more than 23% of Vipshop Holdings Ltd (ADR) (NYSE:VIPS)’s sales during the fourth quarter and that management indicated that they’re working to expand their mobile offerings. Specifically, they’re working with Tencent’s Wechat to increase their mobile presence, which the Daiwa team sees as being a key driver of revenue this year.

Vipshop’s profitability to grow substantially

The analysts report that Vipshop Holdings Ltd (ADR) (NYSE:VIPS) has increased the number of brand vendors it has from 3,824 at the end of September to 4,100 at the end of December. They say this demonstrates how Vipshop is the “preferred discount channel over traditional discount stores.”

They’re forecasting the online retailer’s gross margins to expand to 25% this year from 24% last year. They believe the company’s strong bargaining power will drive this margin expansion. In addition, they note that the company is improving its fulfillment and logistics capabilities by increasing its warehouse capacity this year and next. As a result, they predict that Vipshop Holdings Ltd (ADR) (NYSE:VIPS)’s operating margins will expand from 3.2% last year to 7.5% by 2016 because of benefits from leverage.

Vipshop estimates raised

The Daiwa team increased their 2014 revenue estimate from $2.636 billion to $3.158 billion and their GAAP earnings per share estimate from $1.97 to $2.28 per share for the year. For 2015, they increased their revenue estimate from $3.96 billion to $4.557 billion and their GAAP earnings per share estimate from $3.43 to $4.05 per share. Because of these increases, Daiwa analysts raised their 6-month target price for Vipshop Holdings Ltd (ADR) (NYSE:VIPS) from $135 to $190 a share. They remain Buy-rated on the company.

Shares of Vipshop Holdings Ltd (ADR) (NYSE:VIPS) rose more than 1% today at the New York Stock Exchange.

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