CCB International Se CCBIS China E Commerce All in For e Com 1

E-COMMERCE MAY 28, 2015
CHINA E-COMMERCE SECTOR

All in for e-commerce plays
Robust market growth of 30.8% CAGR for 14-17F E-COMMERCE COMPANY VALUATIONS
P/E 2015F-
Government committed to developing e-commerce CCBIS Current Target Upside (x) 17F EPS
ecosystem Company rating Price Price (%) 2016F CAGR
Alibaba O US$92.60 US$110.50 18.4 33.8 37.6
JD O US$34.25 US$39.00 13.9 N/A N/A
Alibaba and VIPS our preferred names VIPS O US$26.54 US$31.60 19.2 35.2 55.6
Jumei O US$22.90 US$25.70 12.3 37.4 32.7
HC O HK$11.80 HK$14.90 26.4 18.3 39.1
Cogobuy O HK14.18 HK$15.60 10.1 28.4 49.7
China the largest e-commerce market globally. According to
CCBIS ratings: O = Outperform, N = Neutral
iResearch, China overtook the US as the largest e-commerce market
* Price as at close on 27 May 2015
in 2013 in terms of transaction value. We think the shift from off-line
Source: Bloomberg, CCBIS
to on-line retail purchasing has opened the door to sustainable growth
for the retail e-commerce market. We share the view with iResearch
that Chinas on-line shopping market will grow at a CAGR of 30.8% Ronnie Ho
in 2014-2017F reaching RMB6.3t by end-2017F. (852) 3911 8259
ronnieho@ccbintl.com
Supportive policy to sustain growth. Earlier in 2015, during his
National Peoples Congress (NPC) opening speech, Premier Li re- Cheng Xing, CFA
emphasized the importance of an Internet Plus strategy and vowed (852) 3911 8265
xingc@ccbintl.com
to back e-commerce development. More recently, the State Council
pledged to help the development of e-commerce by cutting red-tape
and lowering the tax burden on e-businesses. We expect these
favorable policy developments to support sustainable growth for e-
commerce and see vast potential for cross-border e-commerce.
Mobile an effective tool. According to the China Internet

Network Information Center (CNNIC), the number of mobile Internet
users in China reached 557m by the end of 2014. As that number
continues to grow and as the mobile user experience improves, we
expect mobile e-commerce to make an increasing contribution to on-
line retail. We expect mobile contribution to the online retail market
to climb from 33% in 2014 to over 60% by 2017F.
Alibaba and VIPS our top picks. Alibaba (BABA, US;

Outperform) and VIP Shop (VIPS US; Outperform) are our top picks
for riding the China e-commerce up-cycle within the listed PRC e-
commerce universe. Our top B2B pick is niche player HC
International (2280 HK, Outperform).
Analyst certifications and other important disclosures on last page 1

CHINA E-COMMERCE SECTOR May 28, 2015
TABLE OF CONTENTS
China e-commerce Sector 1
Table of Contents 2
CCBIS Investment Framework 3
Alibaba, VIPS and HC our top picks ..................................................................................................... 4
Favorable policy fuels growth 6
China e-commerce market 7
Girl power................................................................................................................................................... 15
Embracing m-commerce ....................................................................................................................... 15
Adopting the O2O model ...................................................................................................................... 19
Logistics: The key to e-success 24
2014 : Historical high for M&A 30
Business model the key to success 31
Cross-border e-commerce 38
Alibaba | BABA US 47
JD | JD US 59
VIP Shop | VIPS US 70
Jumei | JMEI US 82
HC International | 2280 HK 92
COGOBUY | 400 HK 102
2
CCBIS INVESTMENT FRAMEWORK
Initiating coverage on the China e-commerce sector. We like the sector

because of its multi-year revenue growth opportunities and because we believe
China is still in the early stages of e-commerce penetration. The 20% inflection
point for on-line retail transition value as a percentage of total retail value is still
an event to look forward to. We know from our tracking of mega-trends in
mobility and virtualization, that these trends tend to accelerate rather than
decelerate at higher penetration rates. 20% is a typical inflection point. On-line
retail in China as of 2014 is still at only about a 10% penetration rate. In our view,
the golden age of Chinas e-commerce players has yet to begin.
In order to help investors navigate Chinas e-commerce market, we developed

an investment framework for stock selection. Our framework takes into account
five characteristics that we believe could drive the long-term success of e-
commerce companies.
1. Large and growing addressable market relative to current market cap
2. Scale-advantage or first-mover advantage
3. Ability to differentiate on user experience
4. Clearly defined business model with multiple revenue streams
5. Capable management team with strong execution abilities
We initiate coverage on Alibaba (BABA US), JD (JD US), VIP Shop (VIP US) and
Jumei (JMEI US) with Outperform ratings on each. Our Outperform ratings on HC
(2280 HK, OP) and Cogobuy (400 HK, OP), both B2B sector companies, remain
unchanged. Alibaba is the leader in platforms, VIPS is a niche vertical player and
HC is the leading domestic B2B player.
BAT YTD PRICE PERFORMANCE JD/VIPS/JMEI/HC/COGOBUY YTD PRICE PERFORMANCE

HK$ HK$
180 90
80
160
70
140 60
50
120
40
100 30
80 20
10
60 Jan-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15
Jan-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15
HC (rebased) Cogo (rebased)
TENCENT Baidu (rebased) Alibaba (rebased) VIPS (rebased) Jumei (rebased)
JD
Source: Bloomberg Source: Bloomberg
3
Alibaba, VIPS and HC our top picks

Alibaba (BABA US, OP; TP: US$110.50, potential upside: 18%)
We initiate coverage on Alibaba with an Outperform rating and US$110.50 target

price based on 40x FY2017F P/E, slightly above the leading PRC-listed Internet
players. We like the companys leadership within the PRC e-commerce market,
new initiatives to improve monetization and ambitious in overseas expansion.
JD (JD US, OP, TP: HK$39.00, potential upside: 14%)
We initiate coverage on JD.com with Outperform rating and US$39.00 target

price. Our target price is based on 1.40x FY2016F P/S. We like the companys
leadership in retail on-line direct sales, unique fulfillment capabilities, good
traction in non-3C products, and partnership with Tencent.
VIP Shop (VIPS US, OP, TP: US$31.60, potential upside: 19%)
We initiate coverage on VIP shop with an Outperform rating and a target price
of US$31.60 based on 42x FY2016F P/E. We like the companys leadership in
Chinas online discount retailing, its unique flash sales business model and solid
merchandizing experience.
Jumei (JMEI US, OP, TP: US$25.70, potential upside: 12%)
We initiate coverage on Jumei with an Outperform rating and target price of

US$25.70, based on 42x FY2016F P/E. We like its timely and effective strategy for
addressing the issue of counterfeit products and its cross-border e-commerce
initiative Jumei Global.
HC (2280 HK, OP, TP: HK$14.90, potential upside: 26%)
We maintain our Outperform rating on HC and keep our target price at HK$14.90,
based on 1.0x FY2015F PEG, which translates to 38x/24x FY2015F/2016F P/E. We
like its leading position in the SME B2B segment and expect its revenue
diversification efforts, namely Micro-loan JV, Shunde O2O project, acquisition of
ZOL, to be fully reflected in 2016F. We expect more vertical M&A to speed up
HCs transition to B2B2.0.
Cogobuy (400 HK, OP, TP: HK$15.60, potential upside: 10%)
We keep our Outperform rating on Cogobuy and raise our target price of
HK$15.60 is based on 1.0x FY2015F PEG. We like the companys B2B2.0
transaction-based business model in the large and lucrative IC and electronics
vertical. Marketplace and supply-chain financing are the twin engines for growth
with INGDAN as an extra booster.
Risks (1) Slowdown in China and/or the global economy, (2) greater competition
with on-line and off-line players, and (3) Changes in government policies
4
CHINA E-COMMERCE SECTOR VALUATION MATRIX

CCBIS Market cap EPS Growth (%) P/E (x)
Company Stock code rating Share price* (US$ m) CY15F CY16F CY17F CY15F CY16F CY17F
E-commerce
Alibaba BABA US Outperform US$92.60 228,260 25.4 40.8 34.2 47.2 33.5 25.0
JD.com JD US Outperform US$34.25 47,329 N/A N/A 182.3 N/A N/A N/A
VIP Shop VIPS US Outperform US$26.54 15,351 82.8 70.0 42.5 59.9 35.2 24.7
Jumei JMEI US Outperform US$22.90 3,278 12.2 21.9 44.5 45.6 37.4 25.9
HC International 2280 HK Outperform HK$11.80 1,015 14.8 64.5 17.6 29.9 18.3 15.6
Cogobuy 400 HK Outperform HK$14.18 2,589 57 58 40 45.4 28.4 20.3
Average 45.9 30.7 22.4
Mobile Internet
Baidu BIDU US Outperform US$201.45 70,656 25 18 41 31.9 26.9 19.3
360 Qihoo QIHU US Outperform US$54.74 6,893 119 57 43 32.5 20.0 14.1
Ctrip.com CTRP US Not Rated US$81.52 11,030 (76) 232 125 278.8 84.1 37.4
Autohome ATHM US Not Rated US$48.25 5,297 42 48 36 44.1 29.8 21.9
YY YY US Outperform US$70.04 3,970 120 27 30 21.1 19.0 13.1
Youku YOKU US Not Rated US$27.37 5,291 N/A N/A N/A NM NM NM
58.com WUBA US Not Rated US$77.51 8,955 (4) N/A N/A NM NM NM
BitAuto BITA US Not Rated US$64.61 3,883 87 (40) 145 34.1 57.1 23.3
Qunar QUNR US Not Rated US$47.68 5,701 N/A N/A N/A NM NM NM
Weibo WB US Not Rated US$15.95 3,248 N/A N/A 153 NM 59.8 23.7
Soufun SFUN US Not Rated US$7.95 3,282 (15) (28) 34 12.4 17.2 12.8
51Job JOBS US Not Rated US$31.70 1,885 (14) 48 18 26.5 17.9 NM
Sina SINA US Not Rated US$41.89 2,444 10 (33) 132 47.9 71.6 30.8
Momo MOMO US Not Rated US$19.11 3,609 N/A N/A 196 NM 85.6 28.9
Cheetah Mobile CMCM US Not Rated US$32.97 4,613 N/A 392 1,358 2,154.5 437.9 30.0
Sohu SOHU US Not Rated US$65.58 2,530 N/A N/A N/A NM NM 64.9
Leju LEJU US Not Rated US$8.05 1,117 N/A 27 25 18.8 14.7 N/A
Tian Ge 1980 HK Outperform HK$6.93 1,127 N/A N/A 25 NM 25.7 20.5
Xunlei XNET US Not Rated US$10.08 655 N/A 200 N/A 152.0 50.7 N/A
Average 245.7 69.1 26.2
Game
Tencent 700 HK Outperform HK$157.90 189,312 57 31 25 49.1 38.2 29.9
Netease NTES US Not Rated US$144.39 18,801 4 23 21 24.0 19.5 16.1
Kingsoft 3888 HK Neutral HK$31.10 4,718 10 -32 131 39.9 37.9 24.9
Changyou CYOU US Not Rated US$32.82 1,701 N/A N/A 9 NM 10.7 9.9
Perfect World PWRD US Not Rated US$19.70 985 20 N/A N/A 11.7 N/A N/A
Netdragon 777 HK Not Rated HK$38.40 2,437 7 62 16 87.8 54.2 46.9
Boyaa 434 HK Outperform HK$8.15 797 68 7 30 15.0 12.1 9.6
IGG 8002 HK Not Rated HK$6.49 1,148 133 10 24 17.1 15.5 N/A
CMGE CMGE US Not Rated US$19.80 624 693 80 N/A 17.1 9.5 N/A
Ourgame 6899 HK Not Rated HK$9.00 890 91 53 46 43.2 28.1 19.3
Average 33.9 25.1 22.4
* Price as at close on 27 May 2015
Source: Bloomberg, CCBIS estimates
5
FAVORABLE POLICY FUELS GROWTH
On 6 May, 2015, China announced plans to speed up the implementation of the

going global strategy according to Premier Li. On 7 May, 2015, the State
Council announced that it will boost the development of e-commerce by
cutting red tape and liberalizing investment regulation of the sector. The new
measures include a tax cut, simpler administrative procedures and a push for
entrepreneurship within the e-commerce sector. It set the goal of establishing an
e-commerce market that is open, orderly and reliable by 2020.
We believe e-commerce could be a powerful policy tool as by supporting these

businesses, the government is not only promoting e-commerce, but it is
supporting the shift in Chinas growth from manufacturing and exports to the ICT
sector, to innovation and to consumption.
To boost the development of e-commerce, the State Council vowed to:
1) Lower the entry threshold to the e-commerce market
2) Reduce tax in a reasonable manner
3) Design regulations and systems to ensure the quality of products sold on online
shops and fair competition
4) Promote employment and startups in e-commerce
5) Encourage traditional industries and rural areas to embrace e-commerce.
6) Encourage domestic e-commerce companies to invest abroad
7) Safeguarding cyber security and online transactions
On 25 May, 2015, the State Council set out details of an import tariff cut, the first
concrete step taken since the earlier announcement (28 April) of plans to cut
tariffs to encourage domestic consumption. Tariff cut details were given for the
following categories: skin care (from 6.5% to 2%), diapers (from 7.5% to 2%),
footwear (from 22/24% to12%), suits/fur (from 14/23% to 7/10%). No change of
consumption tax was announced at this stage, although we expect a reduction
at a later stage, as consumption tax makes the strongest tax impact on price.
In our view, the import tariff cut does not impact cross-border e-commerce
players since the tariff is applied to landed price rather than retail price. With a
skin care product, for example, the impact on a RMB300 retail price item would
be merely 1%.
6
CHINA E-COMMERCE MARKET
2013 marks the year that China surpassed the US to become the largest online
shopping destination globally according to Euromonitor. The Chinese e-
commerce market in term of transaction value topped RMB12.3t in 2014F and is
expected to reach RMB24.2t by 2018 according to iResearch. In our view, China
will continuously be the biggest driver of global e-commerce growth and
account for more than 40% of the global e-commerce market.
CHINA SURPASSED THE US TO DOMINATE GLOBAL E-COMMERCE IN 2013 BY TRANSACTION

VALUE
Others
13%
China
France 36%
4%
Japan
6%
Germany
5%
UK
US
7%
29%
Source: Euromonitor, CCBIS
According iResearch, the size of China e-commerce market was up 24% CAGR
for 2011-2014, reaching RMB12.3t in 2014. We share the view with iResarch that
the China e-commerce market will grow at an 18% CAGR in the next four years
to reach RMB24.2t by 2018F, effectively doubling the current market size.
7
CHINA E-COMMERCE MARKET TO DOUBLE IN 4 YEARS

RMB trillion
30
25 24.2
21.1
20 18.0
15.0
15
12.3
10.1
10 8.1
6.4
5
0
2011 2012 2013 2014 2015F 2016F 2017F 2018F
Source: iResearch, CCBIS
B2B is still the backbone of Chinas massive e-commerce market, accounting for
73.4% of the total market (including SME and blue chip B2Bs) as of 2014,
according to iResearch. Online shopping has been rapidly gaining share. It went
from 16.0% in 2012 to 22.9% in 2014 and is expected to reach 30% in 2018F. Online
travel and O2O are relatively smaller markets though they are also growing.
B2B STILL THE BACKBONE OF CHINAS E-COMMERCE ONLINE SHOPPING IS GAINING MARKET SHARE
Online O2O Online O2O 2018E

travel 1% 2014E travel 2%
2% 3%
Online
shopping Online
23% shopping
30%
SME B2B
SME B2B
48%
50%
Bluechip
B2B Bluechip
24% B2B
17%
Source: : iResearch, CCBIS Source: : iResearch, CCBIS
We estimate that Chinas B2B industry entered its growth stage sometime in 2005.
One of the main developments of this stage is that B2B companies begin to realize
a profit and the sector begins to once again attract the attention of investors.
From 2008, many new B2B companies with innovative business models came into
the Chinese market, including DHgate and 315.com. We are currently at the late-
growth stage of the B2B e-commerce development cycle according to iResearch.
B2B business models are evolving from primarily information service platforms to
transaction-based platforms on their way to ultimately becoming resource
consolidation platforms.
8
WE ARE AT THE LATE GROWTH STAGE OF B2B E-COMMERCE IN CHINA
Resources consolidation platform
Transaction services platform
Information services platform
Emerging phase Start up phase Growth phase Mature phase
Prior to 1997, China's B2B 2008 financial crisis

2003, major B2B websites
market is dominated by awakes many SMEs the
Many B2B websites started to realize profit;
governement projects. importance of E-
closed post the internet B2B industry won back
As international trade commerce, a cheap
bubble. B2B industry is investor attention,
becomes more active, and effective way to
more profit driven from segmentation of B2B
domestic B2B platform is attract business, diverse
2000 onwards. market starts, entering
emerging driven by B2B business models in
the growth stage.
Venture capital development
1997 1999 2000 2003 2005 2007 2008 2020 ..
2005,
1999,
Alibaba 2008, new
Alibaba 2007,
acquired generation
officially Alibaba
Yahoo B2B platform
started, listed in HK,
China, emerged
followed and
vertical , such as
by many expanded
eCommerce DHgate,
new overseas
platform 315.com
comers
emerged
Source: iResearch, CCBIS estimates
As of 2014, online shopping accounted for 22.9% of Chinas e-commerce market

by transaction value, making it the fastest growing subsector of the e-commerce
market with 23% CAGR for 2015F-2018F. Thats well above the 17% e-commerce
industry average growth rate. The market size is currently RMB2.8t and is
expected to triple in four years.
CHINA ONLINE SHOPPING MARKET TO GROW 2.6X IN 5 YEARS

RMB trillion
8
7.3
7
6.3
6
5.2
5
4.0
4
2.8
3
1.9
2
1.2
1 0.8
0
2011 2012 2013 2014 2015F 2016F 2017F 2018F
9
Low online shopper penetration rate. Chinas retail industry is highly fragmented
with the top-20 retailers having a combined market share of 11.6% in 2013,
compared with 40% in the US. China has yet to unlock the potential consumption
power of its citizens as income levels continue to rise. Rapid urbanization and
changing demographics point to a rising percentage of consumption in Chinas
real GDP.
Competitive landscape in B2B

Within the business-to-business (B2B) space, HC International is one of the few
purely domestic players. It had 4.2% market share in 2014 according to iResearch.
By contrast, Global Sources, DHGate and Alibaba, tend to focus on international
trade.
MARKET SHARE OF TOP-5 B2B PLAYERS IN CHINA (2014)
DHGate
3% Others
33%
HC
4%
Global Sources
5%
My Steel Alibaba
20% 35%
Source: iResearch, CCBIS estimates
Within the business-to-consumer (B2C) space, Tmall dominates the market with
61% market share as of 2014 according to iResearch. Tmalls closest competitor is
JD.com with 18.6% market share. The top-two players combined took over 80% of
the B2C market in China. Tmall operates under a platform business model and JD
operates under a direct sales-focused business model. Other vertical players
such as Sunning, Guomei Online, VIP Shop, Jumei International, Dangdang, Yi
Haodian, and Amazon China specialize in different verticals focusing on
consumer electronics, apparels, cosmetics, books, food and beverages and
groceries.
Excluding Tmall, JD dominates the direct sales business model with 49% market
share followed by Suning and VIP shop, with 8.5% and 7.7% market share
respectively as of 2014 according to iResearch.
10
CHINA B2C MARKET BREAKDOWN BY GMV 2014 CHINA DIRECT SALES B2C MARKET BREAKDOWN 2014
Others Others
7% 14.8%
Jumei Jumei
1% 1.8%
Yixun Yixun
1% 2.9%
Amazan China Amazan China
1% 3.4%
Dangdang Dangdang
Tmall
1% 3.6% JD
61%
Yihaodian Yihaodian 49.0%
1% 3.9%
Guomei Guomei
2% 4.5%
VIPS VIPS
3% 7.7%
Suning JD Suning
3% 19% 8.5%
Source: iResearch, CCBIS Source: iResearch, CCBIS
Growth drivers of Chinas e-commerce market

China is yet to unlock its consumption power driven by rising income levels,
urbanization, changing demographics, and consumption upgrade, all of which
point to a rising percentage of consumption in Chinas real GDP. In 2013, Chinas
consumption was only 36% of GDP, hugely lagging 67% in the US, 59% in Japan
and 48% in Korea. Therefore, we believe theres ample room for Chinas
consumption to grow and we believe online purchases will play an important
part.
CHINA CONSUMPTION AS % OF GDP LAGS BEHIND RISING CHINA CONSUMPTION AS % OF GDP

70% RMB trillion
80 38%
71.8
60% 70 67.3
62.9 37.2%
58.7 37%
50% 60 36.8%
50 37%
40% 36.4%
40
67% 64%
30% 59% 30 24.8 26.7 36%
54% 21 22.9
48% 35.8%
20
20% 36%
36%
10
10%
0 35%
2013A 2014E 2015E 2016E
0%
US UK Japan France Korea China China Consumption China GDP
Global consumption as a % of GDP Consumption as % of GDP
Source: Bloomberg, CCBIS Source: Bloomberg, CCBIS
11
Higher penetration of online retail sales. In 2013, Chinas online retail penetration
was a low 7.9%, well below the US at 9% and Korea at 14%. Yet we see it picking
up rapidly. In 2014 it reached 10% and we expect it to reach 20% by 2018F. We
believe 20% is an inflection point from which online penetration will accelerate
rather than decelerate. We saw this with notebook penetration, online music
penetration and smart phone penetration. The history of the technology
markets megatrends suggests that penetration rates tend to rapidly accelerate
at around 20%.
CHINAS ONLINE RETAIL PENETRATION IS RELATIVELY LOW

16%
14.0%
14%
12.0%
12%
10% 9.0%
7.9%
8% 7.0%
6% 5.0%
4%
2%
0%
Korea UK US China France Japan
online retail penetration 2013
Optimizing product mix. The current online product offerings are concentrated in
categories such as apparel, electronics and household goods. These categories
accounted for only 16.6% of total consumption in China in 2013. As online retail
expands to more verticals and offers more categories online, it will likely help
boost online retail penetration, such as food & beverages, health goods and
education.
EXPANDING PRODUCT CATEGORIES THE WAY TO GO

Apparel
Others 8%
15% Electronics
4%
Recreation and culture
2% Household goods
Education 4%
2%
Jewelry & accessories
4%
Hotels and catering
4%
Food and beverages
Health goods 26%
7%
Transport
7%
Housing
17%
Source: Euromonitor,Alibaba prospectus, CCBIS
12
Less developed offline retail infrastructure. Unlike in the USs strong offline retailing,
Chinas offline retailing infrastructure is weak, with average retail space per
capita less than 1 sq.m compared with 2.6 sq.m in the US. About 60% of retail
sales came from non-tier 1-2 cities in China in 2012, according to the National
Bureau of Statistics of China. Tier-3 and -4 cities and smaller become an easy
target for e-commerce names as they are mostly served by local merchants and
have highly limited selection of goods.
CHINA: LESS DEVELOPED OFFLINE RETAIL INFRASTRUCTURE FUELS ECOMMERCE

GROWTH
3.0
2.5
2.0
1.5
2.6
1.0
1.5
1.3 1.3
0.5
0.6
0.0
US Germany UK Japan China
retail space per capital in squre meters
Source: Euromonitor, CCBIS
Improving Internet infrastructure. We have seen steady growth of Chinas

Internet infrastructure. In 2014, bandwidth increased 20.9% YoY to
4,118,663 Mbps, the number of websites was up 4.6% to 3.35m, and
domain names rose 11.7% to 20.6m. Internet penetration in China is
expanding at a quick pace driven by (1) improving Internet connection
infrastructure, (2) lower ASP of PCs, laptops, mobile phones and tablets,
and (3) high-speed cable. The number of Internet users rose from 111m in
2005 to 649m in 2014 generating an impressive CAGR of 21.7% for 2005-
2014.
CHINA: LOW INTERNET PENETRATION CHINA: INTERNET USER NUMBERS RISING FAST
100% million
88.0% 700 649 60%
90% 85.0% 618
82.0%
80% 600 564
513 50%
70% 500 457 47.9%
45.8% 40%
60% 384 42.1%
52.1%
48.9% 400 38.3%
50% 298 30%
34.3%
40% 300 28.9%
210
30% 20%
200 22.6%
137
111
20% 16.0% 10%
100
10% 10.5%
8.5%
0% 0 0%
UK Germany US Japan China 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Internet penetration as % of population, 2013 Internet user Internet penetration % of population
Source: CNNIC, IDC, CCBIS Source: CNNIC, CCBIS
13
Currently 47.9% of Chinas population is connected to the Internet. Of those, only

48.9% are Internet shoppers, a rate that is lower than most developed countries.
We attribute this somewhat weak penetration to (1) security concerns, (2) an
underdeveloped online payment system, and (3) weak protection of online
consumer rights.
CHINA: LOW ONLINE SHOPPER PENETRATION CHINA: INTERNET SAFETY CONCERN SURVEY 2014
80%
70% 68.0% Relatively

64.2% 63.8% safe
60% 45%
52.1% 48.9% Very safe
50% 4%
40% Hard to say
2%
30%
Very unsafe
20%
7%
10%
Not very
0% safe
Germany UK US Japan China 42%
Online shopper penetration
Source: CNNIC, IDC, CCBIS Source: CNNIC, CCBIS
Changing demographics. Although females account for only 44% of Internet

users in China, they tend to control a large part of family spending. In our view,
e-commerce is entering a sweet spot in terms of age and purchasing power
given that 55% of Internet users are between 20 and 40 years old. Statistically, this
is the demographic with the highest discretionary spending and the disposable
income to support its shopping habits.
55% OF INTERNET USERS ARE BETWEEN THE AGES OF 20-

44% OF TOTAL INTERNET USERS ARE FEMALE 40
10-19
23%
20-29
31%
Female below 10
44% 2%
above 60
2%
Male
56% 50-59
6%
40-49 30-39
12% 24%
Source: CNNIC, CCBIS Source: CNNIC, CCBIS
14
Girl power
One driver behind increasing female purchasing power in China is that the
number of working women is growing as the number of full-time homemakers is
declining. In mainland China, the average monthly family contribution from
females jumped from 20% in 1980 to 50% in 2014. According to a survey
conducted by The Economist, 91% of urban females from mainland China were
employed in 2014.
91% OF URBAN FEMALES IN CHINA HAVE DISPOSABLE

INCOME CHINA: FEMALES ARE FINANCIALLY INDEPENDENT
80%
70%
Others, 9%
60%
Man the only
family income 50%
source, 1%
40%
Live with parents Female working
and share family and co-support 30%
cost, 9% family, 62%
20%
Female the only
10%
family income
source, 8% 0%
China
Japan
HK
India
Taiwan
Macau
Korea
Singapore
Female working
but not support
family, 11%
Bank accout Credit card
Source: The Economist Intelligence unit, CCBIS Source: The Economist Intelligence unit, CCBIS
According to The Economist Intelligence Unit, women in China tend to make

most family purchase decisions, especially for apparel and cosmetics products
so marketing specifically to female consumers makes sense.
CHINESE WOMEN MAKE MOST OF THE PURCHASING DECISIONS

31%
Furniture 7%
52%
32%
Electronics 9%
49%
33%
Travel 5%
51%
50%
Home goods 5%
35%
57%
Maternety 2%
12%
67%
Groceries 5%
18%
73%
Apparel 2%
15%
81%
Cosmetics 2%
7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
She decides He decides Co-decide
Source: The Economist Intelligence Unit, CCBIS
Embracing m-commerce
15
Going mobile vital for growth. Chinas mobile Internet industry is one of the
fastest growing markets in the world. We believe rapid adoption of smart phones
and 4G networks will fuel mobile e-commerce, also referred to as m-
commerce.
CHINA: EXPLOSIVE GROWTH IN MOBILE PENETRATION CHINA: MOBILE DEVICES THE MOST POPULAR SURFING TOOLS
100%
million
600 557 100% 90% 85.8%
81.0%
500 90% 80% 70.8%
500 74.5%
85.8% 80% 69.7%
69.3% 420 70%
66.2% 81.0%
70% 60%
400 60.8% 356
60% 44.1%
303 50% 43.2%
300 50%
233 40% 34.8%
39.5% 40% 28.3%
200 30%
24.0% 30%
118 20% 15.6%
20%
100 50 10%
10%
0%
0 0%
Desktop Laptop Mobile Tablet TV
2005 2006 2007 2008 2009 2010 2011 2012
phone
Mobile internet user Mobile user penetration
2013 2014
Source: CNNIC, CCBIS Source: CNNIC, CCBIS
Chinas leading Internet players are working hard to attract mobile Internet users.
At the moment, Alibabas mobile Tmall attracts the most mobile traffic followed
by JD.
CHINAS M-COMMERCE MARKET SIZE MOBILE GMV TO OVERTAKE PC IN 2016F

RMB b 100% 1.5%
5,000 600% 5.8%
4,504 90% 14.5%
4,500 33.0%
490% 500% 80%
4,000 3,728 45.7%
70% 54.9% 59.2%
3,500 61.7%
400%
3,000 2,835 60%
297%
2,500 300% 50% 98.5% 94.2%
239% 85.5%
2,000 1,809 40%
200% 67.0%
1,500 30%
54.3%
930 95% 45.1% 40.8%
1,000 20% 38.3%
57% 100%
500 274 32% 21% 10%
12 69
0 0% 0%
2011A2012A2013A 2014E 2015E 2016E 2017E 2018E 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
mCommerce market size YoY % PC Mobile
16
Internet giants take the lead in mobile migration. With mobile handsets now the
most popular surfing tools, e-commerce players cannot afford to sit on the
sidelines in the battle for mobile traffic. Mobile apps and GMV from mobile
platforms have become essential measures of performance for Chinas m-
commerce players.
CHINAS M-COMMERCE MARKET SHARE AS OF 2014
Mobile Taobao+Tmall 86.2%

Mobile JD 4.2%
Mobile VIPS 2.1%
Mobile Suning 0.8%
Mobile Jumei 0.5%
Mobile Yihaodian 0.5%
Mobile Guomei 0.4%
Mobile Amazon 0.3%
Mobile Dangdang 0.3%
Maimaibao 0.3%
Others 4.4%
COMPARISON OF % GMV FROM MOBILE
80%
72% 70%
70%
60%
51%
50%
42%
40%
30%
20%
10%
0%
Alibaba JD VIPS Jumei
Source: Companies, CCBIS (Note: JD 42% = orders from mobile. All others GMV% from mobile)
Mobile businesses are booming globally. Rapid adoption of smart phones in

China has given rise to m-commerce business opportunities. We see the market
moving from traditional mobile retail to a mobile marketplace model and then
to on-demand services and app-based services. In addition, mobile also
empowers mobile payments, which enables a closed-loop mobile transaction
ecosystem.
17
GLOBAL MOBILE ROADMAP
Source: Trinity ventures, CCBIS
18
Adopting the O2O model

While regulatory issues are being worked out, traditional retailers and e-
commerce companies are exploring other ways to work together using O2O to
boost sales. Retailers tend to dislike showrooming, a practice whereby
consumers go to physical stores to check out products they are interested in only
to buy them cheaper online. But for some types of goods that are not easily
displayed online, combining bricks-and-mortar shopping with online shopping
can be a win-win strategy.
Although total sales from online shopping in China still represents less than 10% of
all retail spending in China, rapid growth of e-commerce will compel even
greater integration of offline and online retail business in ways that offer
consumers greater convenience and choice. This explains why O2O is becoming
the most popular model in Chinas Internet space. More companies are
embracing this model, either through organic growth or through M&A and
strategic partnerships.
E-commerce players going offline. We believe O2O is a natural move for e-

commerce players seeking to take advantage of the proliferation of
smartphones. Major Internet companies such as Alibaba and JD are investing
aggressively in O2O-related services.
In 2014, JD announced that it had established a separate O2O Business Group

(BG). This new O2O BG together with JD Mall, JD Finance, Paipai and JD Smart
Device formed the five new business groups for JD. Leveraging its newly
launched O2O service PaiDaoJia released on 16 March 2015, JD aims to
provide fast two-hour delivery services for fresh supermarket grocery products
within a 3 km area based on users location identified by their mobile devices.
The platform will provide other local life services such as flower and food delivery
and it aims to expand the service from Beijing to other high population density
cities such as Shanghai, Guangzhou and Shenzhen later in 2015. Given JDs
extensive last-mile delivery network, it has an advantage over its competitors in
terms of its ability to provide better delivery services.
JD DAOJIA
Source: Company, CCBIS
19
Alibaba has been venturing into the O2O field by rolling out a series of O2O
packages. In 2011, Alibabas Tmall.com opened a furniture mall in Beijing to
allow customers to test and touch sofas and beds in person before committing
to an online purchase. During 2013s Singles Day Shopping Festival, Chinas
biggest online shopping day, Tmall.com brands participating in the sale
extended promotional activities to 30,000 real-world outlets.
Another new O2O retailing practice is reverse showrooming, whereby

consumers are encouraged to conduct their initial product research online
before going to a real-world shop to check out products and complete
purchases. Reverse showrooming seems to work well for big-ticket items like cars.
During the Tmall Car Festival in July 2014, Chinese automaker Geely sold nearly
3,000 vehicles in a day by offering discounts to online customers who came to
Geely dealerships for test drives.
Still more O2O experimentation is taking place in so-called location-based

services (LBS). To help drive innovation in this area, Alibaba signed a deal with
Autonavi in 2014 to acquire the Chinese mapping and navigation firm. With
Autonavis mobile app, merchants on Alibabas e-commerce platforms can
advertise their offline locations to the apps users. During the Taobao Mobile
Shopping Festival in March 2014, Autonavi teamed up with Tao Diandian,
Alibabas online food delivery website, to make it easier for users to find
restaurants while on the go.
One of the downsides of online shopping is that consumers sometimes wait days
or weeks for home delivery. By partnering with chain stores that have numerous
outlets, virtual stores can avail themselves of a physical channel that gives
consumers the option of picking up their merchandise in person from stores in
their neighborhoods. For example, 2013 Taiwans Family Mart convenience store
chain teamed up with Taobao Marketplace to allow shoppers to opt to have
orders delivered to 2,900 Family Mart stores across Taiwan for pick-up. Such
alliances are likely to become more common.
To get a foothold in bricks-and-mortar territory, Alibaba invested in Intime Retail,

one of Chinas leading department store operators, to develop O2O
opportunities. This collaboration gives Tmall.com access to Intimes offline
inventory product database, hence increasing its SKU offerings from international
brands and also uses the physical department stores as fulfillment hubs for online
orders. Intime can leverage Alibabas mobile app and connect to in-store
shoppers and send them targeted promotions and benefits. During the Mobile
Taobao 3.8 Life Festival in 2014, Intime promoted the mobile Taobao app to its
customers for buying and sending virtual gift cards. According to Alizila, 37
department stores, 1,500 in-store brand outlets, 230 karaoke parlors, 288 movie
theaters and 800 restaurants from across China participated in the event, which
was a success for promoting the mobile Taobao app. Alibabas Taobao app
already has over 289 million MAUs (monthly active users).
20
ALIBABA X INTIME
Source: iHeima.com, CCBIS
Beginning in June 2014, Alibaba launched Mashangtao, its QR code scanning

division. Mashangtao helps its domestic online vendors and other industry
partners create QR codes in order to provide customers with easier access to
merchants business. During the 3.8 Womens Day in 2015 Alibaba launched the
QR code scanning shopping champion (at half price), which sold 300k rolls of
tissue paper, 40k bottles of washing liquid, 300k boxes of milk and 30k bottles of
cooking oil in 30 minutes. The event was considered a huge success. Thanks in
part to QR code scanning technology, Alibaba earned one-day revenue equal
to that of 1,000 supermarkets in large tier-1 cities. We see great potential from QR
code applications in China. It came as no surprise to hear Alibaba had invested
in Visualead in January 2015. Visualead is an Israeli O2O startup and pioneer in
visual QR code technology.
ALIBABA-MASHANGTAO QR CODE SCANNING APP ALIBABA 3.8 QR CODE SCANNING CHAMPION
Source: Alibaba, CCBIS Source: jb51.net, CCBIS
21
Traditional businesses going online If you cant beat them, join them. The
Internet has hurt many traditional businesses, especially offline retailers. Over time,
certain pioneering offline retailers began to embrace the Internet. Suning is one
such success story. Suning, founded in 1990, has long been an offline home
appliance chain distributor, with over 1,600 physical stores across greater China
and Japan. Facing strong online competition, Suning transformed its pure offline
strategy to one with an online presence. Suning.com is now the third-largest B2C
player by GMV in 2014. According to CEO Zhang Jindong, Suning is to become
supermarket with both online and offline distribution channels. Mr. Zhangs
described the model as Walmart meets Amazon He is aiming for
RMB300b/350b online/offline sales by 2020F.
SUNINGS OFFLINE-TO-ONLINE JOURNEY
1999 2000 2001 2013 2014 2015

1999, Nanjing 2000, one of 2001, proposed 2013, changed name to 2014 Mar, 2015 Apr, Suning
flagship store the first to "1,500 stores in Suning.com marks Suning mobile enter the
marks the adopt ERP 3 years " target transformation to established crowdfunding
transformation system eCommerce market within
to physical internet finance
chain store 2013, unification of space
model online/offline pricing
announced
Source: Company, Baidu, CCBIS
Going rural is a hot trend. Among Internet users in China, 27.5% come from rural
areas, amounting to 178m users as of 2014. Rural Internet penetration is much
lower than it is in urban areas due to disparities in education, income levels and
Internet infrastructure. However, we expect these gaps to narrow as the
government continues to push urbanization while improving rural Internet
infrastructure. We believe rural Internet shoppers will be an important growth
driver for Chinas e-commerce market.
22
28% INTERNET USERS COME FROM RURAL AREAS 2014 RURAL INTERNET PENETRATION STILL LOW
100% 62.8%
60.3%
90% 57.4%
Rural 80% 54.6%
28% 49.6%
70%
43.0%
60%
33.9%
50%
40% 26.0%
28.1% 28.8%
30% 24.2%
18.6% 20.7%
20% 15.5%
12.3%
7.4%
10%
Urban
72% 0%
2007 2008 2009 2010 2011 2012 2013 2014
Urban internet penetration Rural internet penetration
Source: CNNIC Source: CNNIC
JD, Suning and Alibaba fight for the rural market
JD opened its very first O2O rural service shop in Zhaoxian, Shijiazhuang (Hebei)
on 21 November 2014. The shop will first focus on home appliances and
gradually expand to other categories. There will be a physical goods display, QR
code scanning and services to purchase online on behalf of those who are not
computer literate at the service shop. In addition, the shop itself will be a pick up
point for orders purchased online. According to JDs plan, 500 service shops will
be established in 2015F, 1,000 shops in 2016F and 2,000 rural service shops in
2017F. As of 9 April 2015, more than 400 rural service shops were launched. This is
equivalent to three shops per day. On one day, 55 shops were opened, a single-
day record. Suning announced that it will set up 1,500 service stations in 2015.
The company has plans to reach 10,000 in five years. Alibaba announced in
October 2014 that it will invest RMB10b to establish 1,000 service centers and 100k
village-level service stations in three-to-five years.
SUNING SERVICE STATION JDS 1ST O2O SERVICE SHOP IN A RURAL AREA
Source: Chinanews, CCBIS Source: Baidu, CCBIS
23
LOGISTICS: THE KEY TO E-SUCCESS
Logistics and fulfilment services are a key differentiator for customers. It has
become a large cost item for small-parcel size e-commerce players. Fast and
affordable fulfilment could become a powerful weapon in the competition to
expand customer bases and we believe logistics may become a game-changer
for Chinas e-commerce industry.
Overview of Chinas logistics market

Chinas logistics industry is still in its very early stages of development. We believe
more consolidation and restructuring is crucial in the coming three years
because: (1) Chinas logistics industry is highly fragmented with many small
players operating at low profitability, and (2) it is becoming more difficult to
acquire land in strategic locations, which is likely to push international logistics
developers to establish strategic alliances with large domestic developers with
more access to industrial land.
CHINAS LOGISTICS MARKET IS IN THE EARLY STAGES OF CONSOLIDATION
China United States Domestic and

Air freight Road freight international express
Contract logistics
Air and sea freight
Contract logistics forwarding
International air freight

Road freight express
transportation
International express
Domestic air freight

Air freight forwarding
Domestic express
Ocean freight forwarding
Beginning: Growth: Consolidation: Alliance:

Stages of New markets with Fragmented Industry consolidation Major competitors
consolidation low competition markets and with increased market create alliances
as companies intensifying concentration
form competition
Source: A.T. Kearney analysis, CCBIS
Exploding growth for the express service

Since 2010, Chinas express delivery market has been growing at the
unprecedented rate of 57% p.a. on average. Express business volume more than
tripled from 2006 to 2013 leading to an average annual growth rate of 36%. As of
2014, express delivery contributed 63.9% of Chinas postal income, up 41.9% YoY.
24
EXPRESS CONTRIBUTED 64% OF POSTAL INCOME 2014 EXPRESS REVENUE GROWS 5 TIMES IN 6 YEARS
RMB b
250 45%
204.5 40%
200 35%
Others
36% 30%
144.2
150
25%
105.5
20%
100
75.8 15%
Express 57.5
40.8 47.9 10%
delivery 50
income 5%
64%
0 0%
2008 2009 2010 2011 2012 2013 2014
Express reveneue YoY growth
Source: SPB website, CCBIS Source: SPB, CCBIS
Chinas current express service market is undergoing a transformation from the

monopolized structure dominated by EMS to the market-oriented structure with
more private players joining. In the mid-to-late 1980s, UPS, FedEx and DHL started
to establish joint venture with Sinotrans Group to operate the international
express delivery service in China. Following Chinas official entry into WTO, UPS
and FedEx set up wholly-owned subsidiaries in China successively to carry out the
express delivery business in China since 2005. In 2007, TNT started began its own
operations in China through acquiring a Chinese company.
ROADMAP FOR EXPRESS COMPANIES IN CHINA
1985 1986 1993 1994 1999 2000 2005 2007
Source: Deloitte Research, CCBIS
25
Express market concentration has been decreasing since 2007. The share of the
aggregate income from the top four enterprises has dropped from 68.7% in 2009
to 55.9% in 2013. Intense competition has risen with the volume explosion while
ASP declined from RMB27 in 2008 to RMB15 in 2014.
EXPRESS DELIVERY ASP IS TRENDING DOWN DUE TO INTENSE COMPETITION

b pics RMB
16 30
14.0
14 27
26 25
25
12
21 20
10 19 9.2
8 16 15
15
5.7
6
10
3.7
4
2.3
1.5 1.9 5
2
0 0
2008 2009 2010 2011 2012 2013 2014
Express volume b Express ASP (RMB)
Source: SPB, CCBIS
In 2013, among the 20 major express brand names across the country, EMS, SF,
STO, YT, ZTO, Yunda, Tiantian, Best Express, ZJS and CCES were the top ten, with a
combined business volume accounting for 87% of overall express business in
China.
MARKET SHARE OF LEADING EXPRESS COMPANIES 2013
ZOT Express, 7%
Yunda Express,
9% EMS, 24%
YTO Express, 10%
STO Express, 12% SF Express, 19%
Source: SPB, CCBIS
26
MAJOR MARKET PLAYERS IN CHINAS EXPRESS DELIVERY INDUSTRY

Company name Note
SF Express As of January 2014, SF had nearly 240,000 employees, over 10,000 sets of transport vehicles, 14 owned freighters
() and over 7,800 business outlets throughout China and overseas.
China Post EMS EMS Logistics has business coverage across 31 provinces in mainland China and over 45,000 outlets located in
( EMS ) over 200 overseas countries and regions, including Hong Kong, Macao and Taiwan.
YTO Express YTO established eight major management areas, 72 transit centers, over 7,000 outlets across China. It serves
() over 2,100 cities. Its market share in 2012 was about 20%. It owns four all-cargo aircraft and over 20,000 vehicles.
STO Express In 2011, STO achieved sales of RMB11b. Gross profit margin was15% and net profit margin was between 7-8%.
()
DHL-Sinotrans Revenue in 2013 is RMB8.74b and net profit is RMB1.33b. Total assets reached RMB3.77b and net assets reached
RMB1.9b.
ZJS xpress ZJS has 31 provincial branches in China and has over 3,000 business outlets. The network covers over 2,000 cities
() and regions. It has warehousing and distribution centers of 250,000 square meters.
Yunda Express Its service covers 34 provinces (autonomous regions and municipalities). It has in the nearly 70 national transit
() center and nearly 10,000 service stations,
ZTO Express It has over 100,000 employees, over 6,000 service outlets, 70 distribution centers, over 40,000 vehicles.
()
TTKD Express It has over 6,000 outlets, over 60,000 employees, over 15,000 vehicles, and over 200 flight routes.
()
Best Express By the end of 2013, Bests service network covered the whole country, with over 90 distribution centers, nearly
() 10,000 outlets. It operates nearly 1,500 inter- and intra- provincial road routes.
UPS (China) Early in 2005, UPS became the first international express delivery company that has the right to operate
international delivery business in China. By the end of 2005, its business quickly expanded to 23 major
commercial cities in the country, covering over 200 cities.
FedEx (China) Since entering China in 1984, FedEx frequently changes its business partners, which include Sinotrans, Datong
International, and DTW Group. After wholly foreign-owned express companies being allowed by the
government, FedEx acquired shares of JV from DTW Group$ at US$400m and became a foreign express
company. Its services cover over 90% of the region in China
TNT (China) In 1988, TNT established JV with Sinotrans Group to start express business in China. In 2005, it opened
headquarters in Shanghai.
Source: Public information, CCBIS
27
Last mile deliveries

The relative scarcity of high-quality logistics providers in China is a problem for e-
commerce players. Complaints about late deliveries, damaged and lost parcels,
negative attitudes among delivery staff, slow collection and poor return
procedures are commonplace. These last-mile delivery and customer interface
issues inevitably affect the customer experience. Furthermore, e-commerce
players often struggle with the inability of logistics suppliers to handle large or
irregularly shaped shipments at lower costs. Few domestic express companies
are equipped to handle freight, and freight companies cannot provide door-to-
door service.
As a result, many large e-commerce players are building their own logistics
networks, using their own teams ensure quality. Improved quality and resource
control have proved worthwhile, both in terms of faster delivery times and a
better customer experience. In 2007, JD made the decision to build and operate
Jingdong's own nationwide fulfillment center.
SELF-OWNED LAST-MILE DELIVERY ONLY MAKES SENSE WHEN 2,000+ DAILY PARCELS PER CITY ARE DELIVERED
Source: A.T. Kearney analysis
However, building a self-owned logistics arm may not be suitable for every
company, only those with large volumes and high levels of efficiency, especially
in last-mile delivery, which often accounts for half of total logistics costs. JD.com
operated 143 warehouses and 3,539 delivery and pickup stations and its delivery
network covered 1,961 counties and districts and had 72,604 full-time employees
as of 31 March, 2015. Leveraging this nationwide fulfillment infrastructure, JD
delivered 689m orders in 2014 including direct sales and marketplace orders,
which is c1.89m orders per day. In-house delivery systems make sense only if
more than 2,000 deliveries a day in one city are needed. The average fulfillment
cost per order for JD is steadily decreasing from RMB23 in 2011 to RMB11.8 in
1Q15.
A new report by Roland Berger Strategy Consultants identifies ten major trends in
the Chinese e-commerce logistics industry.
28
Roland Berger's top ten trends for the Chinese e-commerce logistics industry are:
1. The logistics network model created by large e-commerce players has already
taken its shape. It will significantly undermine the typical interregional e-
commerce express services provided by nationwide express players.
2. Modernization of warehouses is accelerating, giving rise to the "neutral

warehouse operator" model in which warehouses are open to multiple e-
commerce and express service providers. This model will overtake the current
self-storage model.
3. Line-haul logistics players and e-commerce express players are extending

their business along the value chain to provide one-stop e-commerce solutions.
4. Intra-regional express is booming, driven by the development of distribution

channels in lower-tier cities and towns. Nationwide express and regional express
companies will compete fiercely in this market.
5. Line-haul logistics will shift towards semi-trailer operations, for which semi-trailer
and cargo terminal management are the keys to success.
6. Domestic air express logistics will remain an oligopoly.
7. High-speed rail may become an important capacity player in line-haul express.
8. The era of having a single dominant player in export e-commerce logistics is

over. The sector will now see more players competing for market share.
9. "Bonded online shopping", in which goods are imported and stored in bonded
warehouses in China and delivered to the consumer directly after an order is
placed, will enter a period of explosive growth. It is expected to seize half of the
import e-commerce market.
10. New business models in e-commerce logistics will become a new wave of
investment hotspots.
29
2014 : HISTORICAL HIGH FOR M&A
2014 was a historically hot year for M&As within the China Internet space. Major
players have since begun to aggressively enhance their existing areas of
business and expanding into other promising segments such as O2O and Internet
financing. With the strong cash flow and balance sheets, we expect the M&A
battle among cash-rich Internet giants to continue in 2015F.
M&A ACTIVITIES IN 2014

Company Target Deal date Amount (US$ m) Stake acquired Sector
Alibaba CITIC21 Jan-14 120 38% Healthcare
1stdibs Jan-14 15 N/A e-commerce
TutorGroup Feb-14 100 N/A Education
Ali Pictures Mar-14 805 60% Entertainment
Haier Mar-14 364 2%+CB(2.6%) Logistics
Byecity Mar-14 20 N/A Online Travel
Hundson Apr-14 539 100% Internet Finance
Wasu Apr-14 1063 Minority Entertainment
Autonavi Apr-14 1326 100% O2O
TangoMe Apr-14 217 20% Mobile Internet
Youku Tudou Apr-14 1220 17% Entertainment
OneTouch Apr-14 325 100% Logistics
Guangzhou Jun-14 196 50% Entertainment
Evergrande FC
UCWeb Jun-14 1233 100% Mobile Internet
Intime Jul-14 692 9.9%+CB(16.1%) O2O
Singapore Post Jul-14 246 10% Logistics
Kabam Jul-14 120 N/A Gaming
Shiji Tech Sep-14 458 15% Online Travel
Paytm Jan-15 575 30% e-commerce
OUYA Feb-15 10 N/A e-commerce
Meizu Feb-15 590 N/A Mobile device
Quixey Feb-15 60 N/A Mobile Internet
Enlight Media Mar-15 383 N/A Media
Zulily May-15 56 9% e-commerce
JD HotelVP Jan-14 10 100% O2O

Daojia Sep-14 70 N/A O2O
Misfit Dec-14 400 N/A Mobile Internet
Tuniu Dec-14 50 7% Online Travel
BitAuto Jan-15 1150 25% Auto
YiXin Capital Jan-15 100 18% Auto
VIPS Lefeng Feb-14 133 75% e-commerce

Ensogo Apr-15 5 N/A e-commerce
Source: Companies, CCBIS
30
BUSINESS MODEL THE KEY TO SUCCESS
There are three major e-commerce business models: B2B, B2C and C2C. New
business models such as B2B2C and C2B are also emerging and gain popularity.
B2B (Business to Business)

There are two major business models for the B2B online procurement market: the
transaction-based model and the information service model. The transaction-
based market in China is expected to significantly outpace that of the
information service market. In contrast to the information service model, where
authentic products are not guaranteed and which lacks pricing power, the
transaction-based model plays a more active role in the value chain and has
higher barriers to entry.
Transaction-based model is a relatively new business model within the online

procurement market. Cogobuy (400 HK, O) is currently adopting the transaction-
based model within the B2B space. Under this model, transactions are carried
out through the online platform either in the form of direct sales or through the
marketplace. For direct sales, the e-commerce platform operators buy IC
electronic components from suppliers, hold the inventory and then sell the
inventory to customers. To improve customer satisfaction, direct sales platform
operators generally exercise more stringent control over the selection and quality
of their products. They are able to help customers select products and can assist
with transactions, logistics, order fulfillment and after-sales support. As a result,
direct sales operators are better positioned to build brand recognition and
industry influence. According to Analysis International, the transaction value of
the transaction-based market reached RMB7.1b in terms of GMV in 2013.
Information Service Model. HCs (2280 HK, O) core business is still using this model,
however it is actively transitioning to transaction-based model. In this model, a
website functions as a catalog or business directory, providing suppliers and
customers with information that allows them to connect with each other without
any inventory being stored. It generates revenue mainly from user membership
and advertising fees. Membership subscriptions are typically targeted at suppliers
and paid members usually receive better services and achieve better results
than non-paying users. Membership subscriptions sometimes may include other
benefits for the subscriber such as better search results placement or display
advertisements Most of the existing online platforms, including major platforms
like Alibaba, adopt this model. The barriers to entry of this model are relatively
low because it is less involved in the supply chain. According to Analysis
International, the market size by revenue was RMB50.1 billion in 2013.
31
C2C (Consumer to Consumer)

C2C are e-commerce activities between individuals or SMEs. Alibabas Taobao is
operating the C2C model, however instead of transactions between individuals
such as on eBay, Taobao C2C sellers are mostly microbusinesses and SMEs.
Chinas e-commerce market is currently dominated by a C2C market, which
accounts for 54.2% of online shopping market share in 2014E according to
iResearch. Alibaba started with Taobao, which operated the C2C model and
educated the very first online shoppers. However, compared to C2C, B2C sellers
provide better product authenticity, better pricing, delivery and after-sales
service than C2C sellers, therefore we believe B2C will overtake C2C and
become the backbone of Chinas ecommerce market.
B2C TO OVERTAKE C2C GROWTH

100%
90%
80% 40.4% 37.9%

48.6% 43.9%
54.2%
70% 59.6%
65.4%
60% 74.7%
50%
40%
30% 59.6% 62.1%

51.4% 56.1%
45.8%
20% 40.4%
34.6%
10% 25.3%
0%
2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
B2C C2C
B2C (Business to Consumers)

B2C model is expected to be the fastest growing sub-segment of Chinas e-
commerce market with 42.8% CAGR 2014A-2017F. The main difference with C2C
is that sellers under the B2C model are usually enterprise merchants with own
brands or strong capital base. They are regulated and taxed, therefore more
trustworthy than individual sellers. B2C can be further break down to three main
models: the platform model, direct sales model and consignment sales model.
Alibaba operates under the platform model with no inventory risk while JD
adopted the direct sales model and VIP Shop opted for the consignment sale
model. Below is a detailed comparison of the three main B2C business models.
32
COMPARISON OF MAJOR B2C E-COMMERCE BUSINESS MODEL

Platform Direct sales Consignment sale
Typical players Taobao JD, Jumei VIP shop
Characteristic Buyers and sellers trade on Fully involved from product Platform sales on behalf of
platform specified rules sourcing, sales and marketing to brands
after sales delivery
Platform not involved in No need to buy 100% of the off-
merchants sales and daily Better quality and service season goods
operations control
Low inventory risk
heavy on front-end marketing Cost control as core
Usually on flash sales model
but light on after-sales control competitive strength
Pros Rich SKU offerings Strict product quality control Rich and diverse SKU offerings.
Scalable Better user experience Asset light model
Light asset model Pricing power on hand
Cons No pricing power Inventory risk Only applicable to categories

with low market consolidation
Cant guarantee product Limited SKUs
quality and authenticity High cost in supply chain
Large working capital needs
User experience not under Supplies not constant
control
Source: www.lagou.com, CCBIS
Platforms vs. direct sales. The online marketplace uses the Internet to bring
buyers and sellers online, which increases the asset utilization of markets
leveraging the heavy Internet traffic that often beats a small physical
market. Given our thesis that traffic is king, we believe strong user traffic
empowers leading platforms with bargaining power over sellers and
manufactures. Platforms often entail heavy traffic and direct contact with
end users; therefore the platforms are the perfect tool for data collection
and analysis that allows retailers to know their customers better than offline
sellers. As a result, Alibaba is better positioned to adopt the C2B model.
Platforms are often of an asset light model that is highly scalable on SKUs
and merchants and operates a higher margin than the direct sales model.
However, the platform model raises concerns such as (1) insufficient quality
control allows for more counterfeit products and can lead to high
complaint rates; (2) fulfillment and after-sales exchanges are delivered by
individual merchants and are hard to standardize across the platform and
shoppers cannot always buy with confidence; (3) the lack of pricing
power and deep discounted promotional events sometimes can be
difficult to organize; (4) No unique or exclusive SKUs and merchants can list
their products on multiple platforms, and consumers will go for the lowest
price, hence price wars are unavoidable.
33
PLATFORM IS A HIGHER MARGIN MODEL THAN DIRECT SALES TAOBAO TOPS THE COMPLAINTS LIST AS OF 1H14
90%
Vancl.com Xiaomi mall
70% 4.6% 3.0%
Yintai.com Shangpin100.cn
50% 5.0% 4.1%
VIPS
30% 5.3%
Guomei online
5.6% Others
10%
Yihaodian 33.9%
5.7%
-10%
Dangdang
7.9%
-30%
Yixun.com Taobao/Tmall
2010 2011 2012 2013 2014 17.0%
8.0%
Alibaba gross margin JD gross margin
Alibaba net margin JD net margin
Source: Companies, CCBIS Source: 100EC.cn, CCBIS
Luxury vs. high street offerings

As compared with the huge success of Taobao on its low ASP products targeting
the so-called grass roots consumers, luxury e-commerce players seem to have
a difficult time surviving and have transformed their business model from luxury to
more mass market offerings.
Among the first generation luxury e-commerce players such as Secoo, Shangpin,
5th Avenue and VIP Shop, VIP Shop successfully transformed into a flash sale
model targeting third- and fourth-tier cities. Others either shut down or
transformed to non-luxury or light-luxury models.
Shangpin for example transitioned from high-end luxury to light-lux and

partnered with Topshop, the UK high street brand, to make its product offerings
more consumer friendly (price range: RMB300-900). SECOO, on the other hand,
has transformed from a secondhand luxury goods trading website to a servicing
platform for high-end luxury goods, including flash sales, overseas direct sales,
secondhand trading, appraisal center, luxury maintenance, and offline
experience center (Secoo clubs).
34
SHANGPIN : PARTNERED WITH TOPSHOP SECOO : TRANITIONED TO LUXURY SERVICING PLATFORM
Source: Company, CCBIS Source: Company, CCBIS
Overseas luxury e-commerce players such as Net-a-Porter and YOOX are also
not particularly well received in China, although they are long-established and
quite famous globally. Net-a-Porter labels itself as the worlds premier online
luxury fashion retailer; it was launched in London in 2000 and is part of the Swiss
holding company Richmond. It produces its own high fashion editorial, has its
own brand PORTER magazine and its webpages are viewed by over 2.5m
women each month. YOOX group is the global Internet retailing partner of
leading fashion & design brands. It was established in 2000 and is listed on the
Milan Stock Exchange. In 2014, it had over 1.3m active customers, 3.4m orders,
15.2m monthly unique visitors and over EUR524m net revenue.
NET-A-PORTER : CONTENT HEAVY PREMIER RETAILER YOOX : MILANO LISTED LUXURY RETAILER
Vertical e-commerce. Vertical e-commerce is a model used by websites

that sell products from a particular industry or goods with a similar theme.
The model differs from that used by most large horizontal e-commerce
players like Taobao and JD, which offer a broader range of products.
Vertical e-commerce websites are often shops that offer professional
services to attract visitors.
35
VERTICAL E-COMMERCE PLATFORMS
HORIZONTAL PLATFORMS
Luxury Cosmetics Consumer Luxury

Electronics
Grocery
Private selling Fashion
Source: Cleargo, CCBIS
Customers find it easy to find a specific product they want on such vertical
websites, and more targeted marketing can be done through vertical e-
commerce players. For example, jumei.com and Lefeng are vertical e-
commerce players that focus on cosmetics. Online cosmetics shopping GMV is
expected to grow at 25.2% YoY to RMB123.7b in 2015F.
CHINA ONLINE COSMETICS GMV 2008-2015E

RMB b
140 120%
123.7
108%
120 100%
97% 98.8
100 79%
80%
67%
80 76.2
55%
60%
57.7
60
37.3 32% 30% 40%
40 25%
22.4
20 12.5 20%
6
0 0%
2008 2009 2010 2011 2012 2013 2014 2015E
China online cosmetics GMV RMBb YoY growth
36
LEFENG.COM JUMEI.COM
VIP Shop is a vertical e-commerce player that focuses on apparel flash

sales. Its counterpart Zulily (ZU US, NR) is a flash sales website for mother
and baby products. Alibaba took a 9% stake in Zulily recently.
ZULILY VIPS
Dangdang is a vertical e-commerce player that is particularly strong in

books. Yihaodian is a vertical e-commerce player in food and beverages.
37
DANGDANG YHD.COM
CROSS-BORDER E-COMMERCE
According to Nielsen research, combined mobile cross-border shopping in the

US, the UK, Germany, Australia, China and Brazil amounted to US$36.4b in 2013
and accounted for more than a third of all cross-border online shopping in these
markets. Cross-border shopping is expected to grow by 200% in the next five
years.
Mainland China became the third most popular online shopping destination in
the world, after the US and UK. Research shows that over 90m cross-border
shoppers across six markets (US, UK, Germany, Australia, China and Brazil) will be
spending over US$100b on overseas websites in 2014E.
MAINLAND CHINA IS THE 3RD ONLINE SHOPPING DESTINATION GLOBALLY

50%
45%
45%
40% 37%
35%
30% 26% 25%
25%
20% 18%
16%
14%
15%
10%
5%
0%
US UK China HK Canada Australia Germany
online shopping destinations
Source: Nielsen research, CCBIS
38
Market size of cross border e-commerce market in China. According to

100EC.cn, cross-border e-commerce GMV reached RMB155b in 2014E, up
102% YoY, and is expected to grow rapidly in the next three years amid
strong demand for price arbitrage as the price gap between Mainland
China and overseas is still gaping, for example as much as 67% on luxury
watches. Although the price gap is narrowing, as suggested by a recent
price cut of Chanel handbags, it still remains for most categories,
especially cosmetics, which are subject to 50% customs tax.
CHINA CROSS-BORDER E-COMMERCE MARKET SIZE PRICE GAP RANGE BETWEEN 19% TO 67%
RMB b RMB
1,200 14%
12.6%
1012 230
Milkpower 900g
1,000 12% 140
11.3%
10% 780
9.1% Lancome 30ml
800 715 620
7.0% 8%
5,228
600 iPhone 6 16G
5.7% 4,410
440 6%
400 3.7% 4.2% Swarovski Watch
6,600
3.5% 4% 3,954
250
200 147 19,200
77 2% LV handbag (Speedy 25)
27 48 15,600
0 0%
2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 0 5,000 10,000 15,000 20,000
Cross-border online retail market size Penetration Mainland China Overseas
Source: China e-commerce research Centre, CCBIS Source: Chuanshen cross-boarder e-commerce research, CCBIS
Tax is to blame
Taxes are the main reason behind the gaping price discrepancies, especially in
the case of cosmetics, which happens to be the No. 1 cross-border e-commerce
category in terms of transactions (28%) and is the most heavily taxed category at
50% customs tax. Cross-border e-commerce is subject to VAT and consumer tax
in addition to customs tax.
39
TOP 10 POPULAR CATEGORIES AND ITS TAX RATE CHINESE CORPORATES THE MOST HEAVILY TAXED
70%
Other local products 10%
Gym equipment 10% 60%
Food and beverage 10% 50%

milk power 10%
40%
Electronic products 10%
Apparenl 14% 30% 63.7%
Shoes and hats 18% 49.7%

20%
Handbags and luggage 20%
27.9%
10% 22.9%
Luxury watch 30%
Cosmetics 50% 0%
-5% 5% 15% 25% 35% 45% 55% Mainland Japan Korea Hong Kong
China
Custom tax rate % total tax paid as % of net profit
Source: Chuanshen cross-boarder e-commerce research, CCBIS Source: World Bank, CCBIS
A sample calculation
We took a sample luxury product that is priced at FOB US$400 or RMB2,480

(assuming CNY:USD exchange rate of 6.2), add 50% customs tax
2,480*50%=RMB1,240, post customs price becomes RMB3,720; then add 17% VAT,
3720*17%=RMB632, post VAT price=4,352; consumer tax 30% [3720/(1-
30%)]*30%=1,594, final after-tax price totaled RMB5,946, which is 2.4x the original
FOB price. If merchants charge 140% more in Mainland China, they are still
earning the same profit margin as overseas and 140% of the product price will be
paid the Chinese government in taxes.
140% TAX PAID ON IMPORTED LUXURY PRODUCT

Pre-tax price US$400=RMB2,480 (assume 6.2 FX rate)
Custom tax 2,480*50%=RMB1,240
VAT (2480+1240)*17%= RMB632
Consumption tax [(2480+1240)/(1-30%)]*30%=RMB1,594
After-tax price 2480+1240+632+1594=RMB5,946

Source: CCBIS
40
China Cross-border online shoppers

There are 18 million online cross-border shoppers in China, 78% are cross-border
mobile shoppers. Chinese cross-border shoppers spent RMB216b in 2013 of which
47.9% was spent by mobile shoppers. Up to 35.9 million online cross-border
shoppers expected to spend up to RMB1.0t a year by 2018F.
According to iResearch, only 15.3% of online shoppers experienced cross-border

online shopping in 2014 due to insufficient understanding of the overseas markets
and cross-border shopping procedures. However, we believe the relatively
under-penetrated market presents huge growth opportunities for more online
shoppers to engage in cross-border online shopping. Of those who have tried
cross-border online shopping, 51.4% are male shoppers and most concentrated
at the 26-35 years age group.
2014 CROSS-BORDER ONLINE SHOPPER- GENDER 2014 CROSS-BORDER ONLINE SHOPPER- AGE GROUP
under 18 0.4%
19-25 13.1%
Female 26-35 65.3%

Male 49%
51%
36-45 17.7%
above 46 3.4%
0% 20% 40% 60% 80%

2014 cross-border online shopper age group
Source: iResearch Source: iResearch
Cross-border logistics
The most popular items are pre-ordered and place at bonded warehouses.
Bonded warehousing is a preferential policy for goods entering China with
deferred payment for duty and tax and export goods from China and faster VAT
rebates. This delivery model allows merchants to bulk ship merchandise to the
bonded warehouses without being subject to standard commercial import
duties when the goods enter the country. Instead, merchandise is taxed at
special rates only after it is purchased by consumers and shipped to their homes.
41
CHINAS BONDED WAREHOUSING MAP
Source: Carlton Mansfield, CCBIS
Bonded logistics parks (BLP) are the most contemporary version of the bonded
warehouse in China. They are working hand in hand with the local ports allowing
services previously not possible within the older style import bonded and export
supervised warehouses. BLPs offer all the services and advantages available in
the older bonded warehouses, but can offer in addition:
VAT rebates available immediately upon entry to the facility (unlike export
supervised warehouses which require the goods to be assigned to a
particular vessel or flight before a rebate can be claimed)
Duty and VAT deferred for import cargo, and can be paid per piece vs.
per shipment once the cargo leaves the facility
Import and export cargoes do not have to be physically separated
No storage time limit
Many value added services do not require prior customs approval
Quality control measures are available
Some regional customs authorities allow month end customs declarations,

thereby reducing cost associated with multiple individual declarations
42
Direct purchase is the most traditional cross border logistics model. Because of
the longer distance the products have to travel, users usually receive their
ordered products within two weeks, which is in line with most peoples
expectations, but some may need to wait as much as one month and that is the
main complaint. Most cross-border shoppers use international express companies,
while 25% of them prefer to use a forwarder company to handle orders from
multiple websites.
MOST CROSS-BORDER ORDERS FULFILLED WITHIN 2

POSTAL PARCELS THE MOST FREQUENTLY USED METHOD WEEKS
above 5 weeks 2.3%

Others 0.2%
within 5 weeks 3.1%
Forwarder 24.6%
within 4 weeks 11.4%

Postal parcels 37.9%
International express 37.3%

within 1 week 7.8%
0% 10% 20% 30% 40% 0% 10% 20% 30% 40% 50%

2014 cross-border logistics 2014 cross-border delivery time
43
COMPARISON OF THE TWO IMPORT MODELS

Import model Direct purchase import Bonded import
Operation Consumers buy goods from abroad. These goods Foreign goods are temporarily stored in bonded
are shipped by international transportation means areas after arriving in China if someone purchases
and then reach domestic consumers directly. the goods, they will be regarded as personal items
and be delivered to domestic consumers with local
logistics.
Advantages Provides a variety of products, so Chinese consumers It takes less time to finish delivery; quality is
can directly communicate with overseas business guaranteed by customs supervision; convenience in
and buy scarce or novel products of good quality. after-sale services like changing and refunding
improves shopping experience.
Disadvantages It takes relatively longer, from 7 to 10 days. Limited categories of goods.
Goods price structure Commodity price + logistics costs + personal postal Commodity price + personal postal articles tax
articles tax (subject to adjustment of merchants) (subject to adjustment of merchants)
Typical pilot city Hangzhou, Guangzhou Kjt, KJB2C, Emace, Igetmall
Result N/A According to customs in Shanghai and Ningbo,

kjt.com was launched at the end of 2013. By the end
of March 2014, Kjt had completed 26,766 orders,
which mainly consisted of imported foods. Since
Ningbo commenced cross-border e-commerce
import business at the end of November 2013, 15,017
orders had been examined and approved valued at
RMB49.75 million by March 30, 2014.
Source: Carlton Mansfield, CCBIS
Major players in cross-border e-commerce
There are over 2000 cross-border e-commerce enterprises in China according to

China General Administration of Customs. The largest players are Tmall
international and JD Worldwide. eBay overseas featured channel also launched
its new website in April 2015.
44
TOP 10 PLAYERS IN CHINA CROSS-BORDER ONLINE MARKET 2014
1 Amazon China
2 Tmall Global
3 eBay
4 Sasa.com
5 yMatou.com
6 KJT.com
7 M6go.com
8 55haitao.com
9 Miyabaobei.com
10 Lotte
Source: Internet Weekly, CCBIS
POPULAR OVERSEAS ONLINE RETAILERS

Name Categories Services to Chinese shoppers
Macy's Department store Direct mail + CNY checkout
JC Penny Department store Direct mail + CNY checkout
Neiman Marcus High end department store Direct mail + Chinese website
Saks Fifth Avenue High end department store Direct mail + CNY checkout
Shopbop Fashion Direct mail + Chinese website
Myhabit Fashion Flash sale Direct mail + Chinese website+ CNY checkout
Gilt Fashion Flash sale Direct mail + Chinese website+ CNY checkout
Ashford Jewelry & Watch Direct mail + Chinese website
iHerb Maternity Direct mail + Chinese website+ CNY checkout
Tory Burch Light luxury brand Direct mail
Source: tech.163.com, CCBIS
45
Cross-border e-commerce business models
Cross-border e-commerce is the next battle ground for major ecommerce

players. Similar to domestic e-commerce, it also operates under five main
business models.
CROSS-BORDER E-COMMERCE BUSINESS MODELS

Business model Categories Typical players Founded
Mar-07
Cross-border
C2C procurement
procurement service 2013
service
platform
Jul-10
Feb-14
Direct shipping
3rd party B2C
platform Jun-11
Nov-13
Sep-14
Direct sales B2C Direct sales B2C 2013
Mar-14
Apr-12
Cash back platform B2C + C2C 2013
Sep-14
Oct-13
Cross-border flash sale

3rd party B2C Jun-14
platform
Sep-14
Source: tech.163.com, CCBIS
46
ALIBABA | BABA US
The only one
Government backing of e-commerce positive to

industry leader
Outperform (Initiation)
Current: Target:
Improving mobile monetization
US$ 92.60 US$ 110.50
(as at 27 May 2015) (Initiation)
Best proxy for e-commerce upcycle
TRADING DATA
Initiate with Outperform and US$110.50 target price, based on 52-week range US$77.77 120.00
Market capital (ADS)(m) US$228,260
40x FY2017F P/E, slightly above the leading PRC-listed Internet
Shares outstanding (m) 2,467
players. We like the companys leadership within the PRC e- 3M average daily T/O (m share) 18.8
commerce market, new initiatives to improve monetization and 3M average daily T/O (US$ m) 1,594
ambitious in overseas expansion. Expected return (%) 12 month 18.4
Worlds largest e-commerce platform. Founded in 1999 by Jack
Ma, Alibaba has grown to become the largest e-commerce platform in PRICE VS NASDAQ
the world with 350m annual active buyers. Competition within the e- HK$
130
commerce space is heating up yet we forecast Alibabas China retail
GMV will reach 25% CAGR FY15F-18F to RMB4.8T owing to 120
increasing active buyers. 110
100
On track mobile monetization to support growth. Alibabas
4QFY15 mobile GMV reached 51%, compared with 27% in 4QFY14 90
while MAU for the period was up 77.3% YoY (or 9.1% QoQ) to 80
289m. Alibaba has benefited from increasing mobile usage. Its 70

mobile monetization rate of 1.73% in 4QFY15 continues to lag Sep-14 Nov-14 Jan-15 Mar-15 May-15
Alibaba NASDAQ (rebased)
behind the PC monetization rate of 2.63%; however, we expect
mobile monetization at Alibaba to continue to trend up in FY16F/17F
and mobile GMV CAGR of 38% for FY15-18F.
FORECAST AND VALUATION STOCK PERFORMANCE

Year to 31 March 2014 2015 2016F 2017F 2018F Performance over 1M 3M 12M
Revenue (RMB m) 52,504 76,204 103,956 135,306 172,340 Absolute 9.1 8.8 36.2
YoY (%) 52.1 45.1 36.4 30.2 27.4 Relative (%) to NASDAQ 8.2 5.9 15.7
Net profit (RMB m) 23,315 24,261 31,502 44,610 60,202 Source: Bloomberg, CCBIS
YoY (%) 173.3 4.1 29.8 41.6 35.0
Diluted EPADS (US$) 1.42 1.56 1.96 2.76 3.71
Ronnie Ho
YoY (%) 145.8 10.5 25.4 40.8 34.2
(852) 3911 8259
P/E (x) 65.4 59.2 47.2 33.5 25.0
DPS (RMB)
Dividend yield (%)
Cheng Xing,CFA
P/B (x) 34.6 8.9 7.1 5.6 4.4
(852) 3911 8265
ROAE (%) 91.8 26.1 19.0 21.0 22.0
xingc@ccbintl.com
Net debt/equity (%) 19.7 Net cash Net cash Net cash Net cash
47
ELEPHANT CAN DANCE
We initiate coverage on Alibaba with an Outperform rating and target price of

US$110.50 which is based on 40x FY17F P/E and slight above the leading PRC-
listed Internet player Tencent (700 HK, Outperform). We like the companys
leadership within the China e-commerce market, new initiatives to improve
monetization and ambitious in overseas expansion. Following the fight over fake
merchandise on Taobao with the State Administration for Industry and
Commerce (SAIC) and concerns of slowing GMV growth, share price correction
of Alibaba took place starting late January this year. We are positive on Alibaba
for the long-term and we forecast robust 25% non-GAAP EPS CAGR for FY15-
FY18F to support our positive stance.
ALIBABA YTD PRICE PERFORMANCE VS. NASDAQ ALIBABA P/E BANDS SINCE LISTING
HK$
45
130
120 40
110
35
100
30
90
80 25
70
20
Sep-14 Nov-14 Jan-15 Mar-15 May-15
Sep-14 Nov-14 Dec-14 Feb-15 Apr-15 May-15
Alibaba NASDAQ (rebased)
Leading e-commerce player to ride on the industry growth. Founded in 1999 by

Jack Ma, Alibaba has grown to become the largest e-commerce platform in the
world. The company recorded 350m annual active buyers and recorded China
retail GMV of RMB2.4T in FY15. Although competition within the e-commerce
space is heating up, we forecast Alibabas China retail GMV CAGR of 25% for
FY15F-18F, translating to a two-fold increase to RMB4.8T by FY18F on the back of
increasing active buyers and improving monetization from both the mobile and
PC platforms. In our view, the wild card for further growth in FY17F/18F will be the
overseas market.
Mobile monetization well on track. Alibaba is benefiting from increasing mobile

usage. Mobile GMV topped 51% 4QFY15 compared with 27% in 4QFY14. Mobile
MAU was up 77.3% YoY or 9.1% QoQ to 289m in 4QFY15. Although Alibabas
mobile monetization rate of 1.73% still lags behind the PC monetization rate of
2.63% in 4QFY15, we expect mobile monetization improve to 1.99%/2.11% in
FY16F/17F with robust mobile GMV CAGR of 38% for FY15-FY18F.
48
Robust sales growth momentum. We look for Alibaba to record FY16F/17F sales
revenue growth of 36%/30% to RMB104b/RMB135b on the back of robust GMV
growth and improving monetization. We expect net income CAGR of 35.6% for
FY15-18F with net income of RMB60b by FY18F.
Risks: (1) A slowdown in China and/or in the global economy, (2) intensifying
competition with on-line and off-line players and (3) corporate governance on
the partnership system and VIE structure.
CHINA RETAIL COMPANYS MAIN BUSINESS
Alibaba recorded sales revenue from its China retail business of RMB59.7b, or 78%
of total sales revenue in FY15. The 39% YoY increase in sales revenue was driven
by growth in commission revenue and on-line marketing services. GMV
transaction for the China retail market place was up 45.6% YoY in FY15 driven by
mounting active buyers and higher GMV per average buyer. We believe the
increasing number of active buyers coupled with stable spending per buyer will
support robust retail commerce GMV CAGR of 25% FY15-18F.
CHINA RETAIL THE MAJOR REVENUE CONTRIBUTOR 2015 CHINA RETAIL STILL ALIBABAS MAIN BUSINESS
RMB m
Cloud Others 200,000
computing 7%
180,000
2%
International 160,000
commerce
140,000
9%
120,000
China
wholesale 100,000
4% 80,000
60,000
40,000
20,000
0
2013A 2014A 2015A 2016E 2017E 2018E
China retail
78% China retail China wholesale
International commerce Cloud computing
Others
Source: Company Source: Company
B2C the growth driver. We believe sales revenue growth for Tmall, which employs
a B2C business model, will eventually outgrow Taobao, which adheres to a B2B
business model. We look for GMV of Tmall to pass Taobao within the next few
years as on-line retail consumers in China turn more frequently to the web for
high quality brand products. We forecast Tmall GMV CAGR of 35% FY15-FY18F,
much higher than GMV CAGR at Taobao of 19% for FY15-18F. We expect Tmalls
GMV contribution to rise from 35% in FY15 to 44% in FY18F.
49
TMALL VS. TAOBAO GMV FOR FY13-18F
RMB b
6,000
5,000
4,000
2,683
3,000
2,297
1,931
2,000
1,597
1,000 1,173 2,086
824 1,681
1,256
505 847
0 253
2013A 2014A 2015A 2016E 2017E 2018E
Tmall GMV Taobao GMV
TIP OF THE SPEAR IN MOBILE PENETRATION
Mobile GMV was up an impressive 213% YoY to RMB997b in FY15 while mobile
GMV contribution topped 51% in 4QFY15, a big jump on 4QFY14 when mobile
GMV contribution of 27%. We attribute the rapid mobile uptake to high MAU
growth of 77.3% YoY (or 9.1% QoQ) to 289m in 4QFY15. Leading PRC Internet
companies are benefited from the improving user mobile experience that has
been realized through mass 4G adoption. As mobile usage for e-commerce
continues to rise, the mobile monetization rate for Alibabas retail on-line
platform has risen steadily, from 0.49% in FY13 to 1.79% in FY15. Although it was still
lagging behind PC monetization rate of 2.89% in FY15, we expect mobile
monetization at Alibaba to rise in FY16F/17F leading to mobile sales revenue
CAGR of 51% in FY15-18F.
MOBILE TAOBAO SNAPSHOT ALIBABA MAU CY3Q13-1Q15

m
350 83% 90%
79%
289 80%
300 71%
67% 265
64% 70%
250 59%
217 60%
200 45% 188
50%
163
150 136 40%
91 30%
100
20%
50
10%
0 0%
C3Q13 C4Q13 C1Q14 C2Q14 C3Q14 C4Q14 C1Q15
Mobile MAU m % of active buyers
50
Mobile MAU gains good traction. According to the China Internet Network
Information Center (CNNIC), China had 557m mobile Internet users by the end of
2014. As the number of mobile Internet users continues to grow and the mobile
user experience improves, we expect mobile e-commerce to underpin growth
within the retail e-commerce market owing to increasing mobile users. By 1Q15,
Alibaba had mobile MAU of 289m, a 77.3% YoY increase. We expect rising MAU
and better mobile monetization to drive mobile revenue growth.
Increasing mobile monetization rate is critical. Alibabas e-commerce platform is

attracting an ever growing number of mobile users. As it does do, the mobile
monetization rate for Alibabas retail on-line platform has risen accordingly, from
0.49% in FY13 to 1.79% in FY15. Although Alibabas mobile monetization rate still
lags the PC monetization rate of 2.89% in FY15. The upward trend of mobile
monetization is well underway at Alibaba because of its improving monetization
rate and better mix toward Tmall sales, which have a higher mobile monetization
rate.
Mobile payments vital for mobile e-commerce adoption. Alipay was one of the
earliest on-line payment service providers in China according to iResearch.
Alipay had over 80% of the mobile on-line payment market in 2014. In our view,
the rising popularity of Alipay along with Alibabas latest investment in the
renewed O2O initiatives will help to promote the usage of Alipay.
51
FREE-TRADE-ZONE POSITIVE TO TMALL GLOBAL
The purpose of Tmall Global, the international division of Tmall, is to provide

quality international goods to domestic consumers. Tmall Global has worked with
six free-trade zones (FTZs). Tmall Globals slogan is 100% foreign, original,
authentic, 100% foreign merchants, 100% domestic returns. The platform gives
Chinese consumers the opportunity to purchase high quality authentic overseas
goods. On the other side of the transaction, it gives overseas merchants access
the booming Chinese consumer market.
Type of stores on Tmall Global

Flagship store. Only brands with a trademark can open flagship stores on Tmall
Global. The owner of the store must be the formal representative of the brand in
question or else hold exclusive authorization documents for establishing a Tmall
flagship store provided by the formal representative of the brand.
Specialty store. Merchants with brand authorization documents availing them

distribution rights to sell products without geographical restrictions in the Greater
China region are eligible to open this store format.
Franchise store. Merchants holding brand licensing goods can open a franchise
shop in Tmall allowing retailers to sell two or more types of goods in several
different categories. There are two types of franchise store in Tmall: stores
authorized to sell goods of certain brand and stores authorized to sell multiple
sub-brands belonging the same controller.
TMALL CHINA DOMESTIC VS. TMALL GLOBAL INTERNATIONAL

TMALL China TMall Global
Target consumers Mainland China Mainland China

Legal entity and tax registration Within China Outside of China
Corporate bank account Within China Home Country Bank Account
Warehouse Within China Outside China
Trademark Registered in China Any country
Shipment and delivery Within China Overseas directly to Chinese consumers
Commission charge on sales 2% to 5% 3% to 6%
Consumer protection fee (one-time fee) RMB 30,000 to RMB 150,000 US$ 25,000
Technical maintenance fee (yearly fee) RMB 30,000 to RMB 150,000 US$ 5,000 or US$ 10,000
Source: Company, web2asia.com, CCBIS
52
COMPANY BACKGROUND
Founded in 1999, Alibaba is the Worlds largest e-commerce and m-commerce

company in terms of GMV. In China, Alibaba is the dominant e-commerce
player with 61.4% market share of the B2C online shopping market as of 2014
according to iResearch. Alibaba started as a B2B company, and then launched
C2C Taobao marketplace in 2003, which turned out to be a huge success as it
provided a free platform for buyers to explore products and for sellers to establish
a low-cost online presence. Aliwangwang, an instant messaging application,
was launched in 2004 to facilitate communications between buyers and sellers
online. Alibaba launched Tmall in 2008 in a bid to penetrate Chinas B2C market.
Three years later, Tmall Global was launched for cross-border transactions in 2014.
Alibaba was listed on the NYSE on 19 September 2014, becoming the largest IPO
in US history.
Recent developments for the company
The Alibaba ecosystem comprises B2C, C2C and B2B platforms, a payment
solution, cloud business and other services. Through aggressive M&A, Alibaba
has developed an ecosystem.
Change of CEO. Daniel Zhang, former COO of Alibaba Group, stepped up as

CEO of Alibaba Group on 10 May 2015. The prior CEO, Jonathan Lu, will become
Vice Chairman of Alibaba Group and will remain on the board of directors. Mr
Zhang has been with Alibaba for eight years. He joined the firm as CFO of
Taobao in August 2007 before he was named president of Tmall in 2011. He is the
main architect of the 11 November Shopping Festival, an event that has gone on
to become the worlds largest online shopping event. He has been served as
COO since September 2013 before being named CEO in May 2015.
Minority stake in YTO express. On 14 May 2015, Alibaba took a minority stake in
Shanghai YTO Express (Logistics), one of Chinas leading logistics companies. By
partnering with YTO Express, Alibaba hopes to improve the service quality and
user experience of its site. YTO Express is one of 14 logistics partners of Cainiao,
the logistics affiliate of Alibaba. Cainiao was founded by Alibaba in May 2013. Its
goal is to build a nationwide logistics platform for delivery companies,
warehouses and distribution centers.
Share lock-up expiration. Alibaba Group confirmed that approximately 437m

ordinary shares, including approximately 8m restricted shares and options that
were vested after the IPO are subject to the 180-day lock-up period and will be
available for sale starting 18 March 2015. Approximately 100m shares will remain
subject to Alibaba Groups employee trading restrictions until after the 2015 full-
year results announcement in May 2015. The next lock-up expiration date is
19 September 2015, which is 366 days after the IPO. On this date, the remaining
64.1% issued shares will be allowed to be traded.
53
Restructuring of Ant Financial completed. On 10 February 2015, Alibaba

announced that the restructuring of Alibaba and Ant Financials had come to
completion. While Alibaba sold its SME loan business and other related services
to Ant Financial for 37.5% of pre-tax income. Alibaba will no longer consolidate
financial results of the SME loan business but instead will pay Ant Financial an
annual payment processing fee. If Ant Financials goes public, Alibaba could
either keep receiving Ant Financials 37.5% pre-tax profit annually or acquire up
to 33% of its equity holding.
ALIBABA CORPORATE STRUCTURE

Alibaba Group Holdings Limited
(Cayman Islands)
100% 100% (partly through a

holding entity)
100% 100%
Taobao Holding Limited 100% Alibaba.com Limited 100%
(Cayman Islands) (through (Cayman Islands) (through
Intermediate Intermediate
100% holding 100% holding
entities) entities)
Alibaba.com Investment
Alibaba Investment Limited Taobao China Holding
Other Subisidiaries Holding LImited
(British Virgin Islands) Limited (Hong Kong)
(British Virgin Islands)
100% (partly through a

holding entity)
Wholly
foreign Taobao (China) Zhejiang Tmall Hangzhou Alimama Alibaba (China) Alisoft (Shanghai) Co.,
owned Software Co, Ltd Technology Co. Ltd Technology Co., Ltd Technology Co., Ltd Ltd
Variable
Interest enterprises
Simon
Equity Jack Ma
Xie
holders
Zhejiang Taobao Zhejiang Tmall Network Hangzhou Ali Hangzhou Alibaba Alibaba Cloud
Network Co., Ltd Co., Ltd Technology Co., Ltd Advertising Co., Ltd Computing Ltd
ALIBABA SHAREHOLDING STRUCTURE AS OF 26 MAY 2015
Softbank
32.4%
Others
38.2%
Fengmao
Investment
2.1%
Yahoo
Joseph Tai 16.3%
Jack Ma
3.2%
7.8%
54
Management background
ALIBABA MANAGEMENT BACKGROUND
Name Title Background
Jack Yun MA Founder, Executive Founder and executive chairman since May 2013
Chairman Serves on the board of Softbank
A director of Huayi Brothers
Chairman of the Nature Conservancys board of directors
Director of Breakthrough Prize in Life Science Foundation
Graduated from Hangzhou Teachers Institute majoring in English
Joseph C. TSAI Executive Vice Joined Alibaba in 1999 and is a founding member
Chairman Served as executive vice chairman since May 2013
Served as CFO of Alibaba
Worked with Investor AB from 1995 to 1999
VP and general counsel of Rosecliff from 1990 to 1993
Bachelors Degree from Yale University and Juris Doctorate Degree from Yale
Law School
Jonathan Zhaoxi Lu Vice Chairman Joined Alibaba in 2000 and was named vice chairman in May 2015
CEO from 2013 to 2015
Served on the board of directors of Youku Tudou
Served as a top executive officer of almost all key business units of Alibaba
Co-founder of a network communications company before joining Alibaba
Masters of Business Administration from China Europe International Business
School
Daniel Yong ZANG CEO Named CEO in May 2015

Joined Alibaba as CFO of Taobao in August 2007
Served as COO of Taobao and Alibaba Group
Serves on the boards of Alibaba Health, Haier, Intime Retail Group and Weibo
Served as CFO of Shanda Interactive Entertainment before joining Alibaba
Bachelors Degree from from Shanghai University of Finance and Economics
A member of the Chinese Institute of Certified Public Accountants
Maggie Wei WU CFO CFO of Taobao from 2007 to 2011

CFO of Shanda Interactive Entertainment from 2005 to 2007
Senior manager of PwC in Shanghai from 2002 to 2005
Audit partner at KPMG in Beijing before joining Alibaba
ACCA and CPA holder
Bachelors Degree from Capital University of Economics and Business
Peng JIANG Deputy Chief Joined Alibaba in 2000

Technology Officer President of Aliyun, YunOS and Digital Entertainment and deputy CTO since
September 2013
CEO of Alipay from 2010 to 2013
Served as president of Taobao Marketplace from July 2012 to January 2013
Bachelors and Masters Degree from Tsinghua University
Lucy PENG Chief People Officer Joined Alibaba in 1999 as a founding member
Reappointed as chief people officer in June 2014
Appointed CEO of Ant Financial in March 2013
Served as CEO of Alipay from January 2010 to February 2013
Bachelors Degree from Hangzhou Institute of Commerce of Zhejiang
Gongshang University
55
Financial summary
For FY15, 83% of company revenue was contributed by China Commerce, of

which China retail contributed 78% of total revenue. Taobao (51% of China Retail
revenue) and Tmall are both strong revenue generators. Although International
commerce accounts for only 9% of 2015 revenue, it is expected to generate a
CAGR of 35.5% for FY15F-FY18F. Cloud computing contributed 2% of 2015
revenue while other areas of the business contributed 7%.
ALIBABAS EXPANDING CUSTOMER BASE RISING SPENDING PER CUSTOMER AT ALIBABA

m RMB b RMB
700 60% 6,000 7,453 7,600
640
7,334
48% 7,400
600 542 50% 7,171 4,769
5,000
7,200
6,982
500 37% 445 3,977
40% 7,000
4,000
400 350 3,187 6,800
27% 6,580
30% 3,000 6,600
300 255 22% 2,444
18% 6,262 6,400
20% 2,000 1,678
200 172 6,200
1,077
100 10% 6,000
1,000
5,800
0 0%
0 5,600
2013A 2014A 2015A 2016E 2017E 2018E
2013A 2014A 2015A 2016E 2017E 2018E
Annual active buyers m YoY growth China retail GMV RMB b GMV per customer RMB
Robust revenue growth to continue. We forecast 31% sales revenue CAGR for
FY15-18F driven by solid growth of annual active customers and increasing
spending per customer. We believe Alibaba is the best proxy for investing in
Chinas e-commerce upcycle.
ALIBABA FINANCIAL SUMMARY

RMB m
200,000 80%
180,000 172,340
70%
160,000
135,306 60%
140,000
120,000 50%
103,956
100,000 40%
76,204
80,000 30%
60,000 52,504
34,517 20%
40,000
20,000 10%
0 0%
2013A 2014A 2015A 2016E 2017E 2018E
Revenue (LHS) Gross profit margin (RHS)
Operating margin (RHS) Net profit margin (RHS)
56
Stable GPM in FY15-18F. Gross profit margin at Alibaba was down 6ppt to 69% in
FY15 due to higher costs in new business initiatives, traffic acquisition and share-
based compensation. Lower operating and net margin in FY15 was due to
consolidation of UCWeb and AutoNavi. We expect Alibabas gross margin to
stabilize in FY16F onwards at around 69% but operating and net margin to rise as
new investments and share-based expenses wind up.
ALIBABA INCOME STATEMENT

FYE 31 Mar (RMB m) FY14 FY15 FY16F FY17F FY18F 1QFY16F 2QFY16F 3QFY16F 4QFY16F
Revenue 52,504 76,204 103,956 135,306 172,340 20,830 23,122 35,752 24,252
China commerce 45,132 62,937 87,147 113,527 143,927 17,158 19,140 31,193 19,656
International commerce 4,851 6,486 8,046 11,328 16,132 1,763 1,940 2,133 2,210
Cost of Revenue (13,369) (23,834) (32,724) (41,998) (53,431) (6,249) (7,862) (10,368) (8,246)
Gross Profit 39,135 52,370 71,232 93,308 118,909 14,581 15,261 25,384 16,006
Gross profit margin 74.5 68.7 68.5 69.0 69.0 70.0 66.0 71.0 66.0
Selling, general & admin expense (8,763) (16,313) (18,795) (20,185) (22,254) (4,270) (4,509) (6,257) (3,759)
Product development expense (5,093) (10,658) (11,768) (13,858) (14,284) (2,500) (2,890) (3,468) (2,910)
Operating Profit 22,076 23,135 38,122 56,663 79,769 7,175 7,225 15,023 8,700
Operating margin 42.0 30.4 36.7 41.9 46.3 34.4 31.2 42.0 35.9
Net finance cost (547) 6,705 3,700 3,900 4,100 925 925 925 925
Others 2,429 2,486 2,388 2,627 2,889 496 496 900 496
PBT 23,958 32,326 44,210 63,189 86,758 8,596 8,646 16,848 10,121
Tax Expense (3,196) (6,416) (11,053) (17,061) (25,160) (2,149) (2,161) (4,212) (2,530)
MI (88) (59) (80) (100) (120) (20) (20) (20) (20)
Profit to shareholders 20,471 24,261 31,502 44,610 60,202 6,033 6,070 12,222 7,177
Net profit margin 39.0 31.8 30.3 33.0 34.9 29.0 26.3 34.2 29.6
Non-GAAP net profit 20,682 34,981 42,049 55,612 71,624 8,669 8,707 14,858 9,814
Non-GAAP NPM (%) 39.4 45.9 40.4 41.1 41.6 41.6 37.7 41.6 40.5
EPADS (US$) 1.42 1.56 1.96 2.76 3.71
EPS Growth % 146 10 25 41 34 108 1 101 -41

GPM% 74.5 68.7 68.5 69.0 69.0 70.0 66.0 71.0 66.0
OPM% 42.0 30.4 36.7 41.9 46.3 34.4 31.2 42.0 35.9
NPM% 0.1 0.0 0.0 0.0 0.0 29.0 26.3 34.2 29.6
ROE % 91.8 26.1 19.0 21.0 22.0
Net Debt / Equity (%) 19.7 (66.2) (46.9) (59.0) (68.8)
57
ALIBABA | BABA US FINANCIAL SUMMARY
PROFIT AND LOSS BALANCE SHEET

FYE 31 March (RMB m) 2014 2015 2016F 2017F 2018F FYE 31 March (RMB m) 2014 2015 2016F 2017F 2018F
China commerce 45,132 62,937 87,147 113,527 143,927 Cash & equivalents 33,045 108,193 153,059 211,667 288,249
International commerce 4,851 6,486 8,046 11,328 16,132 Pledge dep., restricted 2,262 2,297 2,297 2,297 2,297
Cloud computing and 773 1,271 1,840 2,392 3,109 cash
Internet infrastructure Receivables 18,247 10,835 12,318 15,076 17,517
Others 1,748 5,510 6,922 8,059 9,171 Other current assets 14,279 20,784 20,784 20,784 20,784
Revenue 52,504 76,204 103,956 135,306 172,340 Total current assets 67,833 142,109 188,458 249,823 328,847
COGS (13,369) (23,834) (32,724) (41,998) (53,431) Property, plant & 5,581 9,139 9,063 8,737 8,161
Gross profit 39,135 52,370 71,232 93,308 118,909 equipment
Other income 2,429 2,486 2,388 2,627 2,889 Intangible assets 13,699 48,508 46,461 44,359 42,198
Operating expenses (14,215) (29,235) (33,109) (36,645) (39,140) Other non-current assets 24,436 55,678 55,580 56,412 57,259
EBIT 27,349 25,621 40,510 59,289 82,658 Total non-current assets 43,716 113,325 111,105 109,509 107,618
Total assets 111,549 255,434 299,562 359,332 436,465
Net financial income (547) 6,705 3,700 3,900 4,100
(expense) Short-term borrowings 10,364 1,990 1,990 1,990 1,990
JVs & associates (203) (1,590) (1,576) (1,418) (1,277) Trade & bills payable 4,875 22,567 26,534 31,294 37,006
Profit before tax 26,599 30,736 42,634 61,771 85,482 Other current liabilities 22,145 15,115 16,698 18,597 20,876
Tax (3,196) (6,416) (11,053) (17,061) (25,160) Total current liabilities 37,384 39,672 45,222 51,881 59,873
Total profit 23,403 24,320 31,582 44,710 60,322 Long-term borrowings 30,711 1,609 49,600 49,600 49,600
Other non-current liabilities 2,636 56,082 7,088 7,088 7,088
Minority interest (88) (59) (80) (100) (120) Total non-current liabilities 33,347 57,691 56,688 56,688 56,688
Net profit attributable to 23,315 24,261 31,502 44,610 60,202 Total liabilities 70,731 97,363 101,910 108,569 116,561
shareholders
Core profit 21,636 16,660 26,990 39,501 54,489 Share capital 27,043 117,142 117,142 117,142 117,142
Reserves and retained 12,696 28,955 68,457 121,467 190,488
Reported EPS (RMB) 8.78 9.70 12.16 17.12 22.98 profits
Diluted EPS (RMB) 8.78 9.70 12.16 17.12 22.98 Shareholders' equity 39,739 146,097 185,599 238,609 307,630
Core EPS (RMB) 9.28 6.66 10.42 15.16 20.80 Minority interest 1,079 11,974 12,054 12,154 12,274
Total equity 40,818 158,071 197,653 250,763 319,904
Total equity and liabilities 111,549 255,434 299,562 359,332 436,465
CASH FLOW RATIOS

FYE 31 March (RMB m) 2014 2015 2016F 2017F 2018F FYE 31 March 2014 2015 2016F 2017F 2018F
Profit before tax 26,599 30,736 42,634 61,771 85,482 Growth (%)
Amortization & depreciation 1,698 4,415 5,123 5,428 5,738 Revenue 52.1 45.1 36.4 30.2 27.4
Net financial charge adj. 5,771 (11,143) 8,080 8,500 8,940 EBITDA 127.7 3.4 51.9 41.8 36.6
Change in working capital (4,493) 23,796 4,164 3,070 4,704 EBIT 134.9 (6.3) 58.1 46.4 39.4
Tax paid (3,196) (6,416) (11,053) (17,061) (25,160) Net profit 173.3 4.1 29.8 41.6 35.0
Other (171) (80) (100) (120) Core net profit 135.8 (23.0) 62.0 46.4 37.9
Operating cash flow 26,379 41,217 48,869 61,608 79,583
Profitability (%)
Capex (4,776) (18,701) (3,000) (3,000) (3,000) Gross margin 74.5 68.7 68.5 69.0 69.0
Investment (27,430) (33,576) EBITDA margin 55.3 39.4 43.9 47.8 51.3
Other (791) (1,177) EBIT margin 52.1 33.6 39.0 43.8 48.0
Investment cash flow (32,997) (53,454) (3,000) (3,000) (3,000) Net margin 44.4 31.8 30.3 33.0 34.9
Core net margin 41.2 21.9 26.0 29.2 31.6
Change in borrowings 12,789 (26,653) (1,003) Tax rate 12.0 20.9 25.9 27.6 29.4
Equity issues (3,416) 90,099
Other (9) 24,051 Efficiency (days)
Financing cash flow 9,364 87,497 (1,003) Inventory turnover
Change in cash flow 2,746 75,260 44,866 58,608 76,583 Trades receivables 23 36 38 35 33
Trades payable 82 179 243 228 215
Cash & equivalents, begin 30,396 33,045 108,193 153,059 211,667
Forex (97) (112) Returns & leverage (%)
Cash & equivalents, end 33,045 108,193 153,059 211,667 288,249 ROAA 26.6 13.2 11.4 13.5 15.1
ROAE 91.8 26.1 19.0 21.0 22.0
Free cash flow 21,603 22,516 45,869 58,608 76,583 Net debt (cash)/equity 19.7 (66.2) (51.3) (63.8) (74.0)
Liquidity (x)
Current ratio 1.8 3.6 4.2 4.8 5.5
Quick ratio 1.8 3.6 4.2 4.8 5.5
Source: Company data, CCBIS estimates
58
JD | JD US
On the right track
Leading direct sales player in China

In-house fulfillment and logistics the differentiator Current price: Target:
Alternative way to invest in China e-commerce growth US$ 34.25 US$ 39.00
Initiate with Outperform rating and US$39.00 target price. TRADING DATA
We initiate coverage on JD.com with an Outperform rating and 52-week range US$21.78 36.75
US$39.00 target price based on 1.40x FY16F price-to-sales. We like Market capital (ADR)(m) US$47,329
the companys leadership in retail on-line direct sales, unique Shares outstanding (m) 1,380
3M average daily T/O (m share) 9.0
fulfillment capabilities, good traction in non-3C products, and
3M average daily T/O (US$ m) 282.8
partnership with Tencent. Expected return (%) 12 month 13.9
Direct sales e-commerce play with robust GMV growth. JD is
the largest direct sales B2C online retailer in China, with 49% share
PRICE VS NASDAQ
of total domestic retail direct on-line sales in 2014 according to
38
iResearch. JD is positioned to become a key beneficiary of Chinas
36
B2C ecommerce upcycle. We expect it to record GMV of RMB740b 34
by FY17F, representing a CAGR of 42% in 14-17F. 32
30
Fulfillment the core competence. Unlike Alibaba, which stuck to 28

26
an asset-light business model, JD invested heavily in fulfillment
24
infrastructure and a logistics network. As of 1Q15, JD operated 143 22
warehouses and a total of 3,539 delivery and pickup stations that 20
Jan-15 Feb-15 Mar-15 Apr-15 May-15
came to an aggregate GFA of 2.3m sq.m. We believe JDs nationwide
JD NASDAQ (rebased)
fulfillment network and superior delivery service differentiate it from
peers in the competitive retail on-line purchase market.

Year to 31 December 2013 2014 2015F 2016F 2017F Performance over 1M 3M 12M
Revenue (RMB m) 69,340 115,002 171,287 236,926 308,784 Absolute (2.9) 23.8 49.1
YoY (%) 67.6 65.9 48.9 38.3 30.3 Relative (%) to NASDAQ (3.8) 20.9 28.6
Net profit (RMB m) -2,485 -12,954 -1,151 1,982 5,615 Source: Bloomberg, CCBIS
YoY (%) N/A 421.4 N/A N/A 183.3
Diluted EPADS (US$) (0.47) (1.73) (0.14) 0.23 0.66
Ronnie Ho
YoY (%) N/A N/A N/A N/A 182.3
(852) 3911 8259
P/E (x) N/A N/A N/A 147.1 52.1
DPS (RMB)
Dividend yield (%)
Cheng Xing,CFA
P/B (x) 24.7 6.0 6.0 5.6 4.8
(852) 3911 8265
ROAE (%) -31.8 -55.4 -3.1 5.2 13.1
xingc@ccbintl.com
Net debt/equity (%) Net cash Net cash Net cash Net cash Net cash
59
LEADER IN THE FIELD

We initiate coverage on JD.com with an Outperform rating and US$39.00 target
price based on 1.40x FY16F price-to-sales, a 10% discount to the five-year forward
price-to-sales cycle of US e-commerce giant Amazon (AMZN US, Not Rated). We
like JDs leadership in on-on-line retail direct sales, unique fulfillment and logistics
capabilities, good traction in non-3C products and market place, and its
partnership with Tencent. We believe FY2015F will be a loss-making year for JD
but believe the company will turn a profit in FY16F.
JD AND KEY PEERS YTD PRICE PERFORMANCE AMAZON 5-YEAR PRICE TO SALES
2.3
38
36 2.1
34 1.9
32 1.7
30
1.5
28
1.3
26
1.1
24
22 0.9
20 0.7
Jan-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15
0.5
JD NASDAQ (rebased) Jan-05 Aug-07 Mar-10 Oct-12 May-15
Leading direct sales B2C player in China. According to iResearch, JD is the

largest direct sales online B2C retailer in China with 49% market share as of 2014.
iResearch forecasts B2C online purchases will grow at a 42.8% CAGR in 2014-
2017F. JD stands to benefit from B2C growth in China based on its established
B2C direct sales on-line purchase business. We forecast that by FY17F JD will
record GMV of RMB721b, representing a CAGR of 40% for 2014-2017F.
Fulfillment the differentiator. In our view, JDs nationwide fulfillment network and
last-mile delivery would be the key differentiator from its competitors. Its
sophisticated delivery services have earned it a reputation for speed and
accuracy. Similar to Amazon, JD invested heavily in fulfillment infrastructure. We
believe the next logical step for the firm is to expand its delivery network to
lower-tier cities while providing value-added services to its third-party market
place merchants.
Turning profitable in FY16F. We forecast JD will record FY15F/16F sales revenue

growth of 49%/38% to RMB171b/RMB237b on the back of increasing non-3C
direct sales and on-line sales. We expect the company to turn profitable in FY16F.
Risks. (1) Slowdown in China and/or the global economy, (2) greater
competition with on-line and off-line players, and (3) potential conflicts of interest
or competition with 17% stake holder Tencent.
60
EXPANDING INTO OTHER PRODUCT

CATEGORIES
Starting out as a 3C on-line retailers, JD expanded to general merchandise in

2009 and launched its market place business in 2010. JD is now the largest on-line
direct sales company in in China in terms of transaction volume in 2014. It has a
49% share of that market according to iResearch. JD offers a wide selection of
products though electronics products remain its key sales contributor with
around 90% of direct sales GMV in 2014. We believe JD is slowly transforming itself
into an all-category online retailer. Even so, sales growth for general
merchandise is likely to accelerate because of the better margins that business
currently offers and increasing customer reach. We forecast that by FY17F, JD will
record direct sales GMV of RMB400b, representing 36% CAGR for 14-17F. For the
same period we forecast general merchandize GMV of 49b, representing 42%
CAGR in 2014-2017F.
JD DIRECT SALES VS MARKET PLACE GMV JD ELECTRONICS VS GENERAL MERCHANDIZE GMV

450,000 400,000
400,000 350,000
350,000
300,000
300,000
250,000
250,000
200,000
200,000
150,000
150,000
100,000
100,000
50,000
50,000
0 0
2013 2014 2015E 2016E 2017E 2013 2014 2015E 2016E 2017E
General Merchandise Gross GMV Electronic Gross GMV
Direct Sales Gross GMV Marketplace Gross GMV
3P Marketplace. As an adjunct to its direct sales business, in 2010 JD launched its

on-line market place. Unlike the direct sales model, JDs market place does not
necessitate that the company carry inventory though JD will offer delivery and
advertising services to merchants. In our view, JDs market place will compliment
JDs existing product categories. We forecast market GMV of RMB322b in FY17F,
representing 47.2% CAGR in 14-17F.
61
Company background
Founded in 2004, JD.com is the largest direct-sales e-commerce platform in
China and the second-largest B2C player with 18.6% market share as of 2014F
according to iResearch. JD began as a 3C online distributor but quickly
expanded to general merchandise and market-place. As of 31 March 2015, JD
had 105.2m annual active customers (defined as being customer accounts that
made at least one purchase during the twelve months), including direct sales,
marketplaces and Paipai.com. JD offers 13 categories products with over 60,000
third-party sellers on its marketplace. The number of products JD.com offer
through Jingdong's online direct sales and marketplace has grown from 1.5 m
SKUs in 2011 to 7.2/25.7/40.2m in 2012/2013/2014 respectively. The company has
a clear advantage in fulfillment, and majority of orders were delivered within 48
hours thanks to its strong self-built infrastructure network, including 143
warehouses covering 2.6m sq.m and 3,539 delivery and pick-up stations. JDs
delivery network covers 1,961 counties and districts and is staffed by 72,604 full-
time employees. JD was listed on the NASDAQ in May 2014.
Recent acquisitions and developments
In addition to its direct sales e-commerce business, JD is expanding into

marketplace, automobile e-commerce, food importation and financial services.
Its approach is to form partnerships for each new category it adds to its business.
The ultimate goal is to become a high quality one-stop shop
Bitauto investment. In January 2015, JD and Tencent together invested a total of

US$1.55b in cash and resources to develop what has become Chinas leading
auto e-commerce platform, Bitauto (BITA US, Not Rated). JD purchased a 25.0%
stake in Bitauto and Tencent a 3.3% stake. CEO Mr. Liu Qiangdong believes the
deal offers a gateway to the car market and brings JD one step further to its
long-term strategy of partnering with industry leaders in the vertical categories
Food importation. In January 2015, JD launched Major Imported Foods, an

initiative to bring imported food to Chinese customers. JD has also partnered
with leading fine wine producers in order to source high-quality imported
products. Relying on JD's same- or next-day standard shipping and reputation for
quality, JD has been able to help international food producers tap the Chinese
consumer market.
Share issuance. In December 2014, JD announced the offering of 26m ADS. Each
ADS represents two class-A shares at US$23.80 per ADS. Tencent and Tiger
purchased US$150m and 47.6m ADS offered. JDs top-six shareholders, namely
the chairman, Tiger, Tencent and the selling shareholders have agreed not to sell
90 days after the offering.
Tencent partnership. In March 2014, JD signed a number of agreements with

Tencent and its affiliates. JD purchased a 100% interest in Tencents Paipai and
QQ Wanggou online marketplace businesses. The two firms also signed an eight-
year non-compete agreement.
Strategic investment in Kingdee. On 18 May 2015, JD announced it would invest

10% enlarged shares in Kingdee at a price of HK$4.60 per share, and both parties
will collaborate on providing SME integrated ERP solutions through cloud service.
62
Equity crowdfunding platform

According to a report from RONG360 entitled, China Internet crowdfunding
2014, cumulative crowdfunding raised in China in 2014 amounted to RMB900m.
JD entered this market in 2014 and established its JD Crowdfunding subsidiary. By
2014, JD dominated Chinas crowdfunding market with 16% market.
2014 CROWDFUNDING RAISED OVER RMB900M JD CROWDFUNDING THE LARGEST IN CHINA IN 2014
500 JD
450 crowdfunding
16%
400 104.35
350
Taobao
300 crowdfunding
250 9%
73.02
200 Zhongchou.cn
346.82
150 4%
27.08 Qingju.com
100 202.84
Others 1%
50 5.2 108.38 dreamore.com
69%
47.25 1%
0
1Q2014 2Q2014 3Q2014 4Q2014
Equity crowdfunding Donation crowdfunding
Source: rong360.com, CCBIS Source: rong360.com, CCBIS
JD launched its new JD Equity Crowdfunding platform in July 2014. The platform is
an important part of JD Finance. The platform leverages JDs Internet financing
offerings and is expected to be China's largest equity crowdfunding platform,
which allows investors to interact with potential fundraisers to determine product
design, manufacturing and pricing. More importantly, it provides China's
entrepreneurs with access to a broad range of early-stage investors. Each start-
up will later be able to sell its products through JD's e-commerce platform.
63
JD EQUITY CROWD FINANCING PLATFORM THE LARGEST IN CHINA
According to JDs business model, each of its investment projects will be led by a
professional investment manager while JD will take a small equity stake in
projects that successfully fund raising funding through JD Equity Crowdfunding.
As of March 2015, JDs crowdfunding platform has helped start-ups to raise over
RMB280m. Over 90% of these start-ups were able to reach their fundraising goals.
JD claims it is the largest crowdfunding platform in China, accounting for one-
third of funds raised through all forms of crowdfunding in China.
We believe the launch JDs Equity Crowdfunding platform will help JD in three
ways: (1) it will consolidate JDs leading position within the equity crowdfunding
space, an important element of JDs financing business, (2) it will improve JDs
sourcing abilities and secure popular innovative products that are exclusively
available on JDs e-commerce platform, and (3) JDs equity stake in successfully
funded projects will generate additional, potentially sizable returns for JD.
Ongoing investment in fulfillment infrastructure
Capital expenditure and marketing dollars are the two main factors that
determine JDs profitability. Budgets for both of these line items are solely the
discretion of the company. JD spent RMB1.1b on capital expenditures in 2012
and RMB1.3b in 2013, mainly to purchase land-use rights for premises intended
for warehouse construction and office buildings. Other expenses included
purchases of property, equipment and software and other intangible assets. JDs
RMB2.9b capital expenditure in 2014 was related to the expansion of fulfillment
infrastructure, its technology platform, logistics equipment as well as new office
buildings. JDs capital expenditures will continue to be significant for the
foreseeable future as the company expands its fulfillment infrastructure and
technology platform. We expect JDs capex to be RMB3.8b/2.0b/1.6b in
2015F/2016F/2017F, and its free cash flow break-even in 2015F, turning positive
thereafter.
64
JD FREE CASH FLOW TO BREAK-EVEN IN 2015F

12,000
10,232
10,000
8,000
5,671
6,000
4,000 3,130
2,902 4,620 2,720
2,000 1,148 2,220
906
1,292
135
0
(410)
(2,000)
FY12 FY13 FY14 FY15F FY16F FY17F
Free Cash Flow Capex
Shareholding structure
Similar to many other US-listed Chinese Internet companies, JD has a dual-class

share structure. Mr. Liu Qiangdong, founder and CEO of JD, holds 83.4% of the
voting power in the company. He holds 556m class-B shares, each of which
entitles him to 20 votes. In contrast, class-A shareholders are only entitled to one
vote per share. Tencent holds 17.6% of JD but has only 3.7% of voting power.
JD SHAREHOLDING STRUCTURE AS OF FEBRUARY 2015
Others
47.4%
Tiger Global
management
0.5%
Huang River
investment
0.6% Richard
Hillhouse Capital Qiangdong Liu
13.8% 20.2%
Tencent holding
17.6%
Source: Company
65
JD MANAGEMENT BACKGROUND
Qiangdong Liu Founder, Chairman, CEO 15y+ retail and e-commerce experience
Bachelors Degree in Sociology from Peoples University of China in Beijing
and an EMBA from the China Europe International Business School
Martin Chi Ping Lau Director Director at JD since March 2014

President and executive director of Tencent
Bachelors degree from the University of Michigan, Masters degree from
Stanford University and an MBA from Kellogg
Ming Huang Independent Director Served as an independent director at JD since March 2014
Professor of Finance at China Europe International Business School
Ph.D in Finance from Stanford University
Louis T. Hsieh Independent Director Served as an independent director at JD since May 2014
MD, TMT head of UBS Capital from 2000 to 2002
MBA from Harvard Business School
David Daokui Li Independent director Served as an independent director at JD since May 2014
Chair Professor of the School of Economics and Management of Tsinghua
University
Ph.D in Economics from Harvard University
Haoyu Shen CEO of JD Mall Former senior vice president at Baidu

Former consultant at McKinsey
Bachelors degree from Peoples University of China; MBA from the
University of Iowa ; CFA charter holder
Ye Lan Chief marketing officer Over 18 years experience in sales and marketing in greater China
EMBA from Tsinghua University
Yu Long Chief human resources Experienced in handling the legal affairs of US listed companies
officer Qualified attorney in the PRC
Bachelors degree from China Southwest Political and Law University;
EMBA from China Europe International Business School
Sidney Xuande CFO Former CFO of Pactera, a NASDAQ-listed IT services provider

Huang Former audit manager at KPMG, 1996-2000
MBA from Kellogg
Shenqiang Chen CEO of Internet finance Over 15 years experience in finance and accounting in China
Former CFO of JD from March 2012 to September 2013
Bachelors degree from Beijing Technology and Business University, MBA
from Beijing Institute of Technology, EMBA from China Europe
International Business School
66
Financial summary
In 2014, 61.2% of companys gross GMV was contributed by direct sales of which
electronics products contributed 89.1%. Although only 10.9% of direct sales gross
GMV from general merchandise, it is expected to record a CAGR of 42% for 14-
17F. While marketplace contributed 39% of total gross GMV in 2014 and we
expect market place gross GMV contribution will top 45% in FY17F.
INCREASING ACTIVE CUSTOMERS INCREASING GMV PER ACTIVE CUSTOMERS

m RMB m RMB
250 160% 800,000 4,000
212 3,404
140% 700,000 3,234 3,500
3,061
200
170 120% 600,000 2,648 2,694 3,000
2,616 2,503
150 100% 500,000 2,500

130
80% 400,000 2,000
97
100 60% 300,000 1,500
47 40% 200,000 1,000

50
29
13 20% 100,000 500
0 0% 0 0
FY11 FY12 FY13 FY14 FY15F FY16F FY17F FY11 FY12 FY13 FY14 FY15F FY16F FY17F
Active customers m YoY growth GMV RMB m ARPU RMB
Source: Company, CCBI estimates Source: Company, CCBI estimates
Robust revenue growth to continue. We forecast 39% sales revenue CAGR for 14-
17F driven by rising number of active users and increasing monetization of
market place. Despite stiff competition in the e-commerce space, we believe JD
is an alternative way to invest in Chinas e-commerce upcycle.
JD- MARGIN OUTLOOK

350,000 20%
308,784
12.7% 13.1% 15%
300,000 11.6%
9.9% 13.8%
8.4% 10%
250,000 236,926
5.5%
5%
200,000
171,287
0%
150,000
115,002 -5%
100,000
69,340 -10%
50,000 41,381
21,129 -15%
0 -20%
FY11 FY12 FY13 FY14 FY15F FY16F FY17F
Revenue RMB m Gross margin Operating margin Net margin
Profitable in FY16F. We forecast gross profit margin (GPM) will rise from 5.5% in
2011 to 14% in 2017F due to marketplace and category expansion. We expect its
operating and net margin will turn positive in 2016F once its major investments in
fulfillment and technology have been made.
67
JD.COM INCOME STATEMENT

FYE 31 December (RMB m) 2013 2014 2015F 2016F 2017F 1Q15 2Q15F 3Q15F 4Q15F
Revenue 69,340 115,002 171,287 236,926 308,784 36,641 42,489 44,989 47,168
Online direct sales 67,018 108,549 159,720 220,451 286,415 34,549 39,615 41,844 43,713
Services and others 2,322 6,453 11,567 16,474 22,370 2,092 2,875 3,145 3,455
Cost of Revenue -62,496 -101,631 -149,505 -205,830 -266,289 -32,175 -37,176 -39,180 -40,974
Gross Profit 6,844 13,371 21,782 31,095 42,495 4,466 5,313 5,809 6,194
Gross profit margin 9.9 11.6 12.7 13.1 13.8 12.2 12.5 12.9 13.1
Selling, general & admin expense -2,350 -9,270 -9,042 -12,083 -15,202 -1,906 -2,252 -2,384 -2,500
Fulfillment -4,109 -8,067 -11,059 -12,425 -14,097 -2,678 -2,762 -2,789 -2,830
Technology -964 -1,836 -3,532 -4,739 -5,867 -704 -892 -945 -991
Operating Profit -579 -5,802 -1,851 1,848 7,329 -823 -593 -310 -127
Operating margin -0.8 -5.0 -1.1 0.8 2.4 -2.2 -1.4 -0.7 -0.3
Net finance cost 335 609 690 592 585 154 159 179 199
Others 194 216 5 -125 -427 -45 -42 45 47
PBT -50 -4,977 -1,156 2,315 7,487 -713 -476 -86 119
Tax Expense 0 -19 5 -333 -1,872 3 -3 -3 7

MI 0 0 0 0 0 0 0 0 0
Profit to shareholders -2,485 -12,954 -1,151 1,982 5,615 -710 -479 -88 126
Net profit margin -3.6 -11.3 -0.7 0.8 1.8 -1.9 -1.1 -0.2 0.3
Non-GAAP net profit 224 363 898 4,064 7,729 -206 31 427 646
Non-GAAP NPM (%) 0.3 0.3 0.5 1.7 2.5 -0.6 0.1 0.9 1.4
EPADS (RMB) -2.93 -10.71 -0.84 1.44 4.08 -0.52 -0.35 -0.06 0.09
EPADS (USD) -0.47 -1.73 -0.14 0.23 0.66 -0.08 -0.06 -0.01 0.01
EPS Growth % 0.3 -2.7 0.9 2.7 -1.8 -0.9 -0.9 -0.5 -1.3
GPM% 9.9 11.6 12.7 13.1 13.8 12.2 12.5 12.9 13.1
OPM% -0.8 -5.0 -1.1 0.8 2.4 -2.2 -1.4 -0.7 -0.3
NPM% -0.0 -0.0 -0.0 0.0 0.0 -1.9 -1.1 -0.2 0.3
ROE % -31.8 -55.4 -3.1 5.2 13.1
Net Debt / Equity (%) -106.9 -40.1 -38.8 -48.7 -63.0
Source: Historical data from the Company, forecasts by CCBIS
68
JD | JD US FINANCIAL SUMMARY

FYE 31 December (RMB m) 2013 2014 2015F 2016F 2017F FYE 31 December (RMB m) 2013 2014 2015F 2016F 2017F
Online direct sales 67,018 108,549 159,720 220,451 286,415 Cash & equivalents 10,812 16,915 15,538 20,689 30,502
Services and others 2,322 6,453 11,567 16,474 22,370 Pledge dep., restricted cash 1,887 3,038 3,038 3,038 3,038
Receivables 502 2,436 3,629 5,019 6,541
Revenue 69,340 115,002 171,287 236,926 308,784 Inventory 6,386 12,191 18,432 25,376 32,830
COGS (62,496) (101,631) (149,505) (205,830) (266,289) Other current assets 2,892 15,362 15,895 16,534 17,301
Gross profit 6,844 13,371 21,782 31,095 42,495 Total current assets 22,480 49,942 56,532 70,657 90,213
Other income Property, plant & equipment 1,024 2,408 5,414 6,486 7,052
Operating expenses (7,423) (19,173) (23,633) (29,247) (35,166) Intangible assets 216 6,878 5,460 4,040 2,620
EBIT (579) (5,802) (1,851) 1,848 7,329 JVs & associates
Other non-current assets 2,290 7,265 8,065 8,765 9,365
Net financial 335 609 690 592 585 Total non-current assets 3,530 16,551 18,939 19,291 19,037
income(expense) Total assets 26,010 66,493 75,471 89,948 109,250
Other 194 216 5 (125) (427)
Forex Short-term borrowings 933 1,891 1,200 1,400 1,600
Profit before tax (50) (4,977) (1,156) 2,315 7,487 Trade & bills payable 11,019 16,364 24,576 33,835 43,774
Tax 0 (19) 5 (333) (1,872) Other current liabilities 4,818 10,741 12,736 15,131 18,005
Total profit (50) (4,996) (1,151) 1,982 5,615 Total current liabilities 16,770 28,995 38,513 50,366 63,379
Long-term borrowings
Extraordinary items (2,435) (7,958) Other non-current liabilities
Minority interest Total non-current liabilities
Net profit attributable to (2,485) (12,954) (1,151) 1,982 5,615 Total liabilities 16,770 28,995 38,513 50,366 63,379
shareholders
Core profit (578) (5,821) (1,847) 1,515 5,458 Share capital 13,772 47,147 47,147 47,147 47,147
Reserves and retained profits (4,532) (9,648) (10,188) (7,565) (1,275)
Reported EPS (RMB) (1.47) (5.35) (0.42) 0.72 2.04 Shareholders' equity 9,240 37,498 36,958 39,582 45,871
Diluted EPS (RMB) (1.47) (5.35) (0.42) 0.72 2.04 Minority interest
Core EPS (RMB) (0.34) (2.41) (0.68) 0.55 1.98 Total equity 9,240 37,498 36,958 39,582 45,871
DPS (RMB) Total equity and liabilities 26,010 66,493 75,471 89,948 109,250
CASH FLOW RATIOS

FYE 31 December (RMB m) 2013 2014 2015F 2016F 2017F FYE 31 December 2013 2014 2015F 2016F 2017F
Profit before tax (50) (4,977) (1,156) 2,315 7,487 Growth (%)
Amortization & depreciation 293 1,651 2,233 2,368 2,474 Revenue 67.6 65.9 48.9 38.3 30.3
Net financial charge adj. 284 4,350 611 642 674 EBITDA (83.8) 1,354.8 N/A 1,005.9 132.5
Non-cash items adjusted 25 EBIT (70.3) 902.9 (68.1) N/A 296.5
Change in working capital 3,111 112 2,242 2,680 3,069 Net profit (25.1) 421.4 (91.1) N/A 183.3
Tax paid 0 (19) 5 (333) (1,872) Core net profit (70.4) 906.3 (68.3) N/A 260.2
Other (92) (101) 0
Operating cash flow 3,570 1,015 3,935 7,671 11,832 Profitability (%)
Gross margin 9.9 11.6 12.7 13.1 13.8
Disposal of fixed assets 1 EBITDA margin (0.4) (3.6) 0.2 1.8 3.2
Capex (440) (1,425) (3,800) (2,000) (1,600) EBIT margin (0.8) (5.0) (1.1) 0.8 2.4
Investment (2,232) (11,779) (820) (720) (620) Net margin (3.6) (11.3) (0.7) 0.8 1.8
Other Core net margin (0.8) (5.1) (1.1) 0.6 1.8
Investment cash flow (2,671) (13,203) (4,620) (2,720) (2,220) Tax rate 0.1 (0.4) 0.4 14.4 25.0
Change in borrowings 75 944 (691) 200 200 Efficiency (days)

Equity issues 2,720 17,448 Inventory turnover 33 33 37 39 40
Financing cash flow 2,795 18,392 (691) 200 200 Trades receivables 3 5 6 7 7
Change in cash flow 3,694 6,204 (1,376) 5,151 9,812 Trades payable 56 49 50 52 53
Cash & equivalents, begin 7,177 10,812 16,914 15,538 20,689 Returns & leverage (%)
Forex (59) (101) ROAA (11.3) (28.0) (1.6) 2.4 5.6
Cash & equivalents, end 10,812 16,914 15,539 20,689 30,502 ROAE (31.8) (55.4) (3.1) 5.2 13.1
Net debt (cash)/equity (106.9) (40.1) (38.8) (48.7) (63.0)
Free cash flow 3,130 (410) 135 5,671 10,232
Liquidity (x)
Current ratio 1.3 1.7 1.5 1.4 1.4
Quick ratio 1.0 1.3 1.0 0.9 0.9
69
VIP SHOP | VIPS US

Queen of online discount retailing in China
Fast inventory clearing capabilities and minimum

brand dilution the key selling points
Outperform (maintained)
Current: Target:
High repeat orders indicates loyal user base
US$ 26.54 US$ 31.60
Initiate with Outperform and target price US$31.60
based on 42x 2016E P/E
TRADING DATA
52-week range US$16.03 30.72
Initiate with Outperform rating. We initiate coverage on VIP Market capital (ADR)(m) US$15,351
Shares outstanding (m) 575
Shop with an Outperform rating and US$31.60 target price based on
3M average daily T/O (m share) 7.6
42x FY16F P/E. We like the companys leadership in Chinas online 3M average daily T/O (US$m) 202
discount retailing, its unique flash sales business model and solid Expected return (%) 12 month 19.2
merchandizing experience. Source: Bloomberg, CCBIS
Plenty room for growth with only 6.5% penetration into Chinas
PRICE VS NASDAQ
discount apparel market in 2014. VIPSs user base is only 6.7% of
Chinas total Internet shoppers in 2014. The company recorded 23.6m 31
annual active users in 2014 and we expect that number to grow at 29
39% CAGR to 71.4m by 2017F. The online flash sales market is 27

large and growing, and we expect VIPS to gain market share from
25
33% in 2014 to 36% in 2016F.
23
Mobile, warehouse and category expansion the key growth 21
drivers. In our view, the flash sales model is a perfect fit for mobile 19
users and VIPS is the key beneficiary Chinas mobile Internet
17
upcycle. As of 1Q15, mobile contributed 76% of total GMV for Jan-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15
VIPS. Warehousing expansion started to payoff for VIPS as VIPshop NASDAQ (rebased)
improvements in scale and efficiency drive down fulfillment cost per Source: Bloomberg, CCBIS
order. In addition to apparel, VIPS has introduced cosmetics and

mother and baby products to enrich its SKU offerings. The company
expects non-apparel categories to make up 50% GMV by 2020F.

Revenue (US$ m) 1,697 3,774 6,459 9,621 12,449 Absolute (11) 8.5 58.2
YoY (%) 145.1 122.4 71.2 49.0 29.4 Relative (%) to NASDAQ (12) 5.7 37.7
Net profit (US$ m) 61 137 265 450 641 Source: Bloomberg, CCBIS
YoY (%) N/A 125.5 92.8 70.0 42.5
Diluted EPADS (US$) 0.091 0.242 0.443 0.753 1.073
Cheng Xing, CFA
YoY (%) n.a. 166.2 82.8 70.0 42.5
(852) 3911 8265
P/E (x) 291.6 109.5 59.9 35.2 24.7
xingc@ccbintl.com
DPS (US$)
Dividend yield (%)
Ronnie Ho
P/B (x) 59.2 35.0 22.6 13.8 8.8
(852) 3911 8259
ROAE (%) 37.4 42.0 52.8 58.3 52.9
70
PENETRATION STILL LOW
According to Euromonitor, the US will lose its position as the worlds number one
apparel market to China in 2017F. VIP Shop has been the industry leader in
apparel inventory clearance with a 50%+ sell-through rate. Chinas apparel
market stood at around US$184b in 2013 according to NBS. We expect it to grow
at 10% CAGR 13A-17F to reach US$274b in 2017F. In our industry model, we
assume 20% of the apparel market is off-season inventory, and we expect VIP to
diversify its non-apparel offerings to 50% by 2017F. As a result, the companys
market share of the off-season apparel market is set to rise from 4.5% in 2013 to
12.4% in 2017F.
LOW PENETRATION: 4.5% MARET SHARE IN OFF-SEASON APPAREL 2013A

US$b
300 14%
274
261
250 237 12%
12.0% 12.4%
212
10%
200 184 10.3%
8.0%
158 8%
150 128
6%
95 4.5%
100
75 4%
2.2% 47 52 55
0.9% 42
50 32 37
26 2%
15 19
0.0% 0.0 0.2% 0.0 0.2 0.7 1.7 3.4 4.9 6.3 6.8
- 0%
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
China apparel Off-season apparel VIPS apparel GMV VIPS market share
Source: NBS, Company, CCBIS
71
LEADER IN CHINA ONLINE FLASH SALES
Chinas online flash sales GMV skyrocketed to RMB37.8b, up 100.5% YoY.

iResearch predicts this figure may exceed RMB181b in 2016F. The impressive
growth of the flash sale market is driven by (1) excess leftover stock, (2) rapid
development of online flash sale platforms, and (3) enhanced consumption
capacity and demand for branded goods. We believe this segment will attract
more online shoppers and presents huge growth upside.
LARGE AND GROWING CHINA ONLINE FLASH SALES

RMBb
200 200%
175% 181.00
180 180%
160 148% 160%
140 130% 128.90 140%
120 110% 120%

100%
100 100%
78.00
80 80%
60%
60 60%
43%
37.80
40 40%
18.90
20 8.20 20%
1.20 3.30
- 0%
2009 2010 2011 2012 2013 2014E 2015E 2016E
China online flash sales GMV YoY growth
Source: iResearch, Company, CCBIS
VIP Shop leads the China online flash sale market with 38.1% market share in 2013
according to iResearch, followed by the flash sales channel of Taobao, Jumei
and Tmall.
VIPS 38% MARKET SHARE IN ONLINE FLASH SALES 2013

Yhd Others
0.1% 8.4%
Dangdang
1.3%
Tmall
6.7% VIPS
38.1%
Jumei
15.9%
Taobao
29.5%
72
LOYAL YET SMALL CUSTOMER BASE

VIPSs customer base is still relatively small compared to other major players. As
of 2014, VIPS had 23.6m active customers compared with 350m for Alibaba and
96.6m for JD. VIPSs customer base is only 6.7% of Chinas total online shoppers in
2013, and with rapid user base expansion the user penetration rate is still
expected to be relatively low at 12.9% in 2016F, suggesting theres ample room
for user growth for the company.
VIPS 3.1% USER PENETRATION IN 2013

m
600
12.9% 15%
500 10.0%
6.7% 424.0 10%
400 3.1% 369.0 5%

0.8% 1.7% 350.0
301.9
300 0%
242.0
194.0 -5%
200
-10%
100 54.8
37.1 -15%
9.4 23.6
1.5 4.1
0 -20%
2011 2012 2013 2014E 2015E 2016E
Online shoppers m VIPS active customers % penetration
Source: iResearch,Company,CCBIS
VIPS strongly loyal customer base and high repeat customer ratio (63.8% in
2013A) has allowed it to capture 38% of the online flash sale market with only
24m active customers. VIPSs high repeat purchasing rate (91.7% of orders were
from repeat customers in 1Q15) not only ensures a steady revenue stream but
also provides higher profitability in saving new customer acquisition costs.
VIPS REPEAT CUSTOMERS VIPS ORDERS FROM REPEAT CUSTOMERS

m m
24 80% 55 95.5% 100%
92.2%92.0% 92.1%92.1%91.0%90.6%
22 75.0% 75.0% 75.2% 50 91.2% 89.9%89.7%90.0%91.7%
73.8% 87.6%
20 72.1%
73.0%
72.0% 71.7%72.5% 75% 45 90%
71.3% 70.7% 70.3% 70.9% 38.5
18 40 35.3 35.2
16 70% 35 31.8 80%
14 12.2 12.9 30 26.3 25.5
12 65% 23.6 22.9 70%
9.3 9.5 8.6 9.7 25 20.2
10 17.7 17.7
7.4 6.7 6.9 20 11.7 16.0 60%
8 5.7 5.2 60% 11.0
15 8.8 8.8 10.1 10.7
6
2.8 3.5 4.0
3.0
4.0 10 3.1 4.7
5.4 8.4 8.1
50%
4 1.7 2.61.9 2.1 2.6 55% 2.8 4.3
5.0
1.0
0.71.5
1.1 1.3 5
2
0 50% - 40%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Active customers Repeat customers Total orders

Orders from repeat customers
Customer repeat rate
Order repeat rate
Source: Company, CCBIS Source: Company,CCBIS
73
Category expansion. Starting out as an online discount womens wear retailer,

VIPS expanded its category offerings to include mens wear, footwear,
accessories, handbags, childrens wear, sporting goods, cosmetics, home goods,
luxury goods and gifts.
CATEGORY EXPANSION DRIVES ORDER SIZE VIPS REVENUE BREAKDOWN BY CATEGORY 2013
m
37.8 Others
40 3.5
36.2 35.3 12%
34.2 35.2 34.2 33.7 3.4 Baby and
35 32.8 3.4
31.9 32.5 31.1 kids
28.9 28.6 3.3
30 5%
3.2 3.2 3.2
3.1 3.2
25 3.1 3.1 Home goods Apparel
20 9% 45%
3.0 3.03.0
2.9 2.9 2.9
15
2.8 2.8 Sportswear
10 2.7 8%
2.7 2.7
5 2.6 Cosmetics
6%
- 2.5
Shoes and
1Q12
3Q12
4Q12
1Q13
2Q13
4Q13
1Q14
2Q14
3Q14
1Q15
2Q12
3Q13
4Q14
bags
15%
order size US$ orders frequency
Warehouse expansion. VIPS logistic capacity increased from

0.22m/0.29m/0.41m square meters in 2012/2013/2014. As of 1Q15, VIPS operates
seven warehouses located in Guangzhou, Foshan, Kunshan, Tianjin, Jianyang
totaling 1.1m sq.m, and of which 0.5m were leased and 0.6m was self-owned.
The company targets to achieve 1.6m sq.m warehousing capacity by 2015F.
Due to the nature of flash sales, warehouses are required to handle a large
volume of goods with a quick turnover. We think it is vital that VIPS invest in
warehouse expansion in order to support its fast volume growth and increased
demand. Co-location services offered by VIPS warehouses will save fulfillment
costs as VIPS would not have to ship unsold goods back to suppliers, but instead
can store them in VIPS warehouses for future sale.
74
VIPS WAREHOUSE EXPANSION DRIVES DOWN FULFILLMENT COSTS PER ORDER

sqm m RMB
1.8 27.2 30
1.6
1.6 24.8
25
1.4 21.4
20.4 19.9
1.2 1.1 20
1.0
15
0.8
0.6 10
0.41
0.4 0.29
0.22 5
0.2
0.0 0
2012 2013 2014 2015E 2016E
Warehouse capacity sqm m Fulfillment cost per order RMB
De-emphasizing group buying and controlling marketplace growth. VIP Shop has
made a strategic move to de-emphasize the group-buy segment, as it attracts
lower quality user base with lower repeating ratio and much smaller ticket size.
The number of group-buy customers decreased from 1.4m in 1Q14 to 180k in
1Q15, partly due to the slower sequential growth of VIPSs active customer in
1Q15. In order to ensure a quality customer experience, VIPS has intentionally
scaled back its marketplace growth and target around 10% GMV contribution
from the marketplace.
Powerful business model. VIPS flash sales model provides a win-win business
model for both consumers and brands. By adding more sales events per day and
partnering with higher quality brands, VIPS is able to achieve a 50%+ sell-through
rate within five days. This gives significant bargaining power to the brands it
features and the resulting deep discounts attract and retain users. Brands are
also attracted to VIPS more focused categories of merchandise, which means
less brand dilution than on larger platforms like Alibaba and JD. In an added
incentive to brands, VIPS promises to pay them 60% of total inventory sold within
10 days following a sales event, which is attractive for brands in urgent need of
cash.
75
Company background
Founded in August 2008, VIP Shop is the leading online discount retailer in China.
It garnered a 38% market share of the online flash sales market as of 2013
according to iResearch. VIPS operates by selling deeply discounted off-season
brands on its web and mobile app platforms. VIPS first-mover advantage
enabled it to build a healthy scale and adopt a consignment model with low
inventory risk. VIPS has a relatively small yet loyal customer base. In 2014, VIPS
delivered 107m orders, of which 91.6% orders were placed by repeat customers
and of its 23.6m active customers, 61.8% are repeat customers. VIPS was listed
on the NYSE in March 2012.
VIPS enjoys a high gross margin of c.25% by focusing on non-standardized

products. Apparel is the largest category with 45% revenue contribution in 2013,
but the company aims to achieve 50% non-apparel GMV going forward.
Responded to short reports. VIPS responded to allegations made by J Capital on

13 May 2015, stating that the accusation of accounting differences between
SAIC filings was unsupported and that the numbers used to support the
accusations differ significantly from those filed publicly online. VIPS has been the
target of short sellers a number of times since its IPO but we believe the impact
will be short term as long as the company continues to deliver rapid user and
revenue growth.
Acquisition of Lefeng. On 14 February, 2014, VIPS acquired 75% equity interest in

Lefeng from Ovation Entertainment for US$132.5m. VIPS also owns a 5.75% stake
of Lefeng through a 23% stake in Ovation Entertainment, which owns 25% of
Lefeng. In total, VIPS holds a 80.75% stake in Lefeng. Lefeng.com is an online
retail website specializing in cosmetics and fashion products in China. Acquisition
of Lefeng is part of VIPSs expansion into the cosmetics category.
ADS ratio change. Effective 3 November, 2014, VIPS changed its ADS to a Class-A
ordinary share ratio, going from 1 ADS representing 2 shares to 5 ADS
representing 1 share. The share price was divided by 10 from a US$228.60 closing
price on 13 November to US$23.67 on 14 November, 2014. VIPSs current share
price is c.39x its IPO price of US$6.50 in March 2012
Convertible bond issuance. In March 2014, VIPS issued a US$550m convertible

bond with 1.5% interest and a US$201.24 conversion price that will mature on 15
March, 2019. The company also announced a secondary offering of 1.14m ADS
at US$143.74 per ADS, with each ADS representing two ordinary shares. The
company plans to use the proceeds to pay down debt in relation to acquisitions.
Investment in regional logistics companies. In 2014, the company made minority

investments in several regional logistic companies. Strategically, these
investments reflect the company's effort to expand its nationwide delivery
capabilities.
76
VIPS CORPORATE STRUCTURE

Equity Interest Vipshop Holdings Limited
Contractual arrangements (Cayman Islands)
75%
Lefeng.com Limited
(Cayman Island)
100% 23% 100%
Vipshop International Ovation Entertainment Lefeng.com E-trading

(Hong Kong) (Cayman Islands) Limited (British Virgin
25%
100%
Lefeng.com E-commerce
(Hong Kong)
Outside PRC
100% 100% Inside PRC
Guangzhou Vipshop Lefeng (Shanghai)

Vipshop (China) Information Technology
Information Technology
100% 100% 100% 100% 100%
Guangzhou Pinwei Shanghai Pinzhong

Vipshop (Jianyang) Vipshop (Kunshan) Vipshop (Tianjin)
Software Co Commercial
E-commerce Co E-commerce Co E-commerce Co
(Guangzhou Factoring Co
VIPS SHAREHOLDING STRUCTURE TO BE FORMATED
DCM
T Rowe price
Arthur Hong 3%
15%
9%
SC China
6%
Goldman Sachs
Eric Shen 4%
14% Tiger Global
3%
Kylin
management
3%
Others
43%
77
VIPS MANAGEMENT BACKGROUND
Eric Ya Shen Chairman, CEO Co-founder, Chairman, CEO of VIPS since 2008
18+ years experience in distribution of consumer products
Served as Chairman of Guangzhou NEM
EMBA from Cheung Kong Graduate School
Arthur Xiaobo Hong Vice Chairman, COO Cofounder of VIPS

Served as Vice Chairman since 2008
12+ years experience in distribution of consumer electronics in
overseas markets
Served as Chairman of Societe Europe Pacifique Distribution
Graduated from the Cheung Kong Graduate School of Business
Donghao Yang CFO CFO of the group

Held senior positions in various public and private companies including
Tyson Foods
MBA from Harvard Business School in 2003
Alex Jing Jiang Senior Vice President of Client Joined in Feb 2011
relationship management 20+ years experience in Chinas retail sector and e-commerce
Served in various companies including Carrefour, Vanguard and
Dangdang.com
Bachelor degree from Chongqing Business School in 1991
Maggie Mei Chuan Senior Vice President of SVP of Merchandising

Huang Merchandising 20+ years experience in retail merchandising
Served as VP of Grand Pacific Mall from 2003 to 2009
Bachelors degree from Ling Tung University in 1991
Yizhi Tang Senior Vice President of Joined VIPS in September 2010

Logistics 10+ years experience in the logistics industry
Served as operating director for best logistics technology Co from 2009
to 2010
Masters degree from Sun Yat-Sen University in 2003
78
Financial summary
98.1% of revenue was contributed by core product sales in 2014. VIPS is de-
emphasizing its group buy and control its marketplace GMV contribution to no
more than 10%.
VIPS FOCUS ON CORE PRODUCT SALES INCREASING ORDER VOLUME AND STABLE ORDER SIZE
US$ m m RMB
14,000 300 220
273
214 214
12,000 215
250 212
211 211
10,000
210
8,000 200 186
205
6,000
150
4,000 107 200
196
2,000 100
73 71.4 195
- 49 54.8
50 37.1
2014 2015E 2016E 2017E 22 23.6 190
4.1 9.4
Ad revenue
- 185
Commission on marketplace 2012 2013 2014 2015E 2016E 2017E
Core products revenues Total orders Active customers Order size
Source: Company & CCBI Esitmates Source: Company & CCBI Esitmates
Robust revenue growth to continue. We forecast sales revenue growth of 39%

CAGR 2015F-2017F driven by an expanding active customer base and increasing
spending per customer. We believe VIPS still has ample room to grow given its
only 8% penetration of the off-season apparel market as of 2014.
VIPS FINANCIAL SUMMARY

US$ m %
14,000 24.0 24.9 24.9 25.0 25.2 30
22.3
19.1 12,449
20
12,000 9.8
8.2
3.1 3.3 3.8 4.2 4.7 10
10,000 (1.4) 9,621
0
8,000 -10
6,459
6,000 (25.7) -20
3,774 -30
4,000
(47.2) -40
(49.2) 1,697
2,000
692 -50
3 33 227
- -60
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Revenue US$ m Gross profit margin Operating margin Net profit margin
79
Stable GPM in FY16F We expect gross profit margin (GPM) to gradually improve
from 8.2% in 2009 to 25.2% in 2017F on stronger bargaining power as scale
increases; however, we believe 25% gross margin is a healthy level to ensure
price competitiveness of its discounted offerings. We expect VIPSs gross margin
to stabilize in 2015F onwards at around 25% but operating and net margin to rise
as new investments and share-based expenses wind up.
VIPS INCOME STATEMENT

FYE 31 Dec (RMB m) 2012 2013 2014 2015F 2016F 2017F 1Q15 2Q15F 3Q15F 4Q15F
Revenue 692 1,697 3,774 6,459 9,621 12,449 1,389 1,426 1,503 2,140
Online direct sales 690 1,684 3,701 6,321 9,422 12,198 1,357 1,392 1,467 2,104
Services and others 2 12 72 137 199 251 32 34 35 36
Cost of Revenue 538 1,289 2,835 4,849 7,215 9,306 1,044 1,071 1,129 1,605
Gross Profit 154 408 938 1,609 2,406 3,143 345 355 374 536
Gross profit margin 22.3 24.0 24.9 24.9 25.0 25.2 24.9 24.9 24.9 25.0
Fulfillment 96 197 370 612 878 1,123 130 135 143 203
Marketing 32 74 190 306 452 573 65 68 72 101
Technology and content 14 37 109 193 285 361 41 44 45 62
General and administrative 19 42 158 218 327 411 48 48 51 71
Operating Profit (12) 49 111 281 463 675 61 58 62 99
PBT (9) 71 173 320 527 767 73 69 73 124

Tax Expense 0.7 19 40 72 121 184 14 14 16 27
MI 0 0 (14) (21) (48) (62) 4 (7) (8) (11)
Profit to shareholders (9) 52 137 281 450 641 59 57 61 103
Non-GAAP net profit (2) 65 182 351 521 712 0 0 0 0
GAAP diluted EPADS (US$) (0.05) 0.09 0.24 0.47 0.75 1.07 0.10 0.10 0.10 0.17
80
VIP SHOP | VIPS US FINANCIAL SUMMARY

FYE 31 December (US$ m) 2013 2014 2015F 2016F 2017F FYE 31 December (US$ m) 2013 2014 2015F 2016F 2017F
Product revenue 1,684 3,701 6,321 9,422 12,198 Cash & equivalents 335 772 852 1,431 2,182
Other revenue 12 72 137 199 251 Pledge dep., restricted cash 0 0 0 0
Receivables 20 114 115 127 138
Revenue 1,697 3,774 6,459 9,621 12,449 Inventory 270 578 797 988 1,020
COGS (1,289) (2,835) (4,849) (7,215) (9,306) Other current assets 413 667 667 667 667
Gross profit 408 938 1,609 2,406 3,143 Total current assets 1,037 2,131 2,431 3,213 4,007
Other income Property, plant & equipment 30 342 552 634 700
Operating expenses (350) (827) (1,329) (1,942) (2,468) Intangible assets 167 152 138 126
EBIT 58 111 281 463 675 JVs & associates
Other non-current assets 5 92 92 92 92
Net financial income (exp.) 16 35 34 50 72 Total non-current assets 35 601 797 864 918
JVs & associates (10) (4) (4) (4) Total assets 1,072 2,732 3,228 4,077 4,925
Other 5 27 5 14 20
Forex 1 (0) Short-term borrowings
Profit before tax 79 163 316 523 763 Trade & bills payable 477 987 1,196 1,581 1,785
Tax (19) (40) (72) (121) (184) Other current liabilities 352 650 680 700 730
Total profit 61 123 244 402 579 Total current liabilities 829 1,637 1,876 2,282 2,515
Long-term borrowings 621 621 621 621
Minority interest 14 21 48 62 Other non-current liabilities 63 94 129 159
Net profit attributable to 61 137 265 450 641 Total non-current liabilities 684 715 750 780
shareholders Total liabilities 829 2,321 2,591 3,032 3,295
Core profit 39 85 230 390 553
Share capital 363 402 402 402 402
Reported EPS (US$) 0.01 0.23 0.46 0.78 1.12 Reserves and retained profits (120) 8 189 549 1,072
Diluted EPS (US$) 0.09 0.24 0.44 0.75 1.07 Shareholders' equity 243 411 592 952 1,474
Core EPS (US$) 0.04 0.71 2.00 3.40 4.81 Minority interest 45 93 155
DPS (US$) Total equity 243 411 637 1,045 1,630
CASH FLOW RATIOS

FYE 31 December (US$ m) 2013 2014 2015F 2016F 2017F FYE 31 December 2013 2014 2015F 2016F 2017F
Profit before tax 79 163 316 523 763 Growth (%)
Amortization & depreciation 9 58 105 132 146 Revenue 145.1 122.4 71.2 49.0 29.4
Net financial charge adj. (4) (19) EBITDA N/A 153.8 127.9 54.6 37.8
Non-cash items adjusted 46 75 43 61 65 EBIT N/A 92.6 153.3 65.0 45.7
Change in working capital 333 299 (11) 183 160 Net profit N/A 125.5 92.8 70.0 42.5
Tax paid (19) (40) (72) (121) (184) Core net profit N/A 118.8 169.2 69.8 41.7
Other (9) (31) (0) (0) 0
Operating cash flow 437 506 380 778 951 Profitability (%)
Gross margin 24.0 24.9 24.9 25.0 25.2
Disposal of fixed assets EBITDA margin 3.9 4.5 6.0 6.2 6.6
Capex (22) (256) (300) (200) (200) EBIT margin 3.4 2.9 4.3 4.8 5.4
Investment (299) (214) Net margin 3.6 3.6 4.1 4.7 5.2
Net interest received (paid) Core net margin 2.3 2.3 3.6 4.1 4.4
Other (0) (195) Tax rate 23.4 24.6 22.9 23.2 24.1
Investment cash flow (321) (664) (300) (200) (200)
Efficiency (days)
Change in borrowings 617 Inventory turnover 59 55 52 45 39
Equity issues 92 2 Trades receivables 1 1 1 1 1
Other 2 Trades payable 95 94 82 70 66
Financing cash flow 92 621
Change in cash flow 209 462 80 578 751 Returns & leverage (%)
ROAA 8.3 7.2 8.9 12.3 14.2
Cash & equivalents, begin 124 335 772 852 1,431 ROAE 37.4 42.0 52.8 58.3 52.9
Forex 2 (25) Net debt (cash)/equity (137.6) (36.7) (36.3) (77.5) (95.8)
Cash & equivalents, end 335 772 852 1,431 2,182
Liquidity (x)
Free cash flow 415 250 80 578 751 Current ratio 1.3 1.3 1.3 1.4 1.6
Quick ratio 0.9 0.9 0.9 1.0 1.2
81
JUMEI | JMEI US
Beauty king
Moving beauty products from 3P to 1P to ensure

authenticity and regain trust
Current: Target:
Jumei Global and category expansion the main growth
drivers
US$ 22.90 US$ 25.70
Initiate with Outperform on 42x 2016E P/E TRADING DATA

52-week range US$12.11 39.45
Market capital (ADR)(m) US$3,278
Initiate with Outperform rating and US$25.70 target price.
Shares outstanding (m) 84.3
We like Jumeis timely and effective strategy for addressing the issue 3M average daily T/O (m share) 2.4
of counterfeit products and its cross-border e-commerce initiative 3M average daily T/O (US$ m) 55
Jumei Global. Our US$25.70 target price is based on 42x GAAP Expected return (%) 12 month 12.3
FY16F P/E. Source: Bloomberg, CCBIS
Limited impact from the recent import tariff cut. On 25 May

2015, the State Council slashed the import tariff on skin care from PRICE VS NASDAQ
6.5% to 2%. Our understanding is that this has only limited price 30
implications for offline retailing prices since the import tariff is 28
applied to landed cost, which is usually 20% of the retail price. On a 26
skin care product, for example, with a RMB300 retail price, the 24
landed price is only RMB60 and the tax savings from the import tariff 22
20
cut would be only RMB3, or 1% of the retail price. There is still a
18
20%-30% price gap between cross-border e-commerce prices and
16
offline retail prices.
14
12
Jumei Global and category expansion the key growth drivers. 10
Jumei Global is well received by its young user-base as suggested by Jan-15 Jan-15 Feb-15 Mar-15 Apr-15 May-15
Jumei NASDAQ (rebased)
the strong sales growth (up 61.8% YoY) in 1Q15. As a large segment
of Jumeis target customers 5 years ago (20-25-year-old females) are Source: Bloomberg, CCBIS
now entering their child-bearing age (25-30-year-old) Jumei has
introduced mother and baby products to the mix; however, blended
gross margin in this category will be under-pressure due to the lower-
margin nature of those products.

Revenue (US$ m) 483 633 1,157 1,445 1,861 Absolute 4.0 67.8 (0.8)
YoY (%) 107.1 31.0 82.8 24.9 28.8 Relative (%) to NASDAQ 3.1 64.9 (21.3)
Net profit (US$ m) 25 66 75 92 133 Source: Bloomberg, CCBIS
YoY (%) 208.5 163.7 14.3 21.9 44.5
Diluted EPADS (US$) 0.19 0.45 0.50 0.61 0.88
Cheng Xing, CFA
YoY (%) 210.2 135.6 12.2 21.9 44.5
(852) 3911 8265
P/E (x) 120.5 51.2 45.6 37.4 25.9
xingc@ccbintl.com
DPS (US$)
Dividend yield (%)
Ronnie Ho
P/B (x) 25.1 3.5 3.0 2.6 2.2
(852) 3911 8259
ROAE (%) 53.6 21.1 12.8 14.2 17.3
82
Leader in China online cosmetics

The beauty products industry in China has expanded at a CAGR of 17.5% from
2010 to 2013 according to Frost & Sullivan. Although the online cosmetic product
penetration rate is still relatively low (10.2% as of 2013), online cosmetic GMV is
expected to reach RMB124b in 2015F.
CHINA ONLINE COSMETIC GMV

RMB b
140 120%
123.7
120 100%
98.8
100
80%
76.2
80
57.7 60%
60
37.3 40%
40
22.4
20 12.5 20%
6
0 0%
2008 2009 2010 2011 2012 2013 2014 2015E
China online cosmetics GMV YoY growth
Source: iResearch, Company, CCBIS
Jumei strong and growing stronger

Jumei is the No. 1 online cosmetic player in China with 22.1% market share in
2013 according to Frost & Sullivan. Jumeis gross GMV expanded at 140% CAGR
from 2011 to 2014 and is expected to grow at 20% CAGR 2015F-2017F with
potential upside revision.
EXPRESSIVE GMV GROWTH SMALL BUT LOYAL USER BASE

US$m m
3,000 350% 120 89.5%
88.9% 89.0%
2,500 297% 300% 100 96
88.5%
250% 75 88.0%
2,000 80 87.6% 88.0%
62 87.8%
200% 87.5%
60
1,500 87.0% 87.0%
158% 86.6% 43
150%
40 36 86.5%
1,000
100% 20 22 86.0%
16 17
20 11 13
500 35% 41% 5 85.5%
50%
21% 19%
0 85.0%
0 0% 2012 2013 2014 2015E 2016E 2017E
2011 2012 2013 2014 2015E 2016E 2017E Active customers Total orders
Jumei Gross GMV YoY growth Repate purchase rate
83
Private label and exclusive products

Mature beauty product retailers generate a large portion of their profits from
private labels and exclusive products. Both Sasa and Watsons have 20+ years of
operating history (Watsons began operation in 1989, and Sasa in 1978). Gross
margins of these products can be as high as 50% for exclusive brands and 70%
for private label brands, compared to 39.5% for Jumeis overall gross margin in
2014. Jumei is planning to increase its private and exclusive products to around
40% of total sales. In 2015F, we expect sales of private label products will
account for 15% of total net GMV. As Jumei strengthens its market leadership
and gains loyalty among its customers, it is becoming an increasingly important
sales channel for some less well known beauty product brands, particularly those
just entering China. We anticipate exclusive brands representing approximately
10% of the companys total net GMV in 2015F.
Highly competitive market

Lefeng, Jumeis closest competitor, is Chinas second largest B2C beauty retailer
and was acquired by VIP Shop in 2014. Jumei still dominates the online beauty
market with higher order numbers and more unique visitors than Lefeng. Besides
online competition from Lefeng, the company also faces offline competition
from distributors such as Watson, Sephora and Sasa. Competition is particularly
stiff when Jumeis peers team up with larger e-commerce players, such as JD
partnering with Sephora and VIP Shop acquiring Lefeng.
JUMEI NO.2 IN OFFLINE/ONLINE COMBINED BEAUTY PRODUCTS MARKET 2013
Watsons
3.7%
Jumei
1.8%
Others Sephora
92.4% 1.1%
Sasa
0.2%
Tiantian
0.1%
Source: CCBIS
Authentic beauty products alliance

In response to the negative publicity over fake cosmetics products in 2014, Jumei
quickly moved its beauty products from the marketplace to direct sales channels
last September. Profitability may take a hit from the decision in the short term, but
in our view, the move will restore the companys brand image and consumer
confidence. We see this as a long-term positive that eliminates product quality
issues faced by other cosmetics distributors.
84
Beauty products require a higher level of quality control and inspection than
other sectors such as apparel, due to the more serious health risks illegal or
substandard ingredients can pose. As part of Jumeis anti-counterfeit measures,
the company is allied with the Authentic Beauty Product Alliance (ABPA). As of
March 2015, ABPA has 162 members, include high profile international brands
such as Givenchy, Jirlique, Max Factor and OPI.
Jumei Global the key growth driver

Jumei Global was officially launched in Q314 to source overseas brands on a
large scale. Hugely popular South Korean cosmetics make up a bulk of the
sourced products. The imports are sold at a 40%-50% discount to Chinas offline
retail prices. The products are inventoried in bonded warehouses in Zhengzhou,
meaning only domestic postal charges apply for customers and delivery times
are shorted from 2-3 weeks to only 2-3 days. Tax exemption for beauty products
priced under RMB100-120, Jumei is liable to pay taxes for items , a positive to
Jumei Global in our view. Jumei Global is well received by its young user base as
suggested by the strong sales growth (up 61.8% YoY) in 1Q15.
Expanding into baby and maternity category

As a large segment of Jumeis earlier target demographic (20-25-year-old
females) now reaches child-bearing age, Jumei has introduced mother and
baby products to the mix. GMV of Chinas large baby and maternity product
market reached RMB1.4t in 2013 and is expected to grow at 16% CAGR,
surpassing RMB3t by 2018F according to iResearch.
CHINA BABY & MATERNAL INDUSTRY GMV 2011-2018E
RMB trillion
3.5 25%
3
3.0
2.6 20%
2.5 2.2
1.9 15%
2.0 1.7
1.3 1.4
1.5 10%
1.1
1.0
5%
0.5
0.0 0%
2011 2012 2013 2014 2015E 2016E 2017E 2018E
Baby&Maternal GMV YoY growth
However, Jumeis blended gross margin will be under pressure due to the lower-
margin nature of diapers and milk powders (9%). With Jumeis stated strategic
goal of sacrificing profit to gain market share, we expect the companys gross
margin to trend down from 31.4% in 1Q15 to 30% in 2016F.
85
Business model
There are three main sales formats on Jumeis online platform: Curated sales,
online shopping mall, and flash sales. Jumei has utilized the curated sales model
to sell branded beauty products by selecting and introducing 100+ new SKU
offerings on a daily basis. The online shopping mall was established to broaden
product coverage and enhance user engagement on the platform. Jumei
completed moving all its beauty products from the marketplace to direct
merchandise sales to ensure product quality in December 2014. Apparel and
other lifestyle products are primarily sold by third-party merchants though the
flash sales format.
The physical store

Jumei opened its first offline shop in Beijing in December 2013. The store
showcases its products. Jumei plans to open more physical stores in selected
regions to further enhance brand awareness and bolster online sales.
JUMEI BEIJING OFFLINE STORE
Company background
Jumei International is the No. 1 online retailer of beauty products in China with
22.1% market share in 2013 according to Frost & Sullivan. Jumei offers a wide
range of beauty products as well as other products such as apparel on its online
platform and has recently added the mother and baby category. In 2013, Jumei
offered 10,200 SKUs on its online shopping mall, double the SKUs it featured in
2012. In 2014, Jumei delivered 42.6m orders and generated a net GMV of
US$1.07b. As of 1Q15, Jumei has 13m active customers and an 87% repeat
purchase rate. 70% GMV was generated through mobile sales in the same
period. Jumei was listed on the NYSE in May 2014.
86
Jumei enjoys a high gross margin of 30%+ by focusing on high margin cosmetics
products. Although the newly added baby and maternity products are of lower
margin, we expect the increasing private and exclusive label products to
moderate the pressure on gross margin.
Shift beauty products into merchandise. Jumei responded to negative publicity

over selling fake goods by moving all beauty related products from its online
marketplace to direct merchandize sales in September 2014. The process was
completed by December 2014. From 1Q15 onwards, only non-beauty related
products on sale on the marketplace. Although this move hurt the profitability of
the business in the short term by giving out cash coupons, we believe it is positive
in the long run as it restores consumer confidence in the brand.
$100m share repurchase. On 15 December, 2014, Jumei announced a share

repurchase plan in which the company has the option to repurchase up to
US$100m of its own shares at any time in the open market within the next 12
months. Mr. Leo Chan stated that this reflects managements confidence in
Jumeis growth prospects.
JUMEI CORPORATE STRUCTURE

Jumei International Holding
Limited (Cayman Islands)
100% 100%
Jumei Hongkong Holding Jumei Hongkong Limited
Limited (Hong Kong) (Hong Kong)
Outside China
Inside China
100% 100% 100% 100% 100% 100%
Chengdu Jumei Tianjin Cycil
Tianjin Venus Shanghai Paddy Tianjin Qianmei Beijing Silvia
Youpin Science Information
Technology Co., Commerce and International Technology
and Technology Technology Co.,
Ltd. Trade Co., Ltd. Trading Co., Ltd Service Co., Ltd.
Co., Ltd. Ltd.
100%
Three individuals(1)
100%
Reemake Media
Co., Ltd.
100%
Beijing Shengjinteng
Network Science
Equity interest
and Technology
Contractual arrangements Co., Ltd.
Note (1) Leo Chen, Yusen Dai and Hui Liu hold 32.3%, 8.85% and 8.85% stake in Reemake Media
Source: Company IPO prospectus, CCBIS
87
JUMEIS POST IPO SHAREHOLDING STRUCTURE
Others
26%
Leo Chen
35%
Success Origin
8%
Yusen Dai
Sequoia funds 6%
16% K2 Partners
9%
JUMEI MANAGEMENT BACKGROUND
Leo OU CHEN Founder, Chairman and CEO Co-founder, Chairman, CEO of Jumei
Bachelor in computer science from Nanyang Technological
University in Singapore
MBA from Stanford University
Yusen DAI Co-Founder, Director, VP of Bachelor in engineering from University of Science and Technology
Products Beijing
Management science and engineering at Stanford University
Huipu LIU Senior VP Served as VP of HR and marketing at Jiayuan.com

Bachelor in engineering from University of Science and Technology
Beijing
Mona Meng GAO Co-CFO Served in various positions at Yiheng Capital, Bain & Company,
Barclays, P&G
Bachelor and master degree from University of Oxford
MBA from Stanford
Yunsheng ZHENG Co-CFO 12+ years experience in accounting

Holders of CFA, CPA
Bachelors degree in accounting from Renmin University
Master in management from Stanford
Tony Tao ZHOU Vice President of Logistics Served as VP at Amazon.cn, overlook China logistics
Lean Six Sigma Black Belt Certification
Bachelor in mechanical engineering from Beijing Union University
88
Financial summary
Merchandise sales contributed 86% of revenue in 2014. Since the transfer of

beauty products from marketplace to direct sales, we expect marketplace
revenue contribution to decline from 14% in 2014 to 3% in 2017F.
JUMEI TO FOCUS ON DIRECT MERCHANDIZE SALE INCREASING ORDER VOLUME AND ORDER SIZE
US$m m RMB
2,000 120 140
1,800 45 118
115 120
100 111 96
1,600
43 100
1,400 80 75
82 80
1,200 40 71 62 80
1,000 60
1,816 60
800 43
1,402 40 36
600 87 1,117 40
70 20 22
400 16 17
20 13 20
546 11
200 24 413 5
209
0 0 0
2012 2013 2014 2015E 2016E 2017E 2012 2013 2014 2015E 2016E 2017E
Merchandise sales Marketplace service revenue Total orders Active customers Order size RMB
Source: Company & CCBI Esitmates Source: Company & CCBI Esitmates
Robust revenue growth to continue. We forecast sales revenue growth of 29%

CAGR 2015F-2017F driven by an expanding active customer base and increasing
order size.
JUMEI FINANCIAL SUMMARY

US$m
2,000 1,861 45%
1,800 40% 40%
36% 41%
1,600 1,445 35%
31%
1,400
30% 30%
1,157 30%
1,200
25%
1,000
20%
800 633
15%
600 483
400 10%
233
200 5%
0 0%
2012 2013 2014 2015E 2016E 2017E
Total revenue Gross profit margin Operating margin Net profit margin
Gross margin under pressure. Due to the rapid increase of baby and maternity
products, which make up 0%-9% of gross margin, the overall GPM stands to be
dragged down; however, the private label mix may partially offset the margin
decline. We expect GPM to be around 30% in the next two-three years as Jumei
is trying to gain market share.
89
JUMEI INCOME STATEMENT

FYE 31 Dec (RMB m) 2012 2013 2014 2015F 2016F 2017F 1Q15 2Q15F 3Q15F 4Q15F
Merchandise sales 209 413 546 1,117 1,402 1,816 241 267 292 318
Marketplace service revenue 24 70 87 40 43 45 10 10 10 10
Total Revenue 233 483 633 1,157 1,445 1,861 251 277 302 328
Cost of Revenue (149) (283) (383) (801) (1,011) (1,303) (172) (191) (210) (229)
Gross Profit 85 200 250 356 433 558 79 86 92 99
Gross profit margin (%) 36.3 41.3 39.5 30.7 30.0 30.0 29.0 29.4 29.7 30.0
(-) Fulfillment (29) (59) (71) (130) (158) (191) (29) (31) (34) (36)
% of Revenues (%) 12 12 11 11 11 10 12 11 11 11
(-) Marketing (36) (52) (81) (107) (136) (166) (24) (26) (28) (29)
% of revenue (%) 16 11 13 9 9 9 10 10 9 9
(-) TEC and content (4) (10) (22) (28) (29) (35) (7) (7) (7) (7)
% of revenue (%) 2 2 3 2 2 2 3 2 2 2
(-) General and administrative (5) (40) (17) (22) (23) (28) (5) (5) (5) (5)
Operating Profit 10 38 59 69 88 139 14 16 18 21
PBT 10 39 82 98 120 170 20 24 26 28

Tax Expense (2.1) (14.3) (16.0) (19.4) (23.9) (34.0) (4) (5) (5) (6)
MI 0 0 0 3 4 3 0.7 0.8 0.8 0.9
Profit to shareholders 5 16 56 75 92 133 16 18 20 22
Non-GAAP net profit 11 46 63 74 94 145 16 18 20 23
GAAP diluted EPADS (US$) 0.10 0.27 0.49 0.52 0.63 0.91 0.11 0.13 0.14 0.15
90
JUMEI | JMEI US FINANCIAL SUMMARY

FYE 31 December (US$ m) 2013 2014 2015F 2016F 2017F FYE 31 December (US$ m) 2013 2014 2015F 2016F 2017F
Merchandise sales 413 546 1,117 1,402 1,816 Cash & equivalents 111 165 318 542 715
Marketplace service 70 87 40 43 45 Pledge dep., restricted cash
revenue Receivables 3 7 11 13 16
Inventory 33 102 92 116 150
Revenue 483 633 1,157 1,445 1,861 Other current assets 36 455 497 415 443
COGS (283) (383) (801) (1,011) (1,303) Total current assets 183 729 918 1,086 1,323
Gross profit 200 250 356 433 558 Property, plant & equipment 5 8 14 22 32
Other income Intangible assets 2 2 2 2 2
Operating expenses (161) (191) (287) (346) (419) Other non-current assets 5 4 4 4 4
EBIT 38 59 69 88 139 Total non-current assets 12 15 21 28 38
Total assets 195 743 939 1,114 1,361
Net financial income(exp) 1 13 24 26 25
Other 0 9 5 6 6 Short-term borrowings 2 2 2 2
Profit before tax 39 82 98 120 170 Trade & bills payable 89 145 212 265 342
Tax (14) (16) (19) (24) (34) Other current liabilities 31 45 94 119 152
Total profit 25 66 79 96 136 Total current liabilities 120 192 308 386 496
Other non-current liabilities 1 1 1 1
Minority interest (0) (3) (4) (3) Total non-current liabilities 1 1 1 1
Net profit attributable to 25 66 75 92 133 Total liabilities 120 193 308 387 496
shareholders
Core profit 24 43 46 60 101 Share capital 50 459 460 462 463
Reserves and retained profits 26 91 166 258 391
Reported EPS (US$) 0.19 0.45 0.50 0.61 0.88 Shareholders' equity 76 550 627 720 854
Diluted EPS (US$) 0.19 0.45 0.50 0.61 0.88 Minority interest 0 3 7 11
Core EPS (US$) 0.29 0.35 0.31 0.40 0.68 Total equity 76 550 630 727 865
DPS (US$) Total equity and liabilities 195 743 939 1,114 1,361
CASH FLOW RATIOS

FYE 31 December (US$ m) 2013 2014 2015F 2016F 2017F FYE 31 December 2013 2014 2015F 2016F 2017F
Net financial charge adj. 1 1 1 1 1 EBITDA 265.4 57.6 19.4 27.1 56.1
Non-cash items adjusted 33 6 4 5 6 EBIT 277.4 55.2 16.2 27.3 58.3
Change in working capital 26 (9) 81 27 37 Net profit 208.5 163.7 14.3 21.9 44.5
Tax paid (14) (16) (19) (24) (34) Core net profit 199.6 81.0 7.1 29.2 69.1
Other (1) 2 (0) (0) (0)
Gross margin 41.3 39.5 30.7 30.0 30.0
Capex (5) (7) (12) (14) (19) EBITDA margin 8.2 9.9 6.4 6.6 7.9
Investment (409) (8) 101 EBIT margin 7.9 9.4 6.0 6.1 7.5
Net interest received (paid) Net margin 5.2 10.4 6.5 6.4 7.1
Other (3) 3 3 3 Core net margin 5.0 6.9 4.0 4.2 5.4
Investment cash flow (5) (418) (17) 89 (16) Tax rate 36.4 19.5 19.8 20.0 20.0
Change in borrowings 2 Efficiency (days)

Equity issues 402 Inventory turnover 31 64 44 38 37
Other (1) 0 Trades receivables 2 2 2 2 2
Financing cash flow (1) 404 Trades payable 82 112 81 86 85
Change in cash flow 79 54 152 224 173
Returns & leverage (%)
Cash & equivalents, begin 30 111 165 318 542 ROAA 18.8 14.0 9.0 8.9 10.7
Forex 2 (0) ROAE 53.6 21.1 12.8 13.6 16.9
Cash & equivalents, end 111 165 318 542 715 Net debt (cash)/equity (147.2) (29.8) (50.2) (74.3) (82.5)
Free cash flow 80 62 158 120 171 Liquidity (x)

Current ratio 1.5 3.8 3.0 2.8 2.7
Quick ratio 1.3 3.3 2.7 2.5 2.4
91
HC INTERNATIONAL | 2280 HK
More M&A to speed up transition to B2B2.0
B2B1.0 slows down as HC transitions to B2B2.0

Profit contribution from ZOL, micro-loan JV and
Current price: Target:
Shunde O2O Project fully reflected in 2016F
HK$ 11.80 HK$ 14.90
(as at 27 May 2015) (up from HK$11.20)
Raise target price to HK$14.90 on 1.0x PEG
TRADING DATA
Weak 1Q15 results as business in transition. First quarter revenue at HC 52-week range HK$4.72 19.80
International (HC) was down 5.5% YoY to RMB211.5m, 12% below our estimate Market capital (H-share)(m) HK$7,626/US$1,015
driven by declining paying customers. Gross margin of 90.8% was slightly below Shares outstanding (m) 663
our estimate of 91.7% due to the inclusion of PanPass (430073 CH, Not Rated), Free float (%) 50
HCs recently added anti-counterfeiting business, which has lower gross margin. 3M average daily T/O (m share) 12.6
Operating margin of 12.2% was 10.9ppt below our estimate due to lower gross 3M average daily T/O (US$ m) 16.7
margin and a higher operating expense ratio. Attributable profit was RMB25m, Expected return (%) 12 month 26.4
51% below our estimate.
Revenue diversification fully reflected in 2016F. 2015 is turning out to be a

transitional year for HC as the company moves from a B2B1.0 fee-based model to PRICE VS HSCEI
a B2B2.0 transaction-based model. During this period, we expect HCs core MMT HK$
membership and Biaowang business growth to slow; however, once we enter 25
2016F, we expect HCs previous revenue diversification efforts to begin to pay
off. In fact, we expect a confluence of positive factors in 2016F. Specifically, we 20
expect it to be the year that (1) the micro-loan JV achieves a healthy scale,
(2) Shunde O2O project profit is booked, and (3) HC consolidates full-year 15
revenue and profit from ZOL, a recently acquired B2B2C business. We expect
ZOL revenue contribution to reach 22%/37%/42% in 15F/16F/17F. HC is 10
planning to make 20-30 small equity investments in transaction-based vertical
players in the next few years. We believe these deals will speed up HCs transition 5
to a B2B 2.0 business model.
0
Raise target price to HK$14.90. HC is currently trading at 30x 2015F P/E Jan-14 Mar-14 May-14 Aug-14 Oct-14 Jan-15 Mar-15 May-15
and 18x 2016F P/E. We factored in a half years revenue and profit from ZOL and HC International (2280 HK) HSCEI (rebased)
introduced 2017F forecasts. Our revised 2015F-2017F EPS CAGR is 38.4%,
Source: Bloomberg CCBIS
factoring in the 154.5m new shares dilution for the ZOL acquisition. Our new
target price is based on 1.0x 2015F PEG, which translates to 38x/24x
2015F/2016F P/E.

Revenue (RMB m) 838 967 1,160 1,534 1,777 Absolute (9.9) 115.3 (32.8)
YoY (%) 52.7 15.4 20.0 32.2 15.9 Relative (%) to
(8.7) 102.2 (55.2)
Net profit (RMB m) 153 188 238 428 502 HSCEI
YoY (%) 129.8 22.4 26.9 79.6 17.4 Source: Bloomberg, CCBIS
Fully diluted EPS (RMB) 0.25 0.27 0.31 0.51 0.60
YoY (%) 119.6 9.6 13.9 63.1 17.4
Cheng Xing, CFA
P/E (x) 37.0 34.1 29.9 18.3 15.6
(852) 3911 8265
DPS (RMB)
xingc@ccbintl.com
Dividend yield (%)
P/B (x) 6.2 4.8 4.0 3.1 2.4
Ronnie Ho
ROAE (%) 24.7 18.2 18.6 26.5 24.2
(852) 3911 8259
92
1Q15 RESULTS REVIEW
HC reported a set of weak 1Q15 results. Revenue was down 5.5% YoY to
RMB211.5m, 12% below our estimate. We attribute this to declining paying user
growth on the Mai-Mai-Tong (MMT) platform, which we estimate fell from 180k in
4Q14 to around 170k as of 1Q15. Gross margin of 90.8% is slightly below our 91.7%
estimate due to the inclusion of PanPass, HCs recently added anti-
counterfeiting business, which has lower gross margin. While marketing expense
was 5% less than our estimate, HC spent more on administrative expenses
required to consolidate HCs new businesses. SG&A ended the quarter 21%
above our estimate. Operating margin of 12.2% was 10.9ppt below our estimate
due to lower gross margin and a higher opex ratio. Attributable profit of RMB25m
was 51% below our estimate and net margin was 11.8%, 9.5ppt below our
estimate.
We attribute HCs weak 1Q15 results to (1) declining paying customers because
of the tough business environment for SMEs; (2) lower advertising budgets for
SMEs; (3) reduced sales personnel headcount; (4) call-blocking software that is
making telemarketing less effective; and (5) higher expenses arising from the
transition to a new business model.
HC 1Q15 RESULTS REVIEW

RMB m 1Q15 1Q15F Difference (%) 1Q14 YoY (%)
Revenue 211.5 239.7 -12 223.9 -5.5
On-line services 168.7 206.4 -18 191.1 -11.7
Seminars and other services 27.4 26.5 4 25.2 8.7
Trade catalogues and yellow page directories 4.5 6.8 -34 7.5 -41.0
Cost of revenue -19.5 -20.0 -2 -16.7 16.6
Gross profit 192.0 219.7 -13 207.2 -7.3
Gross profit margin (%) 90.8 91.7 -1 92.5 -1.9
Other income 0.5 1.0 -46 2.4 -77.4
Selling and distribution expense -120.6 -127.0 -5 -129.8 -7.1
Administrative expense -46.3 -38.3 21 -35.8 29.4
Opex -166.9 -165.4 1 -165.6 0.8
Opex (%) -78.9 -69.0 14 -74.0 6.6
Operating profit 25.7 55.3 -54 44.0 -41.5
Operating margin (%) 12.2 23.1 -47 19.6 -38.1
Profit/loss from associates -1.3 - -
Profit/loss from JCVs 3.5 6.7 -48 -
Financing income 11.4 8.0 42 6.3 80.9
Financing costs -10.7 -4.3 148 -0.2 4518.2
Profit before tax 28.6 62.0 -54 50.0 -42.9
Income tax -7.4 -12.4 -41 -9.0 -18.1
Effective tax rate (%) -25.8 -20.0 29 -18.0 43.4
Profit after tax 21.2 49.6 -57 41.0 -48.3
Profit for the year 21.2 49.6 -57 41.0 -48.3
Minority interests -3.8 -1.5 147 -1.2 206.7
Profit attributable to shareholders 25.0 51.1 -51 42.3 -40.8
Net profit margin (%) 11.8 21.3 -45 18.9 -37.4
EPS (basic) (RMB) 0.037 0.077 -51 0.064 -41.4
EPS (diluted) (RMB) 0.036 0.074 -51 0.062 -41.0
93
2015F a transition year for HC
B2B 1.0 model faces challenges. HCs B2B1.0 businesses still operates as
information-based model, with membership and advertising fees the main
revenue sources. HCs traditional businesses, namely Mai-Mai-Tong membership
fees and search products, face growth challenges. The firm has suffered two
consecutive quarters of negative YoY growth for on-line services revenue in 4Q14
and 1Q15. We expect negative YoY growth to reverse in 1Q16F once HCs
headcount recovers.
ON-LINE SERVICES REVENUE GROWTH SLOWING IN 2015F
250 100%
84% 219
72% 204 199 207 211
200
191 185 185 193 198
199 198 80%
200 62% 61% 177 181 59% 191 181
51% 169 174 60%
35% 41%
150 30% 126 136
40%
24%
102 99 13%
93 9% 6% 7% 20%
100
76
85
-1% 3% 8% 7% 7% 7%
68 -4%
52 -12% -11% 0%
50 -20%
-20%
0 -40%
2Q13
2Q14
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
3Q13
4Q13
1Q14
3Q14
4Q14
1Q15
2Q15E
3Q15E
4Q15E
1Q16E
2Q16E
3Q16E
4Q16E
1Q17E
2Q17E
3Q17E
4Q17E
On-line services YoY growth
We attribute slowing growth of online services revenue to slowing paying

customer growth and a lower Biaowang penetration rate. Although the
company did not disclose the exact MMT member number, we estimate it to be
around 170k in 1Q15, down by 6,000 from 4Q14. Biaowangs penetration rate
also dropped from 19% in 2Q14 to 16% in 1Q15 due to lower marketing budgets
for SME sellers. We expect paying members and penetration to slowly recover
and reach 188k and 20% by 2017F.
94
HC - SLOWING PAYING CUSTOMER AND BIAOWANG PENETRATION IN 2015F
200 187 184 182 183 184 185 186 187 188 22%
176 175 180 180
180 169 171 170 173
160 165
160 147 20%
20% 20% 20% 20%
140 20%
19% 19% 19% 18%
19%
120 18%
18%
100
18% 18% 17% 18% 16%
17% 17%
80 16% 16%
60 14%
14% 34 34 36 37 34 32 33 34 35 36 37 38
40 28 29 27 28 29 30 31
20 12%
20
0 10%
3Q15E
2Q15E
4Q15E
1Q16E
2Q16E
3Q16E
4Q16E
1Q17E
2Q17E
3Q17E
4Q17E
4Q13
1Q13
2Q13
3Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Paying customers '000 Biaowang positions sold'000 Biaowang penetration
Developing the B2B 2.0 business. The transaction-based model keeps buyers and
sellers on HCs platform to form a closed loop. This leads to a high percentage of
repeat customers. HCs strategic investments in Cogobuy (400 HK, Outperform)
and its acquisition of ZOL are part of its effort to transition to a transaction-based
business model. ZOL Mall is operating under a B2B2C model, which should help
HC speed up its transition. We expect HC to continue to develop its transaction-
based business model through M&A in verticals in which it has strong expertise.
ZOL HCS REVENUE AND PROFIT DRIVER
Source: ZOL.com.cn, CCBIS
Half year revenue and profit consolidation from ZOL in 2015F. We expect the ZOL
deal to close by mid-June 2015 allowing HC to consolidate ZOLs revenue and
net profit for 6M15F. We expect much stronger 3Q15F results due to the inclusion
of ZOL. We estimate revenue/profit contribution from ZOL in 2015F to come to
around RMB250m/50m, accounting for 22%/20% of HCs full-year revenue/profit.
95
2016F to bear fruit
Material profit contribution from B2B2.0 businesses. Apart from the more
traditional B2B1.0 businesses, namely on-line services, seminars and catalogues &
directories, HCs transition to B2B2.0 will start to bear fruit in 2016E as full year
revenue and profit contribution from ZOL, sizable micro-loan JV with larger
loanable capital, and its first O2O project start operating. We estimate that those
new business initiatives Micro-loan, Shunde O2O project and ZOL, which we
classify as B2B2.0 businesses, to contribute more than 62% of total profit in 2016E,
and further expanded to 67% in 2017E.
HC-PROFIT CONTRIBUTION ANALYSIS

RMB m 2011 2012 2013 2014 2015F 2016F 2017F
Gross profit 371 480 770 894 961 1,151 1,289
Gross profit margin (%) 84.7 87.5 91.9 92.5 82.9 75.1 72.5
Opex expenses -338 -416 -603 -710 -730 -842 -960
Opex (%) -77.2 -75.8 -72.0 -73.4 -63.0 -54.9 -54.0
Operating profit 38 67 170 194 243 321 341
Net profit 33 65 152 183 233 418 491
Net profit margin (%) 7.5 11.9 18.1 19.0 20.1 27.3 27.6
-1)Micro-loan JV (after tax) 0 0 0 24.9 52.0 79.6
% of net profit 0 0.0 10.7 12.4 16.2
-2)Shunde O2O project (after-tax) 00 0 0 0 92 130
% of net profit 22.0 26.4
-3)Profit from ZOL(after tax) 50 114 120
% of net profit 21 27 24
B2B2.0 net profit contribution (%) 0 0 0 0 32 62 67
B2B1.0 net profit contribution (%) 100 100 100 100 68 38 33
ZOL acquisition to contribute 37% of 2016F revenue. Management at ZOL has

made set after-tax profit targets for the next three years of RMB100m, RMB130m
and RMB170m. We assume 50% gross margin and 20% net margin for ZOL.
Assuming ZOL management is able to deliver the promised profits, we forecast
revenue contribution from ZOL of RMB250m/575m/750m for 15E/16E/17E, which is
21%/37%/42% of HCs total revenue.
96
HC-REVENUE BREAKDOWN 2015F HC-REVENUE BREAKDOWN 2016F

Catelogues Catelogues
2% 1%
ZOL
21%
ZOL
37%
Anti-
counterfeiting On-line
5% services
49%
Seminars On-line
10% services Anti-
62% counterfeitin
g
5% Seminars
8%
Source: CCBIS Source: CCBIS
The acquisition of ZOL is positive to HC, in our view. Not only does it give HC
access to ZOLs blue-chip customers but the deal avails HC of the expertise of
ZOLs 650 person professional team. This presents a significant advantage as ZOL
is regarded as the industrys number-one portal website for 3C products. The firm
has strong influence over consumer purchase decisions. HCs next move is to
revamp its small home appliance website before turning to its other vertical
websites such as auto parts, construction materials and apparel. In the near
future, HC could leverage the large-user base of ZOL to grow its paying
customers.
Mirco-loan business to contribute 12.4% of company 2016F net profit. HCs micro-
loan business is progressing well. The daily average loan balance is around
RMB1b. HC is planning to gear up by at least 1x by 2015F, at which time we
expect the loan balance to reach RMB2b/3b by 2015F/2016F. Assuming an 8%
interest spread and 40% profit share, we expect profit contribution from micro-
loans to be 9.7%/11.4%/15.3% in 2015F/2016F/2017F.
Shunde O2O projects to contribute 22% of 2016F profit. HCs O2O project in
Shunde is expected to begin operations in 2016F. The rent-free model would give
HC the right to select quality sellers, effectively making HCPay the mandatory
payment system. HC intends to invite 20-25% of the local suppliers, with 800-900
stalls available in its Shunde project in 2016F. We believe the rent-free model will
give HC exposure to the best performing sellers in the region. Shundes historical
GMV was around RMB400m. If we assume 5%/7% market share gains for HC in
2016F/2017E, the expected GMV for its Shunde project come to RMB20m/28m if
we assume a 1.5% take-rate by HC, 40% profit share, RMB5m/6m operating costs,
and a 20% tax rate. Under these assumptions, the expected pre-tax profit
contribution would be RMB92m/130m in 2016F/2017F, or 20%/24% of HCs total
net profit.
97
More M&A among transaction-based vertical players. Successfully acquiring ZOL

at a relatively low P/E multiple is testament to HC managements abilities to
source, negotiate and close large M&A deals. The ZOL purchase bodes well for
the future as HC is planning to make 20-30 equity investments in transaction-
based vertical players over the next two-to-three years. Total investment is likely
to be less than RMB1b as HC only invests in early-to-middle stage companies for
a 20-30% stake.
HC-MAIN CHANGES IN ASSUMPTIONS

Year end 31 December 2015F 2016F 2017F
MMT paying customers '000
Old estimates 186 203 N/A
New estimates 175 182 187
Change (%) -6.1 -10.0 N/A
Revenue (RMB m)
Old estimates 1,132 1,566 N/A
New estimates 1,160 1,534 1,777
Change (%) 2.5 -2.1 N/A
Gross margin (%)

Old estimates 93.4 93.6 N/A
New estimates 82.9 75.1 72.5
Change (%) -10.5 -18.5 N/A
Net profit (RMB m)

Change (%) 0.5 24.2 N/A
EPS (RMB)
Change (%) -9.8 1.2 N/A
Source: CCBIS
98
HC- REVENEU PROJECTION BREAKDOWN

RMB m 2011 2012 2013 2014 2015F 2016F 2017F
Total revenue 438 549 838 967 1,160 1,534 1,777
On-line services 290 411 694 813 715 760 815
YoY growth (%) 76.1 42.1 68.6 17.2 -12.0 6.3 7.2
1. Mai-Mai-Tong subscription RMB m 188 236 312 358 348 363 372
Subscription fee (RMB standard) 1,844 1,844 1,950 1,994 1,994 1,994 1,994
MMT members ('000) 102 128 160 180 175 182 187
2. Search products 57.9 151 305 388.34 314 358.57 402.70
ASP per year RMB 10,000 10,000 11,000 11,017 11,033 11,033 11,033
Number of paid positions '000 6 15 28 35 28 33 37
Total available positions'000 800 800 800 1,040 1,040 1,040 1,040
Utilization rate (%) 1 2 3 3 3 3 4
3. Online-ads 43 25 76 67 53 38 40
YoY growth (%) -42.9 207.1 -12.4 -20.7 -27.5 5.3
Trade catalogues and yellow page directories 82 55 43 36 23 10 4
YoY growth (%) -18.9 -33.3 -21.8 -17.0 -36.3 -54.8 -64.3
Seminars and other services 66 82 101 102 111 116 122
YoY growth (%) 28.3 23.7 22.7 1.0 8.8 5.0 5.0
Anti-counterfeiting - - - 16 62 72 86
ZOL - - - - 250 575 750
B2B1.0 revenue 438 549 838 967 910 959 1,027
YoY growth (%) 25.1 52.7 15.4 -5.8 5.3 7.1
Valuation
Our assumptions are that the recent acquisition of ZOL will successfully close in
2Q15 and its O2O project will begin generating cash flow from early 2016F. We
also assume positive sentiment within the TMT small- and mid-cap Hong Kong
market given ample liquidity in the market at the moment.
HC is trading at 30x 2015F P/E and 18x 2016F P/E. With greater profit contribution
from the micro-loan business, ZOL and Shunde O2O projects, we expect much
stronger net profit in 2016F. In our view, HC is a high-growth company. Our EPS
CAGR for 2015F-2017F is 38.4%. We employ 1.0x PEG valuation to derive our
HK$14.92 target price, which translates to 38x/24x 2015F/2016F P/E.
HC INTERNATIONAL - VALUATION
2015F 2016F 2017F
Target price (HK$) 14.92
Target PEG 1.0
15F-17F EPS growth CAGR % 38.4
Implied P/E multiple 38 24 20
Implied P/S 7.9 6.6 5.7
Implied P/B 5.7 4.9 3.9
Diluted EPS (RMB) 0.31 0.51 0.60
Book value per share (RMB) 2.08 2.45 3.09
Sales per share (RMB) 1.5 1.8 2.1
99
HC INTERNATIONAL FORWARD P/E BANDS

x
70
60
50
40
32.3
30
20 19
10 5.5
0
Jul-10 Mar-11 Nov-11 Aug-12 Apr-13 Jan-14 Sep-14 May-15
Fwd PE Average +1 s.d -1 s.d
100
HC INTERNATIONAL | 2280 HK FINANCIAL SUMMARY

ZOL 250 575 750 Cash & equivalents 1,025 1,322 2,246 2,992 3,752
On-line services 694 813 715 760 815 Receivables 45 89 64 80 92
Trade catalogues and yellow 43 36 23 10 4 Assets held for sale
page directories Inventory 1 1 1 1
Seminars and other services 101 102 111 116 122 Other current assets 138 114 114 114 114
Others (Panpass and market 16 62 72 86 Total current assets 1,208 1,525 2,424 3,187 3,959
research) Property, plant & 215 296 365 429 488
Revenue 838 967 1,160 1,534 1,777 equipment
COGS (68) (72) (199) (382) (488) Intangible assets 0 106 106 106 106
Gross profit 770 894 961 1,151 1,289 JVs & associates 20 46 46 46 46
Other income 3 10 12 12 12 Other non-current assets 515 1,277 1,273 1,269 1,264
Operating expenses (603) (710) (730) (842) (960) Total non-current assets 749 1,725 1,790 1,849 1,904
EBIT 170 194 243 321 341 Total assets 1,957 3,250 4,214 5,035 5,863
Net financial income 16 27 21 22 12 Short-term borrowings 11 99 100 120 121

(expense) Trade & bills payable 67 76 199 382 486
JVs & associates 0 27 180 262 Other current liabilities 544 415 733 843 963
Profit before tax 186 221 291 523 614 Total current liabilities 622 589 1,032 1,345 1,569
Tax (35) (38) (58) (105) (123) Long-term borrowings 102 595 834 874 935
Total profit 152 183 233 418 491 Other non-current liabilities 222 751 751 751 751
Total non-current liabilities 324 1,346 1,585 1,625 1,686
Extraordinary items Total liabilities 946 1,935 2,617 2,970 3,255
Minority interest 2 4 5 9 11
Net profit attributable to 153 188 238 428 502 Share capital 66 66 66 66 66
shareholder Reserves and retained 831 1,094 1,331 1,759 2,261
Core profit 134 151 178 214 217 profits
Shareholders' equity 897 1,160 1,397 1,825 2,328
Reported EPS (RMB) 0.25 0.27 0.31 0.51 0.60 Minority interest 113 155 200 241 280
Diluted EPS (RMB) 0.25 0.27 0.31 0.51 0.60 Total equity 1,010 1,315 1,597 2,066 2,608
DPS (RMB) Total equity and liabilities 1,957 3,250 4,214 5,035 5,863
CASH FLOW RATIOS

Net financial charge adj. (17) (32) EBITDA 119.4 16.5 25.2 31.0 7.4
Non-cash items adjusted 26 61 EBIT 153.1 14.1 25.2 32.2 6.2
Change in working capital (45) 221 467 276 211 Net profit 129.8 22.4 26.9 79.6 17.4
Other 213 31
Gross margin 91.9 92.5 82.9 75.1 72.5
Disposal of fixed assets 1 1 EBITDA margin 23.1 23.4 24.4 24.1 22.4
Net interest rec. (paid) Core net margin 16.0 15.6 15.3 13.9 12.2
Other 15 (20) Tax rate 18.6 17.1 20.0 20.0 20.0
Investment cash flow (267) (795) (106) (109) (111)
Efficiency (days)
Change in borrowings 114 584 240 60 62 Inventory turnover days 1 1 0 0
Equity issues 408 Trade receivables days 7 8 10 8 8
Other (14) 7 50 50 50 Trade payable days 278 360 252 277 325
Financing cash flow 508 591 290 110 112
Change in cash flow 605 294 924 745 760 Returns & leverage (%)
ROAA 10.9 7.2 6.4 9.2 9.2
Cash & equivalents, begin 423 1,025 1,322 2,246 2,992 ROAE 24.7 18.2 18.6 26.5 24.2
Forex (3) 2 1 1 (1) Net debt (cash)/equity (90.2) (47.8) (82.2) (96.7) (103.4)
Cash & equivalents, ending 1,026 1,322 2,246 2,992 3,752
Liquidity (x)
Free cash flow 310 410 634 635 648 Current ratio 1.9 2.6 2.3 2.4 2.5
Quick ratio 1.9 2.6 2.3 2.4 2.5
101
COGOBUY | 400 HK
A rising star
Robust transaction customer growth and cross-selling

driving direct sales
Current price: Target:
Marketplace and supply-chain financing the twin
engines of growth, with INGDAN an extra booster
HK$ 14.18 HK$ 15.60
(as at 27 May 2015) (maintained)
Raise target price to HK$15.60 based on 1.0x PEG

TRADING DATA
52-week range HK$3.23 15.78
Solid set of 1Q15 results. In 1Q15, Cogobuy delivered 63% YoY
Market capitalization (m) HK$18,958/US$2,589
GMV growth to RMB2.5b thanks to robust transaction customer Shares outstanding (m) 1,348
growth that was up 92% YoY to 6,017. Revenue was up 41% YoY to Free float (%) 19
RMB1.9b driven by direct sales GMV. Gross margin expanded from 3M average daily T/O (m share) 8.2
3M average daily T/O (US$ m) 8.5
7.8% to 8.0% as SME GMV contribution grew from 46% in 2014 to
Expected return (%) 12 month 10
48% in 1Q15. Non-GAAP attributable profit was up 65% YoY to
RMB77m, representing 26% of our FY15F profit forecast.
Supply-chain financing and marketplace powerful twin PRICE VS HSCEI

engines of growth. By buying minority stakes in other IC sellers, HK$
16
Cogobuy has been able to rapidly grow its marketplace SKUs. We
14
expect marketplace GMV to triple by 2017F, reaching RMB6.6b.
12
Cogobuy is planning to roll out its supply-chain financing more
10
aggressively beginning in 2Q15. As of 1Q15, 7.7% of the companys
8
GMV was generated from supply-chain financing. We expect this to 6
rise to 10.7% in 2015F and 14.2% in 2016F. 4
2
We raise our target price to HK$15.60 on robust earnings 0
growth. We introduce our 2017F forecasts and raise our EPS growth Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15
Cogobuy HSCEI (rebased)
CAGR for 2015F-2017F to 48% to reflect better-than-expected
growth in transaction customers and in marketplace and financing
GMV. Our new target price is based on 1.0x 2015F PEG, translating
to 48x and 31x 2015F/2016F P/E still less aggressive than
Cogobuys A-share peers.

Revenue (RMB m) 2,417 6,848 8,662 11,202 14,330 Absolute 55.7 241.3 251.5
YoY (%) 54.1 183.3 26.5 29.3 27.9 Relative (%) to HSCEI 55.6 229.7 229.5
Net profit (RMB m) 82 187 294 464 649 Source: Bloomberg, CCBIS
YoY (%) 147.6 127.7 57.1 58.1 39.9
Fully diluted EPS (RMB) 0.09 0.16 0.25 0.40 0.56
Cheng Xing, CFA
YoY (%) 169.9 80.4 57.1 58.1 39.9
(852) 3911 8265
P/E (x) 126.0 70.9 45.4 28.4 20.3
xingc@ccbintl.com
P/B (x) 30.9 7.9 6.6 5.2 4.1
ROAE (%) 19.3 19.4 16.7 21.7 24.0
Ronnie Ho
Net debt/equity (%) 196.8 11.6 -34.3 -21.8 -34.1
(852) 3911 8259
Source: Bloomberg, CCBIS ronnieho@ccbintl.com
102
SOLID 1Q15 SET OF RESULTS
1Q15 was another solid quarter for Cogobuy. The company delivered 63% YoY
gross merchandise value (GMV) growth to RMB2,5b in 1Q15, which is 20% of our
FY15F GMV forecast of RMB12.6b, consistent with seasonality. Direct sales GMV
contributed 76.1% of the companys total RMB1,895m revenue, driven by robust
transaction customer growth, which was up 92% YoY to 6,017. The company has
the goal of growing its customer base to 10,000 by 2015F. We expect transaction
customers to reach 21,360 by 2017F, of which 99.2% are to be SME customers,
which tend to generate higher gross margin.
2015F TRANSACTION CUSTOMERS TO DOUBLE FROM 2014

25,000
165
20,000
15,000 152
10,000 140 21,360
15,383
132
5,000 129 9,912
95 4,921 6,017
15 39 2,658
0 150 621
FY11 FY12 FY13 FY14 1Q15 FY15F FY16F FY17F
Direct sales SME transaction customer Direct sales blue-chips
Revenue was up 41% YoY to RMB1.9b, mainly on direct sales GMV. Direct sales
contributed 99.6% of revenue in 1Q15. Gross margin expanded from 7.8% to 8.0%
as SME GMV contribution rose from 46% in 2014 to 48% in 1Q15. Non-GAAP
attributable profit rose 65% YoY to RMB77m, representing 25% of our FY15 profit
forecast.
QUARTERLY GMV TREND 1Q IS LOW SEASON AND 4Q PEAK SEASON

RMB m
4,500
4,000
3,500 480
400
3,000 929
290
2,500 209 807
192 620
388 62 357 406
2,000 367
1,500 0
2,215 2,458
1,000 1,529 1,632 2,065 2,042 1,895 2,016
500
0
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E
Direct sales GMV Marketplace Supply Chain finance
103
IMPRESSIVE DIRECT SALES GROWTH
Cogobuys core business is still direct sales of IC electronics, which accounted for
99.6% of company revenue as of 1Q15. For higher margin SME customers, the
main growth driver is rising customer numbers. Average spending per SME
customer may trend down as lower ASP SKUs are introduced. The company
targets doubling its transaction customer base to 10,000 by 2015F. We expect
transaction customers to grow at a 43% CAGR in 2014-2017F, reaching 24,351 by
2017F. However, as more SME customers place smaller ticket size orders, we
expect direct sales GMV per customer to trend down from RMB1.8m in 2014 to
RMB0.8m in 2017F. Thus, we expect direct sales GMV to grow at a 26% CAGR in
2014-2017F.
ROBUST CUSTOMER GROWTH DRIVES DIRECT SALES

RMB m
16,000 25,000
14,000
20,000
12,000
10,000 9,860
15,000
8,000 6,750
6,000 4,391 10,000

3,190
4,000
1,906 5,000
4,635 5,290
2,000 3,807 4,193
327 910
50 2,065
0 141 348 986 0
FY11 FY12 FY13 FY14 1Q15 FY15F FY16F FY17F
Blue chip SME Transaction customer (RHS)
GMV PER CUSTOMER TRENDING DOWN AS SME CUSTOMERS TRENDING UP

RMB m
2.0
1.8
1.6
1.4
1.2
1.0
1.8
0.8
1.4
0.6 1.2 1.1
1.0
0.4 0.8 0.8
0.2
0.0
Direct sales GMV per customer RMB m
104
TWIN ENGINES OF GROWTH
Apart from its core direct sales business, Cogobuy has two other engines of
growth, namely marketplace and supply-chain financing that together drives
robust growth in total GMV. We expect marketplace and financing to contribute
33%/38%/42% of total GMV in15F/16F/17F.
MARKETPLACE AND FINANCING AS SIDE ENGINES PUSHING GMV GROWTH
100% 0% 0% 0% 3%
11% 14% 15%
90% 13%
80% 22%
24% 27%
70%
60%
50% 100% 100% 100%
40% 83%
68%
30% 62% 58%
20%
10%
0%
Direct Sales Marketplace Supply chain financing
Marketplace GMV has seen growth momentum pick up in 1Q15, contributing

RMB406m GMV and accounting for 16.3% of the firms total GMV. By buying
minority stakes in other IC electronics sellers, Cogobuy has been able to grow its
marketplace SKUs as well as its marketplace GMV. We expect marketplace GMV
to grow at an 81% CAGR in 2014-2017F, reaching RMB6.6b by 2017F.
Cogobuy is planning to roll out its supply-chain financing from 2Q15F and put it
to work as a powerful tool to attract new customers. Cogobuy has two
advantages in offering supply-chain financing: its background in trading and
access to cheaper funding overseas. As of 1Q15, 7.7% of the companys GMV
was generated from supply-chain financing. We expect this to rise to 10.7% in
2015F and 14.2% in 2016F.
The annual effective interest rate for blue-chip and SME customers will come to
around 6-7% and 10-13%, which is quite competitive. The sole purpose of
Cogobuys supply-chain financing business is to facilitate IC procurements on
Cogobuys platform. Because the loans cannot leave Cogobuys platform, risk is
minimized.
105
INGDAN THE EXTRA BOOSTER
INGDAN is a first-of-its-kind smart hardware innovation platform bringing

innovators, investors and interested consumers together. It not only offers a
communication platform for interested parties but it also provides strong supply-
chain help to turn designs into reality. INGDAN has partnered up with JD.com on
equity crowd financing and sales distribution.
THE INGDAN SHENZHEN EXPERIENCE CENTER
Source: CCBIS
INGDAN targets 10m fans, 10,000 projects and 5,000 suppliers by 2015F, all before
it begins even considering monetization. It currently has 2m fans/followers and
hosts competitions nationwide with Tencent. Some of its more successful projects
are displayed in its physical INGDAN Experience Center based in Shenzhen. More
Experience Centers are to be launched in Beijing, Shanghai, Hong Kong, Silicon
Valley, Japan and Israel.
INGDAN EXPERIENCE CENTER DISPLAY INGDAN EXPERIENCE CENTER DISPLAY
Source: CCBIS Source: CCBIS
106
MAIN ASSUMPTION CHANGES

Major changes 2015F 2016F 2017F
GMV (RMB m)
New estimates 12,706 17,847 24,351
Change (%) -1 3 N/A
Online transaction customers

New estimates 10,053 15,535 21,524
Change (%) 4 2 N/A
GMV per Online transaction customers(RMB m)

Change (%) -5 1 N/A
Revenue (RMB m)
New estimates 8,662 11,202 14,330
Change (%) -5 5 N/A
Gross margin (%)

Change (%) 0 3 N/A
Net profit (RMB m)

Change (%) 12 42 N/A
EPS (RMB)
Change (%) 12 39 N/A
107
KEY ASSUMPTIONS FOR COGOBUY

Transaction customer 165 660 2,753 5,050 10,053 15,535 21,524
Blue-chip 15 39 95 129 140 152 165
SME 150 621 2,658 4,921 9,912 15,383 21,360
Marketplace 1,326 5,050 10,053 15,535 21,524
Register-transaction conversion (%) 83 51 14 16 21 24 26
Registered customers 198 1,305 19,089 31,528 48,796 65,151 82,252
GMV per customer (RMB m) 1.2 1.0 1.4 1.7 1.3 1.1 1.1
Blue-chip 3.3 8.9 21.7 29.5 29.8 29.6 30.6
SME 0.9 0.5 0.7 0.6 0.4 0.4 0.4
Marketplace 0.0 0.2 0.3 0.3 0.3
GMV 191 675 3,971 8,381 12,706 17,847 24,351

Blue-chip 50 348 2,065 3,807 4,193 4,506 5,037
SME 141 327 1,906 3,190 4,391 6,565 9,094
Marketplace 0 1,112 2,763 4,235 6,630
GMV to revenue conversion ratio (%) 61 82 68 63 59

Blue-chip (%) 65 98 100 100 100
SME (%) 55 97 100 100 100
Marketplace (%) 2.4 2.2 2.2 2.2
Revenue 1,170 1,568 2,417 6,848 8,662 11,202 14,330

Blue-chip 452 627 1,337 3,718 4,193 4,506 5,037
SME 718 941 1,055 3,101 4,391 6,565 9,094
Marketplace 25 27 60 92 145
COGOBUY FORWARD P/E BANDS
x
50
45
40
35
30
25 23.1
20
15 16.4
10 9.6
5
0
Jul-14 Aug-14 Oct-14 Nov-14 Dec-14 Jan-15 Mar-15 Apr-15 May-15
Fwd PE average +1 s.d -1 s.d
108
COGOBUY VALUATION MATRIX

2015F 2016F 2017F
Target price (HK$) 15.60
Target PEG 1.00
15F-17F EPS CAGR (%) 47.9
Implied P/E multiple GAAP 47.9 30.5 21.9
Implied P/E multiple non-GAAP 41.3 27.7 20.4
Implied P/S (x) 1.6 1.3 1.0
Implied P/B (x) 7.3 5.8 0.0
GAAP diluted EPS (RMB) 0.26 0.40 0.56
Non-GAAP diluted EPS (RMB) 0.30 0.44 0.60
Book value per share (RMB) 1.68 2.12 0.00
Sales per share (RMB) 7.5 9.7 12.4
109
COGOBUY | 400 HK FINANCIAL SUMMARY

Direct Sales 2,392 6,819 8,584 11,071 14,131 Cash & equivalents 282 1,223 2,291 2,384 3,133
Market place 25 27 60 92 145 Pledge dep., restricted cash 233 742 742 742 742
Supply chain finance 2 18 38 54 Receivables 657 749 201 413 294
Revenue 2,417 6,848 8,662 11,202 14,330 Inventory 244 501 458 663 622
COGS (2,215) (6,315) (7,955) (10,222) (13,029) Other current assets 106 231 363 657 920
Gross profit 202 532 706 979 1,301 Total current assets 1,521 3,446 4,055 4,860 5,711
Other income 1 (0) Property, plant & 1 2 2 3 4
Operating expenses (82) (271) (294) (347) (430) equipment
EBIT 121 261 412 632 871 Intangible assets 31 24 18 13 11
Other non-current assets 155 169 169 169 169
Net financial income (exp.) (19) (31) (41) (46) (51) Total non-current assets 187 194 189 185 184
Profit before tax 102 230 371 586 820 Total assets 1,708 3,640 4,243 5,045 5,895
Tax (16) (27) (53) (83) (116)
Total profit 87 203 318 503 704 Short-term borrowings 929 1,411 1,600 1,800 2,000
Trade & bills payable 433 566 655 745 682
Extraordinary items Other current liabilities 11 34 34 34 34
Minority interest (4) (16) (25) (39) (54) Total current liabilities 1,374 2,011 2,289 2,580 2,717
Net profit attributable to 82 187 294 464 649 Long-term borrowings 1
shareholders Other non-current liabilities 5 4 4 4 4
Core profit 82 231 349 520 706 Total non-current liabilities 5 4 4 4 5
Total liabilities 1,379 2,015 2,293 2,584 2,722
Reported EPS (HK$) 0.09 0.17 0.26 0.41 0.57
Diluted EPS (RMB) 0.09 0.16 0.25 0.40 0.56 Share capital 0 0 0 0 0
Core EPS (RMB) 0.09 0.20 0.30 0.45 0.61 Reserves and retained 325 1,603 1,904 2,376 3,034
profits
Shareholders' equity 325 1,603 1,904 2,376 3,034
Minority interest 4 22 47 85 139
Total equity 329 1,625 1,950 2,461 3,173
CASH FLOW RATIOS

Net financial charge adj. 19 25 41 46 51 EBITDA 202.2 105.8 55.5 52.3 37.3
Non-cash items adjusted (1) 35 (35) (40) (45) EBIT 208.8 115.3 57.9 53.4 37.8
Change in working capital (188) (78) 581 (586) (105) Net profit 147.6 127.7 57.1 58.1 39.9
Other 28 28 29 30
Operating cash flow (70) 232 940 (43) 638 Profitability (%)
Gross margin 8.4 7.8 8.2 8.7 9.1
Disposal of fixed assets 0 0 EBITDA margin 5.4 3.9 4.8 5.7 6.1
Net interest received (paid) 1 6 Core net margin 3.4 3.4 4.0 4.6 4.9
Other (29) (21) 10 8 9 Tax rate 15.5 11.8 14.3 14.2 14.1
Investment cash flow (184) (518) 9 6 7
Efficiency (days)
Change in borrowings 506 204 189 200 202 Inventory turnover 42 22 22 20 18
Equity issues 0 1,096 Trade receivables 92 37 40 20 18
Other (21) (81) (90) (95) (102) Trade payables 45 29 28 25 20
Financing cash flow 485 1,219 98 105 100
Change in cash flow 231 932 1,047 68 746 Returns & leverage (%)
ROAA 5.1 7.0 7.5 10.1 12.0
Cash & equivalents, begin 52 282 1,222 2,270 2,337 ROAE 19.3 19.4 16.7 21.7 24.0
Forex (2) 8 1 Net debt (cash)/equity 196.8 11.6 (34.3) (21.8) (34.1)
Cash & equivalents, end 282 1,222 2,270 2,337 3,084
Liquidity (x)
Free cash flow (70) 231 939 (45) 636 Current ratio 1.1 1.7 1.8 1.9 2.1
Quick ratio 0.9 1.5 1.6 1.6 1.9
110
Rating definitions:
Outperform (O) expected return > 10% over the next twelve months
Neutral (N) expected return between -10% and 10% over the next twelve months
Underperform (U) expected return < -10% over the next twelve months
Analyst certification:
The author(s) of this document, hereby declare that: (i) all of the views expressed in this document accurately reflect his personal
views about any and all of the subject securities or issuers and were prepared in an independent manner; and (ii) no part of any of
his compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this
document; and (iii) he receives no insider information/non-public price-sensitive information in relation to the subject securities or
issuers which may influence the recommendations made by him. The author(s) of this document further confirm that (i) neither he
nor his respective associate(s) (as defined in the Code of Conduct for Persons Licensed by or Registered with the Securities and
Futures Commission issued by the Hong Kong Securities and Futures Commission) has dealt in or traded in the securities covered in
this document within 30 calendar days prior to the date of issue of this document or will so deal in or trade such securities within 3
business days (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) after the date of issue of
this document; (ii) neither he nor his respective associate(s) serves as an officer of any of the companies covered in this document;
and (iii) neither he nor his respective associate(s) has any financial interests in the securities covered in this document.
CCBI Group has had investment banking relationship with Cogobuy Group (400 HK)
Disclaimers:
This document is prepared by CCB International Securities Limited. CCB International Securities Limited is a wholly-owned subsidiary
of CCB International (Holdings) Limited (CCBIH) and China Construction Bank Corporation (CCB). Information herein has been
obtained from sources believed to be reliable but CCB International Securities Limited, its affiliates and/or subsidiaries (collectively
CCBIS) do not guarantee, represent and warrant (either express or implied) its completeness or accuracy or appropriateness for
any purpose or any person whatsoever. Opinions and estimates constitute our judgment as of the date of this document and are
subject to change without notice. CCBIS seeks to update its research as appropriate, but various regulations may prevent it from
doing so. Besides certain industry reports published on a periodic basis, the large majority of reports are published at irregular
intervals as appropriate according to the analyst's judgment. Forecasts, projections and valuations are inherently speculative in
nature and may be based on a number of contingencies. Readers should not regard the inclusion of any forecasts, projections and
valuations in this document as a representation or warranty by or on behalf of CCBIS that these forecasts, projections or valuations
or their underlying assumptions will be achieved. Investment involves risk and past performance is not indicative of future results.
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E-COMMERCE MAY 28, 2015

CHINA E-COMMERCE SECTOR

Mobile an effective tool. According to the China Internet

Alibaba and VIPS our top picks. Alibaba (BABA, US;

Analyst certifications and other important disclosures on last page 1

CCBIS INVESTMENT FRAMEWORK

Initiating coverage on the China e-commerce sector. We like the sector

In order to help investors navigate Chinas e-commerce market, we developed

1. Large and growing addressable market relative to current market cap

2. Scale-advantage or first-mover advantage

3. Ability to differentiate on user experience

4. Clearly defined business model with multiple revenue streams

5. Capable management team with strong execution abilities

BAT YTD PRICE PERFORMANCE JD/VIPS/JMEI/HC/COGOBUY YTD PRICE PERFORMANCE

Alibaba, VIPS and HC our top picks

We initiate coverage on Alibaba with an Outperform rating and US$110.50 target

JD (JD US, OP, TP: HK$39.00, potential upside: 14%)

We initiate coverage on JD.com with Outperform rating and US$39.00 target

Jumei (JMEI US, OP, TP: US$25.70, potential upside: 12%)

We initiate coverage on Jumei with an Outperform rating and target price of

HC (2280 HK, OP, TP: HK$14.90, potential upside: 26%)

Cogobuy (400 HK, OP, TP: HK$15.60, potential upside: 10%)

CHINA E-COMMERCE SECTOR VALUATION MATRIX

FAVORABLE POLICY FUELS GROWTH

On 6 May, 2015, China announced plans to speed up the implementation of the

We believe e-commerce could be a powerful policy tool as by supporting these

To boost the development of e-commerce, the State Council vowed to:

1) Lower the entry threshold to the e-commerce market

2) Reduce tax in a reasonable manner

4) Promote employment and startups in e-commerce

5) Encourage traditional industries and rural areas to embrace e-commerce.

6) Encourage domestic e-commerce companies to invest abroad

7) Safeguarding cyber security and online transactions

CHINA E-COMMERCE MARKET

CHINA SURPASSED THE US TO DOMINATE GLOBAL E-COMMERCE IN 2013 BY TRANSACTION

Source: Euromonitor, CCBIS

CHINA E-COMMERCE MARKET TO DOUBLE IN 4 YEARS

Source: iResearch, CCBIS

Online O2O Online O2O 2018E

Source: : iResearch, CCBIS Source: : iResearch, CCBIS

WE ARE AT THE LATE GROWTH STAGE OF B2B E-COMMERCE IN CHINA

Resources consolidation platform

Transaction services platform

Information services platform

Emerging phase Start up phase Growth phase Mature phase

Prior to 1997, China's B2B 2008 financial crisis

1997 1999 2000 2003 2005 2007 2008 2020 ..

Source: iResearch, CCBIS estimates

As of 2014, online shopping accounted for 22.9% of Chinas e-commerce market

CHINA ONLINE SHOPPING MARKET TO GROW 2.6X IN 5 YEARS

Source: iResearch, CCBIS

Competitive landscape in B2B

MARKET SHARE OF TOP-5 B2B PLAYERS IN CHINA (2014)

Source: iResearch, CCBIS estimates

Source: iResearch, CCBIS Source: iResearch, CCBIS

Growth drivers of Chinas e-commerce market

CHINA CONSUMPTION AS % OF GDP LAGS BEHIND RISING CHINA CONSUMPTION AS % OF GDP

CHINAS ONLINE RETAIL PENETRATION IS RELATIVELY LOW

Source: iResearch, CCBIS

EXPANDING PRODUCT CATEGORIES THE WAY TO GO

CHINA: LESS DEVELOPED OFFLINE RETAIL INFRASTRUCTURE FUELS ECOMMERCE

Improving Internet infrastructure. We have seen steady growth of Chinas

Currently 47.9% of Chinas population is connected to the Internet. Of those, only