Kate Lin: Hello, and welcome back to the Morningstar Asia Outlook for 2023. I'm Kate Lin, a data journalist at Morningstar based in Hong Kong. Today, we are talking about the e-commerce sector.
It's been another brutal year for Chinese stocks. Companies across the board were hurting, including e-commerce heavyweights like Alibaba Group (09988). However, Morningstar analysts have identified some positive developments to watch in 2023, including the easing of lockdowns. So, what is the outlook for the next year and beyond? Today, Chelsey Tam, senior equity analyst at Morningstar, is here to tell us.
Hi, Chelsey.
Chelsey Tam: Hi, Kate.
Lin: So, after the 2022 earnings of e-commerce companies, what are the main takeaways for the next fiscal year?
Tam: Well, I think, the main, sort of, trend is cost savings, obviously. We see that, for example, Alibaba and JD really beat consensus in the bottom line because of better-than-expected cost-saving efforts, and we expect that to continue in the next year.
Lin: Right. With COVID restrictions gradually being lifted, how will it play out in the consumption and e-commerce sectors? How long will it take for investors to see the impacts on earnings?
Tam: Yeah. We think that the second quarter this year will provide a very low base for next year, and then we'll see more recovery definitely in the second half of the next year. So, we will expect to see an easing lockdown and reduced restrictions. That would lead to more efficient and quicker logistics and delivery for e-commerce companies. So, that should be able to help the revenue for these e-commerce companies. In addition to that, as employment gradually improves, disposable gradually improves, which will definitely take time, but I think that in the second half of next year, we'll see that come through on the revenue side.
Lin: And we have seen in other countries the road to normalization can be quite bumpy with a flare-up of COVID cases. Is this a risk for investors in the e-commerce space?
Tam: Yeah, totally. We totally expect that, and we have expected that in our model, and I think it's just very normal. But then, we have a very long-term view. So, we now currently assume that it will take some time for China to learn how to reopen. There will be some tweaking in the first half of the year. I don't think that the second half of the year will be completely like 2019, but it will still be an improvement obviously compared to this year. So, that's what we are thinking about.
Lin: So, talking about individual names, Alibaba is now the country's largest e-commerce platform. But some of the smaller peers are here to take away its market share. Will this continue in 2023?
Tam: Yeah, definitely. We definitely think that it will continue to lose share. Actually, we expect it to lose gross merchandise value (GMV) market share for the next 10 years. Because first of all, I think, there is a rise in short-form videos. It will take away some share from Alibaba and not just Alibaba actually, but the whole sort of, like, centralized marketplace platforms. In addition to that, within the e-commerce platforms, I think JD and PDD will continue to take share from Alibaba.
Lin: So, all in all, which names in the sector do you like the most?
Tam: We like Pinduoduo (PDD) now after their earnings. It has reported stellar quarters. I think in the second and third quarter it shows that it continues to grow. It spends like a growth company. It also registered revenue like a growth company. And we are now expecting that in the long term its margin will be similar to eBay because they're both third-party. And it still has a lot of growth potential in terms of upgrading to brands, recruiting more merchants, and for consumers, I think, that we will see more cross-selling from agricultural products to other categories.
Lin: Right. Thank you so much, Chelsey. More analysts from our Asia offices are going to join me in the chat. Stay tuned.
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