Baozun: Western Brands Meet China's Buyers

06/15/2017 2:50 am EST

Focus: GLOBAL

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Baozun (BZUN) is a company that is growing at a triple-digit pace, with two analysts increasing forecasts for this year, notes Paul Goodwin, editor of Cabot Emerging Markets Investor.

Baozun works for the companies who have brands that they sell (or want to sell) in China. The company can offer next-day delivery in 95 Chinese cities.

These (mostly Western) brands hire Baozun to introduce them to Chinese consumers, to design, build and maintain their websites, to provide customer service and digital marketing, and to warehouse and deliver their wares.

Baozun has always enjoyed a strategic partnership with Alibaba (BABA), and much of its business takes place on Alibaba’s T-Mall or on JD.com (JD). Baozun’s client list has expanded from 95 brand partners at the end of 2015 to 136 at the end of Quarter 1 2017.

These brands include Nike (NKE), Coach (COH), Converse, Levi’s, Calvin Klein in fashion; Subaru (FUJHY), Honda (HMC), Mitsubishi (MTU), Fiat (FIATY) and Toyota (TM); Haagen-Dazs and Godiva; Johnson & Johnson (JNJ) and Pepsi (PEP) in the beauty and food categories; and Microsoft (MSFT) and GoPro (GPRO).

The company’s recent quarterly report was strong, with revenue of $117 million (up 13% year-over-year) and earnings of seven cents per share (up 75%).

The gross merchandise value facilitated by Baozun increased by 61%, with same-store sales growth of 50%. The company also issued Quarter 2 guidance that called for a 24% to 27% increase in revenue.

In the future, Baozun plans to grow in a couple of ways. First, the company wants to go global, building on its brand partnerships outside China. Second, the goal is to emphasize the non-distribution (services) side of the business, which will lower inventory volume and risk.

The stock started to spring higher in May and ripped above $23 after its May 16th earnings report. BZUN remains volatile, but is resisting the downtrend that has pulled many emerging market stocks down significantly.

We like the story and the chart, but we also take the market’s recent turbulence seriously. So we will buy just a half position in BZUN, at least until we get a clear signal from the market that all is well. Buy a half position.

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