Economic Reform: Dual-Drive, Low Risk Appetite

Market Perspective: In April, the domestic capital market continued to fluctuate upward, with the Hang Seng Index of Hong Kong stocks breaking through in the middle and late months.

The driving force is first from the stabilization of the domestic economic fundamentals, and second from the economic and market reform measures that boost investors' medium and long-term confidence.

The overall situation of the domestic economy since the beginning of the year is still in a "weak recovery" pattern.

Macroeconomic data is not particularly good, with GDP and export data being passable, but electricity generation and real estate investment are average.

The micro situation is also not bad.

Looking at the first-quarter report, the consumption data for physical goods (such as liquor, clothing, etc.)

is average, but the consumption data for service categories (such as tourism, box office) is good.

The competition in the domestic overcapacity industries (photovoltaic, new energy vehicles) is still fierce, but many businesses that export globally are profitable.

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For example, the same electric vehicle sold in overseas markets can earn many times the profit per car compared to the domestic market.

The Chinese economy is vast and complex.

After three years of the real estate downturn cycle, it is no longer simple to summarize the competitive state as good or bad; nor can we expect the economy to return to the high-speed growth state of five years ago.

We need to view the stabilization of the Chinese economy from the perspectives of structural, global, and supply-side, and discover opportunities.

In April, the domestic capital market introduced the "Nine National Articles," accelerating the reform of the capital market.

For the first time in history, it proposed "building a capital market centered on investors" and put forward a series of measures to improve the quality of listed companies.

Continuing the "China Special Evaluation" thinking, this reform is actually a further supply-side reform of listed companies.

The overall investment value of A/H shares, in addition to being improved due to the improvement of the Chinese economic fundamentals, will also directly promote the stock's fundamentals to be more attractive.

After three years of market downturn, the market at the beginning of 2024 experienced the impact of a liquidity crisis.

The current capital market, with the economy initially stabilizing, the reform accelerating, and risk preference still at a relatively low level, has the initial characteristics of entering a bull market.

We firmly believe that starting from the fundamentals and standing with high-quality companies, focusing on LongOnly investment in growth stocks, will yield good returns in the long run.

Starting from this issue, we will no longer only discuss which industries are in the cycle of prosperity, but will spend more energy on discussing business models.

We hope to improve our understanding of good growth stock businesses through discussion, focusing on internet life e-commerce platforms this issue.

Internet life e-commerce platforms have developed from the previous internet O2O services, with the basic logic based on the LBS (Location-Based Services) of the mobile internet era.

Similar to the basic internet services of sending emails, the core value of internet life e-commerce platforms is also this "network," connecting hundreds of millions of consumers on one end and tens of thousands of merchants on the other.

The aspects of "clothing, food, housing, and transportation" are the growth space.

People's purchase of physical goods corresponds to the development space of internet physical e-commerce, and people's needs in life (clothing, food, housing, transportation) correspond to the growth space of internet life e-commerce platforms.

In the "clothing, food, housing, transportation" needs, there are a large number of segmented needs, such as taxiing, takeout, ticketing, flower delivery, drug purchase, second-hand cars, second-hand houses, etc.

At present, Didi, Meituan, Ctrip, Beike, etc., have formed competitive advantages in their respective vertical fields.

The future growth, first, is that the online penetration rate in the vertical fields continues; second, by establishing a large user group through high-frequency demand, new service categories are added, such as takeout delivery personnel can also deliver flowers, such as the future intelligence of ride-hailing, etc.

How strong is the "user mind" of the life e-commerce platform?

There are a large number of non-standard categories in life services, such as eating, travel, tourism, etc.

The intensity of competition in life e-commerce is lower than that of physical e-commerce (a large number of standard products).

However, various platforms have also experienced "subsidy wars" in history.

After forming a high market share, has life e-commerce established a "user mind"?

From the current people's habit of using Didi for taxiing, Meituan for takeout, and Ctrip for travel, it is seen that there is a widespread and sticky user habit.

But in the final analysis, people use the platform to pursue the quality and cost-effectiveness of life services.

If you want to find a discount coupon for dining, you may go to Dianping or TikTok.

If you can't get a taxi with Didi, you may look at Gaode Map - the "user mind" of the life e-commerce platform is still dynamic, depending on the stability, convenience, and discounts of the life services provided by the "network."

Even if the monopoly reaches 70% or 80%, this is still a business category that requires strong management operation.

How to give the value of the life e-commerce platform?

In the early days of the internet era, there was a famous Metcalfe's Law, "The value of the network is proportional to the square of the number of users connected to the network."

The scale of the user group of the life e-commerce platform (which can also be said to be the monopolistic degree of the user mind at a certain stage) determines the attractiveness to merchants, and vice versa, the richness of the merchant group and the discount strength also determine the long-term occupation ability of the user mind.

The cost of rebuilding such a "matching network" is huge, that is, "revaluation value" is an important valuation method for internet life e-commerce platforms.

Secondly, life e-commerce platforms and social networking platforms still have huge differences.

The efficiency of this network itself (such as ordering and delivery of life services) varies greatly and requires efficient operation by operators - everyone will look at various indicators to judge the user efficiency of the network and give an economic efficiency estimate.

Finally, after satisfying the users (life e-commerce network value) and the cost side (subsidy discounts, offline costs, technology investment, regulatory costs, etc.

), the economic value created by the life e-commerce network itself, we can use DCF, PE and other valuation methods to look forward to the investment value.

At present, the Chinese life e-commerce platform has entered a stable period of user mind, and after several rounds of PK (takeout subsidy war, taxi subsidy war, vegetable buying subsidy war), the cost side has entered a stable contraction period.

The network itself is no longer expanding rapidly, but the economic value of the network begins to recover and expand.

The focus of investing in China's internet has shifted from the past Growth+ to Quality+, with high-quality development taking precedence.