Equity Analysis /
South Korea

Coupang: An attractive entry point for one of the best Baby Amazons

  • Coupang's share price has fallen by 48% since its high on 15 March

  • It has since underperformed the MSCI-EM by 39% and the KOSDAQ by 48%

  • This provides an attractive entry point; reiterate Buy with a TP of US$48, implying 82% upside

Coupang: An attractive entry point for one of the best Baby Amazons
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
14 October 2021
Published byTellimer Research

We reiterate our Buy recommendation on Coupang with a TP of US$48, implying 82% upside.

Coupang is the e-commerce leader in South Korea. The sector is growing at one of the fastest rates in the world, with e-commerce penetration in South Korea at 34%, which is far ahead of China's at 20%.

However, Coupang's share price has fallen by 48% since its high on 15 March. It has since underperformed the MSCI-EM by 39% and the KOSDAQ by 48%. Other Korean Tech stocks such as Kakao and Naver have also underperformed by a similar degree.

This provides an attractive entry point for one of the best Baby Amazons (or EM e-commerce stars).

Coupang: Price performance since IPO

Below, we present the reasons for Coupang's underperformance:

  1. There have been fears of a crackdown on Tech in South Korea, along the lines of China's regulatory scrutiny.

    But these fears are unfounded – the Korea Fair Trade Commission, South Korea's regulator, has stated that it would intervene in the tech market only in the case of anti-competitive behaviour.

  2. There was a fire in one of its fulfillment centres in June 2021.

    This raised fears that Coupang's operations – especially its high-efficiency standards – may come under strain, on top of the Covid impact. However, the impact of the fire is now reflected in the stock price. Also, Coupang recognised an inventory write-off of US$158mn in Q2 21 as well as US$138mn in asset write-off. If one strips out the impact of the fire, gross profit rose 86% yoy to US$816mn in Q2 21. This suggests that Coupang's frenetic revenue growth could translate into profitability.

  3. There are concerns that Coupang's pace of revenue growth is unsustainable.

    Coupang's FY 21 revenue is projected to be 174% higher than in FY 19 – this is the highest among the Baby Amazons.

We expect Coupang to continue to generate high revenue growth through its foray into food delivery, which is the next stage of development for the company. It mirrors the trajectory of other Baby Amazons like Alibaba and Jumia.

Coupang is investing heavily in Rocket Fresh (which ensures delivery of fresh food within seven hours of ordering) as part of the Coupang Eats food delivery service – management plans to build on its success in e-commerce and expand this segment.

Valuation

We value Coupang on a DCF basis:

Coupang: DCF valuation

It is cheap on a comparative basis versus other EM e-commerce players.

E-commerce comparables