China Consumer 2025 investment thesis-113573687

China consumer, eCommerce, logistics Jessie Xu | (+852) 2203 5880 | jessie.xu@db.com February 2025 IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.DeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Distributed on: 17/02/2025 11:27:15 GMT Table of contents 4.eCommerceComps table50Alibaba51PDD55JD59VIPS63_____________________________________________________________ 1.IndustryComps table–DB coverage22024recap3Sentiment bottoming out42025investmentthesis7_____________________________________________________________ 2.SportswearComps tableAntaXtepShenzhouTopsports_____________________________________________________________ 5.LogisticsComps table68J&T Express70ZTO72_____________________________________________________________ Disclaimer76_____________________________________________________________ 2024 performancerecap •Subsectors that outperformed in 2024: •Industry alpha–pop toys•Stimulus beneficiary–home appliances•Earlier cycle recovery–OEMs•Fundamental turnaround–eCommerce, logistics Sentiment looks to be bottoming outEvidence #1: The worst is likely behind us •Consumption stimulus policies started to have an effect in key categories from September 2024. 2024 stimulusmeasures include a nationwide “trade-in” policy for home appliance categories and cash coupons for certainprovinces. •3Q24 marked the darkest period for apparel and footwear, cosmetics, jewellery and home appliances. 4Q24 and2025YTD trend sequentially improved (partially due to earlier Double 11 and Chinese New Year). Sentiment looks to be bottoming outEvidence #2: Consumer expectations turning more positive •dbDIGconsumer survey results show that, when asked, “Do you think you are financially better or worse offthan a year ago?”, the percentage of “net better off” has been increasing, especially for the “age 35+” group and“low-tier cities”. •When asked, “Thinking 12 months ahead, do you expect your household income to…?”, there was a significantpercentage of “net increase” in all age groups and top-tier and low-tier cities. Sentiment looks to be bottoming outEvidence #3: Offline traffic improving with blockbuster “Ne Zha 2” as another catalyst •Our channel checks show thatoffline foot traffic has been sequentially improvingin 4Q24 and 2025 YTD, signalling aturnaround compared with consecutive YoY declines in 2Q/3Q24.•The movie “Ne Zha 2”achieved Rmb10bn in box-office revenue by 13 February 2025, climbing to the global top 3animation films. Current projections estimate a total of US$2.2bn (Rmb16bn) in box-office sales that, if realised, wouldplace the movie among the global top 10 or even among the top 5 highest-grossing films.•The movie’s stronger-than-expected momentumattracts hundreds of millions of consumers to shopping malls,supporting foot traffic of restaurants, tea and coffee chains, and toy, apparel and jewellery stores. 2025 investment thesis Thesis #1: Expanding fiscal stimulus to underpin demand and pricingSector/stock pick: eCommerce (JD), sportswear, home appliances Thesis #2: Sentiment bottoming out, regulation easing and AI breakthroughSector/stock pick: eCommerce–BABA, JD, PDD, VIPS Thesis #3: China’s national pride on the riseSector/stock pick: sportswear–Anta, Li Ning, Xtep Thesis #4: Diversification,polarisationand self-fulfillmentSector/stock pick:Pop Mart, Miniso 2025 investment thesis#1: Expanding fiscal stimulus to underpin demand and pricing •November 2024 to January 2025 data showed a pickup in core inflation, a good sign. 2025 CPI inflation is expected toimprove to 1-1.5% (DB house view), supporting a rebound in consumer sentiment. (1) The NDRC announced the first round ofRmb81bn subsidies for the “trade-in” programme and promised a larger scale for2025.(2) Oversupply and major inventory clearance is mostly done for industries such as apparel and footwear and cosmetics.(3) China eCommerce platforms are also taking a step back from the fiercest price war in 2Q24, indicating less low-pricecompetition, and are poised well for a pricing rebound. 2025 investment thesis#2:Sentiment bottoming out, regulation easing and AI breakthrough •On a macro level, we think 2025 is highly likely to become “the year of AI and consumption”, considering (1) The external environment has been unfavourable(2) Good results from the consumption stimulus measures in 4Q24 providing stronger confidence(3) Regulationeasing infinancial industry and incremental positive stance to the private sector–positive towealth effect, job openings and future household income(4) Faster AI adoption in the internet and consumer sectors boosting operating efficiency •On a micro level, the competition and price war between major Chinese eCommerce platforms have easedsomewhat, with (1) Alibaba start