Alibaba, JD, PDD: August China Retail Sales Growth Accelerates; Online Consumption In Line

China’s August online and offline retail sales of consumer goods growth improved to 4.6% year on year in the month versus 2.5% in the prior month, thanks to the rollout of supportive policies by the government, in our view. Online sales of goods in the month were up 8% year on year, slightly better than the 7% in the previous month. We maintain our forecasts and fair value estimates for Alibaba Group BABA at USD 128 per ADS and HKD 124 per share; JD.com JD at USD 88 per ADS and HKD 341 per share; and PDD Holdings PDD at USD 117 per ADS. This is because we think China’s online consumption trend is in line with our expectations. In our view, PDD Holdings is fairly valued. While both Alibaba Group and JD.com are undervalued for long-term investors, we don’t see near-term catalysts for these shares. The physical goods e-commerce penetration in the month reached 26.3%, compared with 25.5% in August 2022. So far after the phasing out of the lockdown measures, we don’t see the offline segment taking market share, although people are going out more. Year-to-date physical goods e-commerce penetration was up 80 basis points year on year, supporting our forecasts of long-term e-commerce penetration increasing to 42.2% in a decade.