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Morgan Stanley Downgrades Jumei To Underweight, Concerned About CBE Tax Reform

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Following the announcement of its privatization plan on February 17, Jumei International Holding Ltd (ADR) JMEI 0.31% announced the resignation of its co-CFOs, Ms. Mong Meng Gao and Mr. Yunsheng Zheng on April 1.

Morgan Stanley’s Robert Lin downgraded the rating on the company from Equal-weight to Underweight, while lowering the price target from $9 to $7.

The analyst expressed concern regarding “the headwinds from CBE tax reform and slower top-line growth, in view of the capped growth potential of marketplace fashion sales.”

Privatization Plan

Jumei International has formed an Independent Special Committee to aid with the privatization. Lin mentioned the buyer group own 54.4 percent of the outstanding ordinary shares at present, along with 90.1 percent of the aggregate voting power of the company.

Lin estimated the buyer group was likely to need to raise US$468 million in order to buy out the rest of the shares, based on the privatization price, “which appears achievable given its net cash of US$400mn as of September 2015.”

Cross-Border ECommerce Headwinds

The analyst mentioned that under the new tax scheme, cross-border ecommerce (CBE) in the free trade zones would be taxed at 70 percent of VAT and consumption tax, if any.

“Jumei faces near-term headwinds from increasing tax expenses for low-ticket items which had enjoyed a personal postal tax waiver,” Lin explained, while stating that the company was likely to expand to higher-end product offering via CBE, “but it is likely to take time to build product sourcing capability overseas.”

DateFirmActionFromTo
Apr 2016Morgan StanleyDowngradesEqual-weightUnderweight
Mar 2016Summit ResearchTerminatesBuy
Nov 2015CLSADowngradesBuyUnderperform

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