Momo.com: Initiating Taiwan’s Leading Direct Sales E-Commerce Platform; TWD 760 Fair Value Estimate

We initiate Momo.com with a fair value estimate of TWD 760, representing a 20% upside as of the Aug. 1 close. We believe the direct sales e-commerce company has a sizable lead in its logistics capabilities that has boosted users and lifted operating margins compared with its closest competitor in Taiwan. Momo.com’s logistics advantage lies mainly in its distribution network that incorporates 60 warehouses and 800 other delivery kiosks. In addition, it plans to add two more distribution centers in southern Taiwan in addition to its northern hub, which should further solidify its logistic capabilities in all parts of the island. Comparatively, its closest competitor PChome, had only eight operating warehouses as of year-end 2022. We believe the firm is leveraging its advantage by offering lower prices to consumers relative to its competitors and we believe it is positioned for higher gross margins if discounting ceases. We assume scale efficiency leads to a modest operating margin expansion of 100 basis points in the long term.