Pinduoduo (PDD US) Company Update Summary
Core Content
CMB International Global Markets has released an updated equity research report on Pinduoduo (PDD US), highlighting its strong performance in the second quarter of 2022 and a more positive outlook for future growth and profitability. The report emphasizes PDD's resilience and margin expansion despite the ongoing impact of the epidemic, with a focus on its value-for-money offerings and expansion in lower-tier cities. The firm has raised its earnings forecasts for PDD for FY22-24E and increased its target price based on a DCF model.
Key Financial Highlights
Earnings Summary (YE 31 Dec)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
59,492 |
93,950 |
120,992 |
144,157 |
165,117 |
| YoY growth (%) |
97.4 |
57.9 |
28.8 |
19.1 |
14.5 |
| Adj. net profit (RMB mn) |
-2,965 |
13,830 |
26,849 |
28,899 |
34,736 |
| Adj. EPS (RMB) |
-2.49 |
9.56 |
18.20 |
19.21 |
22.64 |
| YoY growth (%) |
NA |
NA |
90 |
6 |
18 |
| P/E (x) |
NA |
47 |
25 |
24 |
20 |
| P/S (x) |
9.6 |
6.1 |
4.7 |
4.0 |
3.5 |
Revenue Breakdown
| Revenue Segment |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Online marketing |
47,954 |
72,563 |
95,973 |
114,641 |
131,799 |
| Transaction services |
5,787 |
14,140 |
24,718 |
29,160 |
33,318 |
| Merchant Sales |
5,751 |
7,248 |
301 |
356 |
- |
Margin Trends
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Gross margin (%) |
80.6 |
77.2 |
79.3 |
79.5 |
79.8 |
| Operating margin (%) |
- |
7.3 |
18.3 |
15.5 |
15.9 |
| Adj. net margin (%) |
- |
14.7 |
22.2 |
20.0 |
21.0 |
Key Ratios
| Ratio |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| ROE (%) |
-11.9 |
17.6 |
31.0 |
24.2 |
22.6 |
| ROA (%) |
-2.5 |
8.6 |
14.5 |
12.3 |
11.9 |
| Adj. EPS (RMB) |
-2.49 |
9.56 |
18.20 |
19.21 |
22.64 |
Main Points and Analysis
- Strong Q2 Performance: PDD reported revenue growth of +36% YoY, exceeding the consensus by +33%, driven by consumer sentiment recovery and the 618 promotions.
- Margin Expansion: Non-GAAP net profit reached RMB10.8bn, a +161% YoY increase, with the company demonstrating higher gross profit margin (GPM) and disciplined sales and marketing (S&M) expenses.
- GMV Growth: PDD's GMV growth was significantly higher than that of competitors like Alibaba and JD.com, with > +25% YoY in July and a forecast of +24% YoY for 2H22E.
- Earnings Revisions: CMBIGM raised its earnings forecasts by 18% to 41% for FY22-24E, reflecting a better recovery outlook.
- Target Price Increase: The DCF-based target price was increased from US$70 to US$83, with a +23.0% upside from the current price of US$67.5.
- Share Performance: PDD's share price has shown strong performance, with a +19.2% absolute return over 3 months.
- DDMC Contribution: DDMC is expected to contribute 5% GMV and improve its unit economics (UE) to -8% in FY22E.
- Long-term Outlook: The report is optimistic about PDD's long-term profitability, citing the potential of agriculture initiatives and brand penetration as growth drivers.
Strategic Initiatives and Outlook
- Value-for-Money Products: PDD's focus on cost-effective products is expected to drive continued share gains, especially in challenging macroeconomic conditions.
- Lower-Tier Cities Exposure: The company has a relatively higher GMV exposure in lower-tier cities, which is a key growth driver.
- Overseas Expansion: PDD's expansion into the US market is at an early stage but has a promising total addressable market (TAM).
- Operating Leverage: Continued operating leverage and industrial consolidation are expected to support future profitability.
- DDMC Share Gain: DDMC's share gain trend continued in 2Q22, with potential for further improvement.
Ratings and Recommendations
- Ratings: CMBIGM maintains a BUY rating on PDD, with a +23.0% upside from the current price.
- Target Price: The new DCF-based target price is US$83, which is 32x FY23E P/E.
- Outperform Rating: The company is rated OUTPERFORM, indicating it is expected to outperform the broad market benchmark over the next 12 months.
Key Takeaways
- PDD has shown strong resilience and outperformed expectations in 2Q22.
- The company's focus on value-for-money products and GMV growth in lower-tier cities is a key strength.
- CMBIGM has raised its earnings forecasts and target price, reflecting a more positive outlook.
- DDMC is expected to improve its unit economics and contribute to GMV growth.
- The company's long-term growth potential is supported by its agriculture initiatives and brand expansion.
- PDD is recommended as a BUY with a target price of US$83.
Analysts
Disclaimer
The report is prepared for informational purposes only and should not be considered as investment advice. It is not intended for distribution to any person other than those specified. The views expressed are those of the analyst and do not reflect the views of CMBIGM or its affiliates. The information is based on publicly available data and may be subject to change. Investors are advised to consult with a professional financial advisor before making investment decisions.
