20260326-招银国际-Earnings_recovery_in_sight_despite_ongoing_investment_phase_6页_777kb

PDD Holdings (PDD US) Summary

Core Content

PDD Holdings (PDD US) reported its fourth-quarter 2025 results, highlighting a $12.0% year-over-year (YoY) revenue increase to RMB123.9 billion, aligning with Bloomberg's consensus estimates. This growth was primarily driven by a $5% beat in transaction services fees, attributed to strong performance in the Temu business, although this was partially offset by a $3% miss in online marketing services and other revenues due to weaker consumer sentiment.

Operating profit (OP) rose $8.3% YoY to RMB27.7 billion, in line with expectations, while non-GAAP net income of RMB26.3 billion missed by $16% due to higher-than-expected income tax expenses. For the full year of 2025, revenue increased by $10% YoY, while non-GAAP net profit declined by $12% YoY, reflecting continued investment in the platform ecosystem.

Key Financial Highlights

• Revenue Growth (YoY):
  • 4Q25: 12.0%
  • FY25: 10.0%
  • FY26E: 16.1%
• Non-GAAP Net Profit Growth (YoY):
  • 4Q25: -11.9%
  • FY25: -12.3%
  • FY26E: 16.1%
• Earnings Per Share (EPS):
  • 4Q25 (Adjusted): RMB83.21
  • FY26E (Adjusted): RMB83.21
  • FY26E Consensus: RMB87.08
• Valuation:
  • Target Price (TP): US$161.70 (up 5% from previous US$154.30)
  • Current Price: US$102.61
  • P/E Ratio (2026E): 8.6x
  • P/S Ratio (2026E): 1.0x
  • Non-GAAP P/E Ratio (2026E): 8.6x

Segment Performance

• Transaction Services Fees: Grew 19.2% YoY to RMB63.9 billion, $5% above consensus, driven by Temu's performance.
• Online Marketing Services and Others: Increased 5.3% YoY to RMB60.0 billion, $3% below consensus, due to weaker consumer sentiment.
• Total Revenue: RMB123.9 billion, inline with consensus.
• Gross Profit Margin (GPM): Declined to 55.5% in 4Q25, 1.1ppts below consensus, attributed to Temu's lower margins.
• Operating Expenses: Sales and marketing expenses increased 9.6% YoY to RMB34.4 billion, representing 27.7% of total revenue. Operating profit margin (OPM) was 22.4%, inline with expectations.

Valuation Adjustments

• SOTP-based Target Price: Increased to US$161.70 (previously US$154.30), reflecting a 5% increase.
• Valuation Breakdown (per ADS):
  1. Main App (Duoduo): US$95.0 based on 10x 2026E PE
  2. Duoduo Grocery: US$2.0 based on 1.0x 2026 EPS
  3. Temu: US$25.0 based on 1.0x 2026 EPS
  4. Net Cash: US$39.6 based on 1.0x 2026 PS

Analyst Recommendations

• Rating: BUY
• Reasoning: The company's earnings recovery is expected, supported by narrowing losses at Temu and strong core business growth. The risk-reward is considered attractive.

Shareholding and Financials

• Shareholding Structure:
  • Entities affiliated with Zheng Huang: 24.8%
  • Entities affiliated with Tencent: 13.8%
• Cash and Liquidity:
  • Total cash, restricted cash, and ST investment: RMB496 billion
• Financial Ratios:
  • Current Ratio (2026E): 3.0x
  • GPM (2026E): 57.1%
  • Operating Margin (2026E): 23.8%
  • Non-GAAP Net Margin (2026E): 25.0%

Risks

• Slower-than-expected global business expansion
• Geopolitical issues affecting business development
• Slower-than-expected margin expansion

Summary Table

Conclusion

PDD Holdings is showing signs of earnings recovery, driven by performance in the Temu business and solid growth in the core operations. Despite the current non-GAAP net profit decline due to ongoing investment, the company's strong cash position and revised target price suggest a positive outlook. The BUY rating is maintained, with the expectation of a $161.70 target price. The company's financial health and strategic direction are viewed as favorable, although risks related to global expansion and margin improvement remain.