20221027-招银国际-Strong_consumer_mindshare_aids_monetization_progress_and_cost_optimization_13页_1mb

Pinduoduo (PDD US) Summary

Core Content and Key Insights

Pinduoduo (PDD) is positioned as a strong contender in the e-commerce market, with a focus on monetization progress and cost optimization. The company has established a significant consumer mindshare, which contributes to its ability to sustain revenue growth even amid macroeconomic uncertainties. This strong user engagement also enables PDD to provide cost-effective traffic to merchants, thereby enhancing its competitive edge and increasing its market share in online GMV.

PDD's strategy to incorporate more branded products and high ASP (average selling price) categories, such as home appliances, is expected to drive up the average revenue per user (ARPU) and improve monetization rates. This is anticipated to result in a blended monetization rate increase from 3.6% in 2021 to 4.3% in 2024E, with the online marketing services segment showing a rise from 3.0% to 3.3% over the same period. Additionally, the transaction services fees segment is forecasted to grow at a CAGR of 40.7%, reaching RMB39.4bn in 2024E.

Financial Forecasts

• Total Revenue CAGR (2021-2024E): 20.9%, reaching RMB166.1bn in 2024E.
• Online Marketing Services Revenue CAGR (2021-2024E): 20.3%, reaching RMB126.5bn in 2024E.
• Transaction Services Fees Revenue CAGR (2021-2024E): 40.7%, reaching RMB39.4bn in 2024E.
• Merchandise Sales Revenue (2022E): RMB0.27bn, down from RMB7.2bn in 2021, as the company scales back this segment.

Non-GAAP Net Profit

• Non-GAAP Net Profit CAGR (2021-2024E): 48.2%, reaching RMB45.0bn in 2024E.
• Non-GAAP S&M Expense Ratio: Expected to decline from 46.0% in 2021 to 35.0% in 2024E.
• Non-GAAP NPM (Net Profit Margin): Projected to increase from 14.7% in 2021 to 27.1% in 2024E.

Key Financial Metrics

Business Segment Forecast

• Online Marketing Services: 78.3% of 2022E revenue, growing at 20.3% CAGR.
• Transaction Services Fees: 21.5% of 2022E revenue, growing at 40.7% CAGR.
• Merchandise Sales: 0.2% of 2022E revenue, with a decline in revenue due to scaling down.

Monetization and GMV Growth

• GMV CAGR (2021-2024E): 16.6%, expected to reach RMB386.5bn in 2024E.
• Active Buyers (2022E): 903.4 million, with an annual spending per active buyer of RMB3,315.7.
• ARPU (Average Revenue Per User): Expected to grow from RMB2,809.9 in 2021 to RMB4,095.0 in 2024E.
• DAU/MAU Ratio (July 2022): 60.4% (up 5.5pp YoY), significantly higher than Taobao (40.4%) and JD (21.3%).

Cash Flow and Operating Efficiency

• Operating Cash Flow (2022E-2024E): Forecasted to increase to RMB57.2/60.9/65.4bn, respectively.
• Non-GAAP S&M Expense Ratio: Projected to drop from 46.0% in 2021 to 35.0% in 2024E.
• Non-GAAP NPM: Expected to rise from 14.7% in 2021 to 27.1% in 2024E.

Valuation and Target Price

• DCF-Based Target Price: US$92.90 per ADS.
• Valuation Multiples:
  • 2023E PE (non-GAAP): 24.2x
  • 2022E PE (non-GAAP): 29.7x
• Current Price: US$47.53
• Upside/Downside: 95.5%

Earnings Growth and Valuation Comparison

• Non-GAAP Net Profit Forecast: 5-7% higher than Bloomberg consensus for 2022-2024E.
• PEG (Price-to-Earnings Growth): 0.3x for 2022E, lower than JD (0.5x) and Alibaba (1.4x), indicating a more attractive valuation relative to earnings growth.

Risks

• Slower monetization rate growth than expected.
• Intensifying competition in the e-commerce sector.
• Overseas expansion initiatives potentially impacting margin expansion.

Shareholding and Stock Performance

• Shareholding Structure:
  • Entities affiliated with Zheng Huang: 27.9%
  • Entities affiliated with Tencent: 15.5%
• Stock Performance (vs. Benchmark):
  • 1-Month: -20.8%
  • 3-Month: -15.4%
  • 6-Month: +33.5%
  • 12-Month: +58.5%

Market Share and Strategic Expansion

• Market Share (China Online Retail): Grew from 12.2% in 2020 to 15.7% in 2021, expected to reach 18.3% in 2022E.
• TAM Expansion: PDD's asset-light model allows it to explore new markets, including overseas expansion, using its strong operating cash flows.

Sensitivity Analysis

• Revenue Sensitivity (2023E):
  • If GTV growth increases by 8pp, revenue could rise by 27.4%.
  • If monetization rate increases by 0.8pp, revenue could rise by 16.8%.
  • If GTV growth decreases by 8pp, revenue could decline by 24.8%.
• Non-GAAP Net Profit Sensitivity (2023E):
  • If S&M and G&A expenses decrease by 8pp, non-GAAP net profit could rise by 8.6%.
  • If S&M and G&A expenses increase by 8pp, non-GAAP net profit could decline by 8.6%.

Conclusion

PDD is projected to maintain strong revenue and net profit growth, driven by its robust user base, increasing monetization rates, and strategic focus on branded products and high ASP categories. The company's asset-light model and effective cost management are key factors in its ability to sustain and optimize operating cash flows. With a DCF-based target price of US$92.90 per ADS, PDD remains a top pick in the e-commerce sector due to its attractive valuation relative to earnings growth.