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PDD Holdings (PDD US) Summary

Core Content and Key Highlights

PDD Holdings (PDD US) reported its 4Q22 financial results, highlighting strong revenue growth and improved net income. The company's revenue increased by 46.2% YoY to RMB39.8bn, slightly below the consensus estimates. Non-GAAP net income attributable to PDD rose by 43.4% YoY to RMB12.1bn, exceeding the forecast due to better-than-expected gross margins.

PDD is maintaining a BUY rating, with a revised target price of US$106.00 (down from US$116.90). This adjustment reflects the company's strategic investments to enhance merchants ROI and consumer engagement, which are expected to impact short-term margins but provide long-term growth potential.

Main Points and Key Information

Financial Performance in 2022

• Total revenue reached RMB130.6bn, up 39% YoY.
• Monetization rate for online marketing services (OMS) expanded by 0.2pp YoY to 3.2%.
• Non-GAAP net income surged by 186% YoY to RMB39.5bn, with a non-GAAP net margin of 30.3%.
• Gross margin improved to 75.9% in 2022, driven by controlled domestic investment and narrowing losses from Duoduo Grocery (DDG).

4Q22 Performance

• Online marketing services and others revenue rose 38% YoY to RMB31.0bn (78% of total revenue).
• Transaction services fees increased 86% YoY to RMB8.8bn, attributed to the DDG business and the ten billion subsidy program.
• GPM reached 77.6%, surpassing the forecast by 5.2pp.
• Non-GAAP S&M expenses were RMB17.2bn, up 59% YoY, equivalent to 43.2% of total revenue, due to consumer engagement initiatives and Temu international expansion.
• Non-GAAP OP growth for the core domestic business is forecasted at 19% YoY in 2023E, down from the previous 26% YoY forecast.

Forecast Revisions

• Revenue for 2023E is RMB164.5bn, down 3.3% from the previous forecast.
• Gross profit is estimated at RMB123.3bn, a 3.6% decrease from prior estimates.
• Operating profit is projected at RMB36.4bn, down 10.8%.
• Non-GAAP net profit is expected to be RMB41.4bn, a 7.9% decrease.
• Gross margin is expected to remain stable at 74.9% in 2023E.
• Operating margin is forecasted to be 22.1% in 2023E, down 1.9pp from previous estimates.
• Non-GAAP net margin is projected at 25.2%, down 1.2pp.

Valuation and Market Position

• DCF-based target price is US$106.0, reflecting the company's strategic investments.
• P/B ratio is expected to decrease from 4.9 in 2023E to 2.8 in 2025E.
• ROE is forecasted to be 23.4% in 2023E and 22.3% in 2025E.
• PDD's established consumer mindshare in the domestic market is seen as a key driver for steady GMV growth in 2023 and international expansion potential over the long-term.

Key Financial Metrics (2020A–2025E)

Revenue Growth

Non-GAAP Net Profit

Margins

Valuation Ratios

Analyst Ratings and Investment Outlook

• CMBIGM maintains a BUY rating, citing positive outlook on domestic market mindshare and international expansion potential.
• The target price is US$106.0, indicating a 15.3% upside from the current price of US$91.94.
• Long-term growth is anticipated from core domestic business and international expansion, despite short-term margin pressures.

Shareholding and Financial Structure

• Major shareholders include Zheng Huang with 27.9% and Tencent with 15.5%.
• Total issued shares are 1,440.3 million.
• Market capitalization is US$132,423.3 million.
• Cash and equivalents increased to RMB76,647 million in 2023E, with RMB214,913 million expected by 2025E.

Risk and Disclaimer

• The report is not tailored to individual investors.
• Past performance is not indicative of future results.
• Investment decisions should be made with professional advice.
• CMBIGM disclaims liability for any loss or damage resulting from reliance on the report.
• The report is intended for specific investors and not for general distribution.

Conclusion

PDD Holdings is showing strong revenue and net income growth driven by OMS expansion and transaction services. While short-term margin pressures exist due to investment in consumer engagement and international expansion, the long-term growth potential remains positive, supported by established market position and monetization improvements. The BUY rating and revised target price reflect confidence in future performance, despite current market challenges.