30 May 2022

CMB International Global Markets | Equity Research | Company Update

Pinduoduo (PDD US)

BUY (Maintain)
Well positioned for upcoming recovery
Target Price US$70
(Previous TP US$65)
Up/Downside +45.0%
PDD delivered eye-catching 1Q22 results, with rev +7% YoY (15% above Current Price US$48.0
consensus) and non-GAAP net profit at RMB4.2bn (59% above consensus, mainly
on higher GPM and disciplined S&M). Given lockdown disruptions, PDD would see China Internet Sector
deceleration in 2Q22E, like BABA/JD. However, we think that PDD would be more
resilient than peers, for its value-for-money products and relatively higher GMV Sophie Huang
exposure in lower-tier cities. DDMC performed well, and even surpassed some (852) 3900 0889
metrics of competitor in 1Q22. We turn more positive on PDD’s margin outlook, [email protected]
backed by DDMC UE improvement, and more disciplined S&M offsetting by
RMB10bn Agriculture Initiative. As such, we raised its earnings by 5%-9% in Eason Xu
FY22-24E, with adj. NPM by 1ppt, to reflect disciplined expenses. Our new DCF- (852) 3900 0849
based TP is US$70 from US$65. [email protected]

Stock Data
 Eye-catching 1Q22. 1Q22 rev +7% YoY, 15% above consensus (on resilient Mkt Cap (US$ mn) 46,732
GMV and rising take rate). We are impressed by its strong OMS growth, +29% Avg 3 mths t/o (US$ mn) 774.76
YoY in 1Q22 (vs. 19% in 4Q21). AAC +7% YoY, up to 882mn (13mn net adds). 52w High/Low (US$) 143.11/23.21
Non-GAAP net profit came in at RMB4.2bn (with adj. NPM at 18%), largely Total Issued Shares (mn) 1,264
Source: Bloomberg
above consensus at RMB2.6bn, mainly on higher GPM and disciplined S&M
control (S&M/Rev ratio (ex-1P biz) at -47% in 1Q22, vs. -59% in 1Q21). We Shareholding Structure
view this result as positive, given its resilient topline growth with upbeat margin, Nanpeng Shen 15.21%
despite challenging environment. Baillie Gifford 2.30%
FMR LLC 1.98%
 Well positioned for upcoming recovery after lockdowns relaxation. We Source: Bloomberg
think that 2Q22E would be the most muted season for epidemic resurgence,
for ecommerce players. However, we think that PDD would be more resilient Share Performance
than peers, for its value-for-money products and relatively higher GMV Absolute Relative
1-mth 6.4% 21.3%
exposure in lower-tier cities. We expect May’s volume to improve from Apr, 3-mth -27.6% -13.4%
and PDD to well positioned for upcoming recovery with lockdowns relaxation. 6-mth -54.6% -36.1%
We forecast its GMV +5% YoY in 2Q22E, and then rebound to double-digit Source: Bloomberg
growth in 2H22E. DDMC performed well, and even surpassed some metrics
of competitor in 1Q22, according to third-party channel. We expect DDMC’s 12-mth Price Performance
UE improvement to continue. We turn more positive on PDD’s margin outlook, (US$) PDD US CCMP (rebased)
180
backed by more disciplined S&M offsetting by RMB10bn Agriculture Initiative 160
<百亿农研>. 140
120
 Maintain BUY. We raised its earnings by 5%-9% in FY22-24E, with adj. NPM 100
80
by 1ppt, to reflect disciplined expenses. Maintain BUY with higher DCF-based 60
TP at US$70 (32x FY23E P/E). 40
20
0
May-21 Aug-21 Nov-21 Feb-22

Earnings Summary Source: Bloomberg

(YE 31 Dec) FY20A FY21A FY22E FY23E FY24E
Revenue (RMB mn) 59,492 93,950 104,714 122,250 138,281 Auditor: Ernst & Young
YoY growth (%) 97.4 57.9 11.5 16.7 13.1
Adj.net profit (RMB mn) (2,965) 13,830 16,884 21,496 27,423 Related Reports
Adj. EPS (RMB) (2.49) 9.56 11.45 14.29 17.87 1. Solid margin but moderate growth
YoY growth (%) NA NA 20 25 25 ahead – 22 Mar 2022
Consensus EPS (RMB) NA NA 9.92 14.96 21.22 2. China Internet Analyst marketing
P/E (x) NA 34 28 23 18 takeaway – 31 Jan 2022
P/S (x) 6.9 4.4 3.9 3.3 3.0 3. Stepping into quality growth – 29
Yield (%) 0.0 0.0 0.0 0.0 0.0 Nov 2021
ROE (%) (11.9) 17.6 20.2 20.5 21.1
Net gearing (%) Net cash Net cash Net cash Net cash Net cash
Source: Company data, Bloomberg, CMBIGM estimates

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30 May 2022

Figure 1: Earnings revision

New Old Diff (%)
RMB mn, Dec-YE FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E
Revenue 104,714 122,250 138,281 104,714 122,250 138,281 0.0% 0.0% 0.0%
Gross profit 72,407 85,142 96,190 72,407 85,142 96,190 0.0% 0.0% 0.0%
Operating profit 11,277 14,703 18,896 9,706 13,481 16,822 16.2% 9.1% 12.3%
Adj. net profit 16,884 21,496 27,423 15,549 20,457 25,659 8.6% 5.1% 6.9%
Adj. EPS (RMB) 11.45 14.29 17.87 10.54 13.60 16.72 8.6% 5.1% 6.9%
Gross margin 69.1% 69.6% 69.6% 69.1% 69.6% 69.6% 0.0ppts 0.0ppts 0.0ppts
Operating margin 10.8% 12.0% 13.7% 9.3% 11.0% 12.2% +1.5ppts +1.0ppts +1.5ppts
Adj. Net margin 16.1% 17.6% 19.8% 14.8% 16.7% 18.6% +1.3ppts +0.9ppts +1.3ppts
Source: CMBIGM estimates

Figure 2: CMBIGM estimates vs consensus

CMBIGM Consensus Diff (%)
RMB mn, Dec-YE FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E
Revenue 104,714 122,250 138,281 110,747 138,250 162,645 -5.4% -11.6% -15.0%
Gross profit 72,407 85,142 96,190 75,021 94,176 110,849 -3.5% -9.6% -13.2%
Operating profit 11,277 14,703 18,896 13,726 22,489 35,266 -17.8% -34.6% -46.4%
Adj. net profit 16,884 21,496 27,423 17,115 25,440 34,778 -1.4% -15.5% -21.1%
Adj. EPS (RMB) 11.45 14.29 17.87 9.92 14.96 21.22 15.4% -4.5% -15.8%
Gross margin 69.1% 69.6% 69.6% 67.7% 68.1% 68.2% +1.4ppts +1.5ppts +1.4ppts
Operating margin 10.8% 12.0% 13.7% 12.4% 16.3% 21.7% -1.6ppts -4.2ppts -8.0ppts
Adj. net margin 16.1% 17.6% 19.8% 15.5% 18.4% 21.4% +0.7ppts -0.8ppts -1.6ppts
Source: Company data, Bloomberg

Figure 3: 1Q22 review

RMB mn 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 QoQ YoY Consensus Diff %
Revenue 6,541 12,193 14,210 26,548 22,167 23,046 21,506 27,231 23,794 -12.6% 7.3% 20,649 15%
Operating profit (4,397) (1,640) (1,296) (2,048) (4,147) 1,998 2,139 6,907 2,154 -68.8% NA 1,137 89%
Net profit (4,119) (899) (785) (1,376) (2,905) 2,415 1,640 6,620 2,599 -60.7% NA 1,347 93%
Adj. net profit (3,170) (77) 466 (185) (1,890) 4,125 3,150 8,444 4,200 -50.3% NA 2,640 59%
Adj. EPS (RMB) (2.73) (0.06) 0.33 (0.15) (1.52) 2.85 2.18 5.88 2.95 -49.8% NA 1.53 93%

Margin (%)
Gross margin 72.0% 78.2% 77.1% 56.6% 51.5% 65.7% 69.5% 76.1% 69.9% 66.5%
Operating margin -67.2% -13.4% -9.1% -7.7% -18.7% 8.7% 9.9% 25.4% 9.1% 5.5%
Adj. net margin -48.5% -0.6% 3.3% -0.7% -8.5% 17.9% 14.6% 31.0% 17.7% 12.8%

Growth (%)
Revenue (YoY) 43.9% 67.3% 89.1% 146.0% 238.9% 89.0% 51.3% 2.6% 7.3% -22.2%
Revenue (QoQ) -39.4% 86.4% 16.5% 86.8% -16.5% 4.0% -6.7% 26.6% -12.6% -4.0%
Operating profit NA NA NA NA NA NA NA NA NA NA
Adj. net profit NA NA NA NA NA NA NA NA NA NA
Source: Company data, Bloomberg

Figure 4: 1Q22 revenue breakdown

RMB mn 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 QoQ YoY
Total revenue 6,541 12,193 14,210 26,548 22,167 23,046 21,506 27,231 23,794 -12.6% 7.3%
Online marketing 5,492 11,055 12,878 18,922 14,111 18,080 17,946 22,425 18,158 -19.0% 28.7%
Transaction services 1,049 1,139 1,332 2,268 2,931 3,008 3,477 4,724 5,591 18.4% 90.7%
Merchant Sales 0 0 0 5,358 5,124 1,958 82 82 44 -46.3% -99.1%
Source: Company data

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30 May 2022

Financial Summary
Income statement Cash flow summary
YE 31 Dec (RMB mn) FY20A FY21A FY22E FY23E FY24E YE 31 Dec (RMB mn) FY20A FY21A FY22E FY23E FY24E
Revenue 59,492 93,950 104,714 122,250 138,281 Net income (7,180) 7,769 11,648 15,689 21,183
Online marketing 47,954 72,563 87,788 102,798 116,808 D&A 652 885 1,152 1,238 1,377
Transaction 5,787 14,140 16,649 19,132 21,473 Change in WC (370) 30,933 9,774 15,510 14,225
Merchant Sales 5,751 7,248 277 319 - Others 3,613 4,698 5,236 5,807 6,240
COGS (19,279) (31,718) (32,307) (37,107) (42,091) Operating CF (3,285) 44,285 27,809 38,244 43,024
Gross profit 40,213 62,232 72,407 85,142 96,190
Capex (116) (196) (218) (255) (288)
S&M (41,195) (44,802) (44,182) (49,636) (53,278) Associates - - - - -
Admin.Exp. (1,507) (1,541) (2,571) (2,901) (3,189) Others (32,603) (4,228) (4,189) (4,279) (4,425)
R&D (6,892) (8,993) (14,378) (17,902) (20,828) Investing CF (32,719) (4,424) (4,407) (4,533) (4,713)
Others - - - - -
Operating profit (9,380) 6,897 11,277 14,703 18,896 Equity raised 51,799 - - - -
Change of Debts - - - - -
Financial Cost 1,698 1,831 3,351 4,779 7,126 Others - - - - -
Associates 419 728 - - - Financing CF 51,799 - - - -
Pre-tax Income (7,263) 9,455 14,627 19,483 26,022
Net change in cash 15,795 39,861 23,403 33,710 38,311
Income Tax - (1,934) (2,979) (3,793) (4,839) Cash (beg of yr) 18,620 34,415 74,277 97,680 131,390
Convertible - - - - - FX - - - - -
preferred shares
Net profit (7,180) 7,769 11,648 15,689 21,183 Cash (end of yr) 34,415 74,276 97,680 131,390 169,701
Adj. net profit (2,965) 13,830 16,884 21,496 27,423
Balance sheet Key ratios
YE 31 Dec (RMB mn) FY20A FY21A FY22E FY23E FY24E YE 31 Dec FY20A FY21A FY22E FY23E FY24E
Non-current assets 9,385 11,540 15,177 19,443 23,941 Sales mix (%)
Fixed asset 203 233 300 398 581 Online marketing 80.6 77.2 83.8 84.1 84.5
Associates - - - - - Transaction services 9.7 15.1 15.9 15.7 15.5
Intangible assets 1,277 11,307 14,877 19,045 23,360 Merchant Sales 9.7 7.7 0.3 0.3 0.0
Others 7,275 - - - - Total 100.0 100.0 100.0 100.0 100.0

Current assets 149,524 149,760 174,391 210,154 250,635 Growth rate (%)
Cash 22,421 21,854 45,257 78,968 117,279 Revenue 97.4 57.9 11.5 16.7 13.1
Restricted cash 52,422 52,422 52,422 52,422 52,422 Gross profit 68.9 54.8 16.4 17.6 13.0
Account receivable 730 1,079 1,214 1,395 1,566 EBIT NA NA NA NA NA
Others 73,951 74,405 75,497 77,369 79,368 Net profit NA NA NA NA NA

Current liabilities 83,882 106,224 117,226 134,789 151,184 P&L ratios (%)
Amounts due to 3,386 3,168 3,226 3,705 4,203 Operating margin (15.8) 7.3 10.8 12.0 13.7
related parties
Customer advances 2,423 726 878 1,028 1,168 Pre-tax margin (12.2) 10.1 14.0 15.9 18.8
Payable to merchants 53,834 73,963 83,244 95,662 107,367 Adj. net margin (5.0) 14.7 16.1 17.6 19.8
Accrued expenses 11,193 12,342 13,230 15,261 16,972 Effective tax rate - (2.1) (20.4) (19.5) (18.6)
Merchant deposits 10,926 16,025 16,649 19,132 21,473
Returns (%)
Non-current 5,643 5,643 5,643 5,643 5,643 ROE (11.9) 17.6 20.2 20.5 21.1
liabilities
Convertible bonds 5,207 5,207 5,207 5,207 5,207 ROA (2.5) 8.6 9.6 10.3 10.9
Others 436 436 436 436 436
Per share
MI - - - - - Adj. EPS (RMB) (2.49) 9.56 11.45 14.29 17.87
Total Equity 69,384 49,433 66,699 89,165 117,750 DPS (RMB) 0.00 0.00 0.00 0.00 0.00
Shareholders' equity 60,176 72,642 89,526 111,022 138,445 BVPS (RMB) 13.18 11.55 12.51 16.07 20.50
Source: Company data, CMBIGM estimates

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30 May 2022

Disclosures & Disclaimers

Analyst Certification
The research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities
or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities
or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst
in this report.
Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities
and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue
of this report; (2) will deal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve
as an officer of any of the Hong Kong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies
covered in this report.

CMBIGM Ratings
BUY : Stock with potential return of over 15% over next 12 months
HOLD : Stock with potential return of +15% to -10% over next 12 months
SELL : Stock with potential loss of over 10% over next 12 months
NOT RATED : Stock is not rated by CMBIGM

OUTPERFORM : Industry expected to outperform the relevant broad market benchmark over next 12 months
MARKET-PERFORM : Industry expected to perform in-line with the relevant broad market benchmark over next 12 months
UNDERPERFORM : Industry expected to underperform the relevant broad market benchmark over next 12 months

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