Riding on strong demand for fresh grocery
- We expect revenue to increase by 20% and 31% for FY22F and FY23F, higher than leading players
- Growth drivers are strong demand for fresh grocery and rising purchase frequency
- Revised down revenue by 3% and 6% for FY22F and FY23F, factoring in conservative take rate assumption
- Maintain BUY with revised TP of US$89 based on 5x FY23F P/S (vs FY22F previously)
Investment Thesis
Monetisation potential from 800m+ user base. Pinduoduo’s active buyers reached 882m in 1Q2022. This should continue to attract 3P merchants and expand product categories and SKUs, which will drive advertising revenue. We expect higher earnings ahead, thanks to improving operating efficiency and greater focus on high-margin marketplace business.
E-grocery a key growth driver. Pinduoduo is the largest online agriculture platform in China and Duo Duo Grocery is a leading player in community group buying (CGB) with a focus on fresh grocery. The online fresh grocery market is expected to grow at a CAGR of 38% over FY20-23F, as penetration is currently low at 12% in 2021.
Stronger revenue growth than leading players. We expect Pinduoduo’s revenue to grow by 24% p.a. during FY21-FY23F, faster than leading competitors, driven by its steady user growth in lower-tier cities and rising purchase frequency in new categories.
Valuation:
We roll forward our valuation to FY23F and derive our TP of US$89, based on 5x FY23F price to sales (P/S). The multiple is largely in line with the historical range of leading players.
Where we differ:
We are more bullish on GMV growth. Our projection of Pinduoduo’s GMV growth for FY22F and FY23F is 2% and 4% higher than the market consensus. We believe Pinduoduo’s advantage in online fresh grocery purchases, improved purchase frequency, and expanded product offerings will support GMV growth.
Key Risks to Our View:
(1) Changes in government regulations, (2) intensifying market competition in e-commerce and CGB, and (3) failure to retain existing users.
