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DBS: Pinduoduo Inc – Buy Target Price US$117.00

Posted on November 7, 2022November 7, 2022 By alanyeo No Comments on DBS: Pinduoduo Inc – Buy Target Price US$117.00
New Alert: Overseas e-commerce Temu ranked No.1 for downloads on App store in the US
  • Pinduoduo’s overseas e-commerce Temu ranked No.1 in downloads on the App store in the US in Oct after its launch of just a month ago in Sep, according to Chinese media 36ker
  • Temu’s daily GMV surpassed US$1.5m and targets to achieve total sales of US$30 bn in five years, benchmarking to Chinese overseas fashion retailer SHEIN
  • Expect limited GMV contribution to Pinduoduo in short term (c.<1% of GMV in FY22) but positive for long-term growth
  • Pinduoduo’s well-established merchant support and user engagement capability will benefit its overseas expansion
What’s New

– Pinduoudo’s overseas e-commerce Temu ranked first for downloads in the shopping section of App Store in the US on 18 Oct, followed by Amazon Shopping, SHEIN, Walmart and Fetch Rewards, according to Chinese media 36ker. 

– Temu has surpassed US$1.5 m in average daily gross merchandise value (GMV) after it was launched in Sep 2022 and aims to reach US$300-500m in GMV in FY2022. The company is also targeting GMV of US$3bn in 2023, citing an industry source from 36ker. 

– There are currently around 30,000 merchants on Temu, with 300,000 to 400,000 items being sold in 24 top-level categories, including Patio, Lawn& Garden, Home& Kitchen, Fashion etc.

– Longer term, Temu targets to achieve a total GMV of US $30 billion in five years, highlighting its ambition to challenge Chinese overseas fashion retailer SHEIN. 

– Pinduoduo’s Temu is regarded as a competitor to SHEIN, which has created a successful business model by selling fast fashion clothing at ultra-low prices through a flexible supply chain. SHEIN’s GMV increased by 50% yoy to reach US$16bn in 1H22 and is expected to meet its annual GMV target of US$30bn this year.  

– Pinduoduo has not disclosed any financial figures and GMV targets for Temu so far.

Our View:

– We believe Temu is still at early stage of development and expect limited GMV contribution to Pinduoduo in the short term (<1% of GMV in FY22) but is positive for long-term growth.

– The marketing cost for Temu brand is expected to reach c.Rmb7bn next year, based on 36ker report. This should be manageable for Pinduoduo – in 1H22, the company overall marketing expenses reached Rmb22bn. 

– We are confident that Pinduoduo’s well-established merchant support and user engagement capability will benefit its overseas expansion. 

– Pinduoduo is our top pick among China e-commerce players, we currently rate BUY with TP of US$117.

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Research - Equities Tags:pinduoduo

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