PDD delivered mixed 4Q20 results, with rev +146% YoY (38% above consensus) and adj. net loss at RMB185mn (vs. consensus at +RMB141mn). Quarterly GMV +57% YoY, missed ~20%. Market concern lies on anti-trust regulations and mgmt. change. PDD would prioritize on agricultural products, supply chain & offline fulfillment in 2021. Stock price might bear short-term pressure, but we keep positive on its long-term topline growth, driven by stronger user engagement, agricultural products potential and DDMC initiatives. We lifted its rev by 29%/33% in FY21/22E to reflect 1P biz but trimmed margin estimate, with lower TP of US$175.
- Mixed 4Q20, alert on short-term volatility. 4Q20 rev surged 146% YoY, 38% above consensus. Excluding 1P biz, rev beat 10%. LTM GMV +66% YoY (quarter GMV +57%) was ~20% below buy side expectation. Non-GAAP net loss came in at RMB466mn (vs. consensus at +RMB141mn).
- Short-term margin pressure from agriculture & supply chain investment. PDD’s LTM active buyer surpassed BABA for the first time, while its ARPU saw milder growth. Take rate surprised us at 3.2% (vs. 3.0% in 4Q19). We keep confident on its topline momentum, with ramp-up of ARPU, DDMC contribution, and ROI-driven marketing. But in the short term, we think investors would still need time to digest the regulatory headwinds, GMV deceleration, heavy model evolving and margin drag from stepping-up investment in agriculture R&D, supply chain and fulfillment infrastructure.
- DDMC to unlock TAM. Regarding CGB regulation concern, mgmt differentiate DDMC with CGB biz for its natural traffic (most DDMC users come from PDD platform, instead of group-leaders). PDD aims to be the largest grocery in the long run, and would invest more in supply chain & fulfillment to further improve efficiency. Given relatively regional & fragmented competition landscape, players would focus more on cities expansion and group-leaders operation first, but supply chain & next-day fulfillment capability would be the key. We expect PDD to continuously leverage its agriculture advantage, sizable user traffic, high exposure in low-tier cities and natural synergies with PDD portal.
- Maintain BUY. We raised its rev by 29%/33% in FY21/22E to reflect 1P contribution, but cut bottom line to -RMB 9.3bn/ -RMB4.1bn. Our DCF-based TP is slightly trimmed from US$181 to US$175 (10x FY22E P/S).
