China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>We expect PDD’s total revenue in C4Q22 to be in line with cons., and non-GAAP net income to beat cons. by 9%.</li>
<li>Faster-Than-Peers user growth, increase in brand product contribution and newly launched marketing program support PDD’s strong GMV trend and high take rate in the near term.</li>
<li>Temu is moving to increase order volume and ASP to improve scale and save logistics cost.</li>
</ul>


We expect PDD’s total revenue in C4Q22 to be in line with cons., and non-GAAP net income to beat cons. by 9%.
Faster-Than-Peers user growth, increase in brand product contribution and newly launched marketing program support PDD’s strong GMV trend and high take rate in the near term.
Temu is moving to increase order volume and ASP to improve scale and save logistics cost.


Pinduoduo(PDD.US) 4Q22 Preview: Expect Moderate Margin Beat

Thematic (Sector/Industry)

<ul>
<li>Many newcomers are trying to replicate Shein’s path, but none has proven to be successful, as Shein’s moat in supply chain requires longterm down-to-earth work. </li>
<li>PDD’s Temu will be Shein’s biggest challenger because it is pursuing a different model. Instead of penetrating into the supply chain, Temu offers value-for-money, fair quality products from all categories.</li>
<li>Although Shein’s foundation remains solid (ladies’ apparel + developed countries), growth is slowing down. We reiterate BUY to PDD and BABA and SELL to SE and VIPS after studying Shein.</li>
</ul>


Many newcomers are trying to replicate Shein’s path, but none has proven to be successful, as Shein’s moat in supply chain requires longterm down-to-earth work. 
PDD’s Temu will be Shein’s biggest challenger because it is pursuing a different model. Instead of penetrating into the supply chain, Temu offers value-for-money, fair quality products from all categories.
Although Shein’s foundation remains solid (ladies’ apparel + developed countries), growth is slowing down. We reiterate BUY to PDD and BABA and SELL to SE and VIPS after studying Shein.


Shein Deep Dive:Imitators Perish; Differentiators Flourish

<ul>
<li>We update our China online advertising model and forecast that the industry will reach RMB 1,167 bn with 9.3% YoY in 2023, rebounding from 2.7% YoY in 2022.</li>
<li>Bytedance's slowdown, Tencent's Video Account, and some sectors' uneven faster-than-expected recoveries will be three key themes that could generate investment opportunities in 2023.</li>
<li>We recommend BUY Tencent, BABA, PDD, and Meituan within the sector.</li>
</ul>


We update our China online advertising model and forecast that the industry will reach RMB 1,167 bn with 9.3% YoY in 2023, rebounding from 2.7% YoY in 2022.
Bytedance's slowdown, Tencent's Video Account, and some sectors' uneven faster-than-expected recoveries will be three key themes that could generate investment opportunities in 2023.
We recommend BUY Tencent, BABA, PDD, and Meituan within the sector.


China Online Ads Outlook: A Year of Uneven Recovery

<ul>
<li>There has been debate: 1) why PDD’s take rate can be higher than BABA, 2) how to justify PDD’s long term margin, 3) will PDD be able to beat cons.</li>
<li>We suggest that the key driver of PDD’s outperformance in recent quarters has been the weak macro environment.</li>
<li>We raise our 2023 forecasts of total revenue and non-GAAP net income by 4% and 19%, more than consensus by 8% and 7% respectively.</li>
</ul>


There has been debate: 1) why PDD’s take rate can be higher than BABA, 2) how to justify PDD’s long term margin, 3) will PDD be able to beat cons.
We suggest that the key driver of PDD’s outperformance in recent quarters has been the weak macro environment.
We raise our 2023 forecasts of total revenue and non-GAAP net income by 4% and 19%, more than consensus by 8% and 7% respectively.


Raise 2023 Forecasts Due to High Take Rate

<ul>
<li>Douyin eCommerce next important step is Douyin Shopping Mall, an in-app page like Taobao/PDD. </li>
<li>We are conservative about Douyin Shopping Mall’s potential, and we suggest that it could only reach 20% of Douyin eCommerce GMV in the long term.  </li>
<li>We suggest that the slowdown growth of Douyin eCommerce will be positive to BABA mostly, and then followed by PDD and JD. Kuaishou is encountering similar issues with Douyin. </li>
</ul>


Douyin eCommerce next important step is Douyin Shopping Mall, an in-app page like Taobao/PDD. 
We are conservative about Douyin Shopping Mall’s potential, and we suggest that it could only reach 20% of Douyin eCommerce GMV in the long term.  
We suggest that the slowdown growth of Douyin eCommerce will be positive to BABA mostly, and then followed by PDD and JD. Kuaishou is encountering similar issues with Douyin. 


Douyin Shopping Mall Unlikely to Be a Game Changer

China

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

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PDD Holdings (PDD US)

Pinduoduo(PDD.US) 4Q22 Preview: Expect Moderate Margin Beat

We expect PDD to deliver relatively moderate beat in the upcoming earning, in contrast of strong beats in the last two quarters. The company’s...

Blue Lotus Research Institute

Shein Deep Dive:Imitators Perish; Differentiators Flourish

A deep dive into Shein, one of the largest fashion retailers in the world. We give a detailed breakdown to some of the key metrics, and reveal...

Blue Lotus Research Institute

China Online Ads Outlook: A Year of Uneven Recovery

We update our China online advertising model and conclude that Bytedance's slowdown, Tencent's Video Account, and some sectors' uneven recoveries...

Blue Lotus Research Institute

Raise 2023 Forecasts Due to High Take Rate

Our replies to some of the investors' most asked questions about PDD after strong beat in the last two quarters. We reiterate BUY with TP of...

Blue Lotus Research Institute

Douyin Shopping Mall Unlikely to Be a Game Changer

Douyin's eCommerce has long been seen as a game changer, but we don't think it will continue this year. The slowdown growth of Douyin eCommerce...

Blue Lotus Research Institute

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