Daily Brief Equity Bottom-Up: [PDD Holdings (PDD US and more

In today’s briefing:

[PDD Holdings (PDD US, BUY, TP US$159) TP Change]: Bargain Valuation, Even if Temu Disappears
Tencent Posts Weaker Quarterly Results Amid Gaming Challenges
ModivCare (MODV US): Decelerating Revenue Growth and Margin Erosion; Bumpy Road Ahead

[PDD Holdings (PDD US, BUY, TP US$159) TP Change]: Bargain Valuation, Even if Temu Disappears

PDD reported C4Q23 top-line, non-GAAP EBIT, and non-GAAP net income (2.4%), 12.4%, and 24% vs. our est., and 11.6%, 37.0%, and 50.3% vs. cons., respectively;
We estimate the beat was driven by (1) improved take rate on the China platform following ad tool adjustments, and (2) Temu margin expansion;
We remove Temu US from our model from 2025+, as restrictions seem more than likely following the TikTok ban and cut TP to US$ 159 to reflect this;

Tencent Holdings Ltd. (腾讯) reported weaker-than-expected results in the fourth quarter of 2023, as the Chinese internet behemoth faced challenges growing its gaming business, particularly in China’s domestic market.
During the three-month period, Hong Kong-listed Tencent generated 155.2 billion yuan ($21.9 billion) in revenue, up 7% from 2022, according to its earnings report released Wednesday. That missed the average estimate of 157.4 billion yuan by analysts surveyed by Bloomberg.
Quarterly net profit also fell short of expectations, down 75% year-on-year at 27 billion yuan, compared to average analysts’ predictions of 33.3 billion yuan.

ModivCare (MODV US) issued 2024 revenue guidance, which fell short of consensus. The company anticipates 2024 adjusted EBITDA to be $190–210M, down 2% YoY at mid-point.
NEMT segment is witnessing decelerating quarterly revenue growth and lower margins. Gross profit per trip of NEMT segment is expected to decline 25% YoY and QoQ to $5.69 in 1Q24.
Modivcare will see improvement in financial performance no sooner than 2H24. Shares plunged 44% YTD. No recovery is expected in near-term.

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