In this briefing:
- Baidu: Time to Swoop In, with NAV Discount Widening Substantially
- Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors
1. Baidu: Time to Swoop In, with NAV Discount Widening Substantially
- Our stub valuation analysis reveals that Baidu Inc (ADR) (BIDU US) attractively trades at near 2 SD below its 3-yr average of NAV discount.
- Fundamentally, BIDU’s core business (Baidu Core) has grown healthily, with strong cash flows generation.
- China consumption slowdown is likely to mean modest sales growth deceleration (not a “sales falling off the cliff” scenario) for BIDU in 2019E.
- Implied in the current ADR price, the market is unjustifiably valuing Baidu Core (11.2x 2019E PE) as an “Old economy” company with little to no growth prospect, in our opinion.
- Our PT for next 3-6 mo, assuming 10% holdco discount to NAV, works out to be US$224/ADR, representing a 27% upside potential.
2. Pinduoduo (PDD US): Follow-On Offering Is a Smart Move for the Company, Rather than for Investors
With the shares hitting all-time highs, Pinduoduo (PDD US) announced a follow-on public offering to raise net proceeds (potentially of $1.1 billion) from the sale of 37 million ADS along with the placing of 14.8 million ADS from existing shareholders (post-lockup expiry).
We have been bulls on Pinduoduo with the shares up 60% since its IPO. While Pinduoduo is a good company, we believe this follow-on offering is highly opportunistic and provides limited upside to investors participating in this offering.
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