To The Moon

• PDD $PDD Holdings Inc(PDD)$ has risen by 26% to USD 146.92 since I last covered it in April.

• You could find my previous article on PDD here.

• Nevertheless, PDD is still trading 28% below its all-time high of USD 202.82.

• PDD has overtaken Alibaba $Alibaba(BABA)$ $Alibaba(09988)$ again to become the most valuable Chinese e-commerce player by market cap.

   

Earnings Review:

• Earnings results continue to surprise investors on the upside, prompting analysts to upgrade their earnings forecasts.

• Revenue increased by 131% year-over-year (YoY) to RMB 86,812 million, while operating income rose by 275% YoY to RMB 25,973 million.

• Transaction service revenue grew by 327% YoY, accounting for 51% of total revenue. This significant increase in transaction service revenue is mostly attributable to Temu.

Temu:

• Temu’s business strategy is similar to PDD’s China penetration strategy, which attracts customers through competitive pricing and social buying initially. Subsequently, it improves goods quality and service quality to increase transaction volumes and value per customer.

• Temu has been expanding its platform in 53 countries. I believe Temu's overseas expansion still has potential, considering Amazon ships to over 100 countries worldwide.

• I dislike that PDD does not disclose financial metrics related to Temu. However, based on the fact that the operating margin improved by 4.7 percentage points to 29.92%, I believe Temu is not incurring significant losses for PDD at the moment.

• Temu may now be on a path to profitability sooner than analysts expected.

Recent notable negative news:

1. Germany has recently said that it backs the scrapping of EU tax breaks that benefit Temu and Shein. At present, parcels purchased online from countries outside the EU are exempt from customs duties if their total value is under €150.

2. The US Customs and Border Protection has confirmed that it is intensifying efforts to ensure all small packages comply with US law.

Conclusion:

• I remain long term constructive on Pinduoduo. PDD’s robust growth momentum is still unmatched by most of its Chinese peers

• Bloomberg analysts' consensus currently has a 12-month target price of USD 205.24, representing an upside potential of 39.7%.

• While I am worried about the EU and US potentially ending import tax breaks that benefit Temu, I prefer to see the confirmed abolition of the current tax breaks and Temu’s strategic reaction before changing my constructive view on PDD.

• Based on technical analysis, the immediate resistance levels for PDD are USD 166.33 and USD 212.60.