With tens of billions of subsidies, Pin-duo successfully achieved the upturn of users and expanded the circle to the whole population. This report attempts to explore how to balance the ecology of white brand and brand in the future under the current environment and the tonality of Pinduoduo precipitation over the years.
1
Investment advice
Core data forecast: We estimate that the operating income of Pduoduo 2023E-2025E is RMB 1961/24483/296.3 billion, an increase of 50%, 27%, 19%.
Core assumptions:
1) Annual active buyer growth tends to flatten;
2) GMV/ users continue to increase, based on the increase in consumption frequency;
3) The monetization rate continues to increase, but the growth rate is slowing down, and it is expected that the monetization of Pindoduo will reach 5.5% in 2025;
4) The experiential profit rate of the main station has been continuously improved due to the improvement of operating leverage.
Valuation 1: Considering that Pduo has been able to generate profits and cash flow continuously and stably, we first adopted DCF valuation method to measure the company's equity value. Based on the following assumptions, we calculate that the target market value of the company in 2024 is $232 billion, which corresponds to a reasonable valuation of $159.8.
Core assumptions:
1) Use the US 30-year Treasury bond yield as the risk-free yield Rf=4.5%
2) Assume that the investor requires a return of more than 6.5% of the risk-free rate, i.e., a risk premium of 11%
3) β = 0.77, WACC based on core assumptions 1 and 2 is 13%
4) A sustainable growth rate of 3%
Valuation 2: Considering that Pinduoduo has developed so far and has derived a number of businesses, including main e-commerce business, Duoduo Grocery and overseas e-commerce business TEMU, we second adopt the division valuation method SOTP method. 1) The main station is expected to generate a net profit of 73 billion yuan in 2024. As we are optimistic that the growth rate of Pinduo is far higher than that of comparable companies, we give a 24-year P/E 15X, corresponding to a valuation of 1,095.2 billion yuan. 2) Duoduo Grocery is expected to generate 41.5 billion yuan in revenue. Due to the slowdown in the growth rate of this business, we give a 23-year P/S 0.5X, which corresponds to a valuation of 20.7 billion yuan. 3) TEMU's business is developing rapidly and is expected to generate 155.5 billion GMV. We give it 23 years P/GMV 0.8X, which corresponds to a reasonable valuation of 124.4 billion RMB. We calculate that the target market value of the company in 2024 is 1,492.4 billion yuan, which corresponds to the reasonable valuation of Pinduoduo (PDD.US) of 157.2USD.
Valuation Conclusion: Combining the two valuation methods, we raise our 2024 price target to 158.5USD and maintain our "overweight" rating.
2
The white card represents Pinduoduo in this round of consumption downgrade cycle
Benefit greatly
The "water for consumption" has not risen much, it has all gone to the white end. Under the big environment, the per capita disposable income of Chinese residents is stable and upward, but the growth rate of per capita consumption expenditure has declined, the consumption willingness has slowed down, high-end consumption is weak, and the growth potential of self-pleasing consumption is insufficient. Consumers pay more attention to cost performance and practicality, pay attention to a "province, the flower", "value for money" is the core of this round of "consumption downgrade".
The disposable income of Chinese residents is rising steadily, but the growth rate of per capita consumption expenditure is declining, and the willingness to consume is slowing down year by year. 1) The growth rate of per capita consumer expenditure in 2019-2022 will decline from 8% CAGR in 2016-2019 to 4.4%; In 2022, the per capita consumption expenditure of Chinese residents will increase by 1.8% year-on-year; 2) The average propensity of Chinese residents to consume has declined slightly: per capita consumption expenditure as a share of disposable income has fallen from 72% in 2013 to 67% in 2022.
From a separate point of view, consumption outside the "five rings" is still strong, and the potential is fully released. Break up the town. Two sets of rural data: Pinduoduo core user group consumption performance is better:
1) The growth rate of per capita consumption expenditure of both of them has declined, but the growth rate of urban residents has declined more than the latter.
2) The consumption intention of urban residents decreased (from 70% to 62% in 2013-2022), while that of rural residents increased (from 79% to 83% in 2013-2022).
High-end consumption growth is sluggish. We believe that high-end consumption is the first form of consumption upgrading, and the weakness of high-end consumption cannot escape the environment of weak consumption. The CAGR of Chinese global luxury consumption in 2017-2022 is only 0.6%, with growth remaining flat and a negative growth trend in 2022.
The growth potential of self-pleasing consumption is insufficient. Personalized consumption we believe is the second form of consumption upgrading, new consumption cooling, the decline has been. For example, in the following figure, Yixian e-commerce (the parent company of Perfect Diary), which has the "first share of domestic beauty makeup", has shown negative growth for six consecutive quarters, and its offline stores have also decreased from 294 in 2021 to 150 in 2022; The growth rate of "tide play first stock" bubble Mart also slowed down in 2022.
"Value for money" is at the heart of the consumption downgrade. Consumers pay more attention to practicality and cost performance. We believe that the young generation "the flower, the province", the example is reflected in: 1) coffee track: Luckin replaced Starbucks as a new favorite, with the characteristics of low prices all year round (Luckin forever 9.9 cups); 2) Retail track: MINISO is growing against the trend. Its products are all basic models, and the brand is just a label (MINISO is basically a basic model of daily necessities). Pin-duo (on behalf of the white plate) : also in line with the above two characteristics: perennial low price (1 yuan limited time grab) (daily 618); Basics (" Why spend money on things that can sometimes be solved with Pinduoduo?" )
Summary: The growth rate of the consumption market has slowed down, the decline of consumption upgrading has been present, cost-effective consumption may be the mainstream in the short and medium term, and it may be easier to release the growth momentum to maintain the basic plate of the white brand.
3
Our huge manufacturing overcapacity,
White brand merchants have a need to clear inventory
China's manufacturing sector has a low capacity utilization rate, and the excess capacity is partly what makes Pinduoduo work: China as a world-class factory, doing foundry work for the world's consumption upgrade. At the same time, because China has experienced a whole round of consumption upgrading, white brand products have basically said goodbye to "low quality", so consumers are increasingly accepting the concept of flat replacement.
At the data level, in recent years, the capacity utilization rate of China's manufacturing industry and its subordinate food manufacturing industry and textile industry is lower than 79%, which is the internationally accepted standard for distinguishing overcapacity. Overcapacity is obvious.
We take this case of household paper: China's household paper industry is always in the state of oversupply, entry barriers are low industry competition. According to the industrial chain balance index (industrial chain balance = (capacity - demand)/demand *100%), the industrial chain balance in 2018 has reached 55.86%, and the industry overcapacity is more serious.
We continue to take the case of household paper, Pin-duo is an important inventory clearance channel: we first define what we think of as white brand and brand: if we have determined which brand we want before placing an order, we believe that the brand is enough to occupy the user's mind, enough to be the word "brand"; In addition, we believe that all are "white cards" under the broad sense. Napkins are typical of the "white brand" within our framework: we compared the price of Depot paper in Pinduoduo and Taobao, and the price advantage of the Pinduoduo platform is extremely obvious, indicating that Pinduoduo may be the more important channel, which shows that Pinduoduo has strong bargaining power for white brand merchants.
Merchants guarantee traffic and sales, and single marketing is increasing: Merchants' single advertising marketing is increasing, because they are afraid of losing traffic and sales, resulting in inventory overstocking.
4
The internal logic of Pinduoduo is to de-brand,
And the brand also deviates from the tonality everywhere
The core contradiction of Pinduoduo is that what is Pinduoduo's long-term low price password? In the four items of "how fast and good province", we believe that "province" is the only foundation of Pinjoduo, and all the orientation of the platform is to save money for consumers. Businesses want to make money, but this part of the business attracted by the platform, the profit is thin, hoping to exchange price for volume, and win by volume. The logic of brand players is to sell at a premium rather than a low price. We then disassemble the three-end ecology around the merchant side, the client side and the platform side:
1) Merchant side: directly connected to the factory, eliminating the intermediate wholesale and retail links, thus reducing costs (conflict: disrupting the channel distribution system of brand players).
2) Client side: Pinjoduo users are mostly price-sensitive consumers, users invite relatives and friends around them to bargain together, so that they can buy more preferential things (conflict: disrupts the brand tonality of brand players).
3) Platform side: Pinduoduo usually gives a certain subsidy, making the price lower, more traffic, and thus a larger amount (conflict: disrupting the price belt of brand players).
We believe that the endogenous logic of Pinduoduo is actually de-branding: From the perspective of traffic distribution (as shown below), Pinduoduo has two main characteristics:
1) Explosive logic: a single SKU can do thousands of pieces.
2) Display logic: single item style rather than shop style, without any shop information.
Pin-duo closely focuses on the core element of "low price", more like a recommended e-commerce, 70%-80% of transactions are from the recommendation (conflict: brand players hope to form the accumulation of store assets and private domain traffic, so as to achieve spontaneous purchase of users). There is little weight given to brands in the algorithm.
Resuming the stock price, we believe that if Pinduo does brand upward, it is about equal to returning the basic order of merchants accumulated over the years to competitors. In 2015, Ali and Jingdong followed the wave of mobile Internet and ushered in huge development opportunities, and the market gradually became a duopoly pattern, with the market share of both reaching 94.3%. In the next few years, the core growth logic of the two is consumption upgrading: Ali Tmall, Zhang Yong promoted the status of "Tmall" in the group, giving more resources (here is mainly traffic), indicating that Taobao's basic disk, small and medium-sized C stores fall out of favor; The self-management model of Jingdong itself is a high-end positioning, resolutely self-management, to put an end to fake goods, and at the same time, to build a self-implementation system, send good, send fast. The consumption upgrade of both led to the escape of Amoy merchants, Pinduoduo almost became the only choice, and Pinduoduo minimalist process and single explosive products as the core of the playing method did attract a large number of merchants settled. At the same time, Pinduoduo takes advantage of wechat traffic and payment infrastructure: 1) the traffic outside the "five rings" is mostly wechat Pay users; 2) wechat ordering is the most important consumption scenario of Pinduoduo.
In the time window of 2023, we believe that small and medium-sized businesses are the key to the construction of e-commerce ecology. E-commerce development so far, has entered a stock market, it needs a harmonious buyer and seller platform tripartite ecology, in 2023, price is a relatively more important part, it needs large-scale small and medium-sized businesses to provide cost-effective long tail goods supply. Review the growth strategies of major e-commerce players in 2023. Ali: The balance of traffic in 2023 is tilting to Taobao, Ma Yun set a new strategy of "return to Taobao, return to users, return to the Internet"; Jingdong: Introduced billions of subsidies, proposed affirmative action policies for self-run business and third-party merchant traffic, and also provided a variety of policies to reduce commission. If Pinduoduo chooses the brand uplink at the current point in time, there is a risk of losing the basic disk.
5
Pinduoduo main station service, we wait for two signals
1) When people around first-tier cities no longer talk about the tonality of consumption on Pindoduo platform, it has recently developed into a normal consumption channel, which means that the user scale and consumption frequency have reached a certain scale;
2) When the white brand business is close to the break-even point of operation. Since Pinduoduo has established a very strong bargaining power in the channel, Pinduoduo still has a high Take Rate under the basic plate based on white cards. We believe that Pinduoduo will Take Rate of growth to slow down in the future;
At the same time, we will also pay close attention to the performance of overseas business TEMU, optimistic that the business will form the second level of future Pinduoduo growth:
1) TEMU is in the growth stage of rapid development, and the number of monthly active users continues to rise month-on-month. According to Data.ai, as of August, TEMU had about 120 million monthly active users worldwide and 57 million in key cities in the United States.
2) TEMU's business is booming, and the growth of subsidy exchange is the same as that of Pinduoduo. We believe that under the premise that the feasibility of cross-border e-commerce route has been verified by the market, we are optimistic that Pinduoduo can balance the contradiction between Topline growth rate and profit rate, and form the second pole of future company growth;