PDD Holdings: Easing Trade Risks and Profitability Recovery

Support Target Price of $165
Ticker: PDD
Current price: $125.44
Upside potential: 31.5%
Target price: $165.00
Company overview
PDD Holdings, founded in 2015, is a leading Chinese e-commerce company best known for operating Pinduoduo in China and Temu internationally. The company offers a broad range of products at competitive prices through its innovative “group buying” model and is rapidly expanding its global footprint.
Investment thesis

• Trade tensions easing: Concerns about the U.S.–China trade war have recently subsided. Both countries agreed to maintain current tariff levels through mid-November, while a U.S. Court of Appeals ruling that certain tariffs were unlawful has weakened the U.S. negotiating position. This raises the likelihood of further concessions in China’s favor in the next round of talks in mid-September, including possible revisions to low-value import tariff exemptions (de minimis) — a mechanism PDD has leveraged effectively to build its U.S. presence. Any relaxation of U.S. tariff policy toward Chinese goods would be a catalyst for PDD’s revaluation.
  
• Potential stimulus in China: The recent slowdown in China’s economic growth increases the likelihood of a new round of government stimulus aimed at boosting domestic demand. As the owner of a leading e-commerce marketplace in China, PDD stands to be one of the main beneficiaries of the anticipated state support for the Chinese economy, due to a potential acceleration of sales growth in the e-commerce sector without the need to intensify competition or reduce margins — currently the company’s main challenge.
  
• PDD’s latest quarterly report indicates initial success in returning to high profitability amid rising competition and tariff pressures, thus confirming the feasibility of the company’s strategy to optimize marketing expenses while continuing its international expansion efforts. Successful execution of this strategy in the medium term could lead to rapid revenue growth with sustainably high margins, which would be positively received by investors and reflected in higher stock prices.
  

Conclusion
We forecast PDD’s share price to reach $165, implying ~31% upside. Our rating: Buy