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Pinduoduo’s Q4 Results Shine As Founder Retires

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Key News

It was a quiet night as Asian investors wait on today’s Fed release at 2 pm EST. Markets traded in narrow ranges on light volumes. India was an outlier posting a -1% loss. Meanwhile, top diplomats from the US and China will meet tomorrow in Alaska. The meeting is likely to resemble an airing of grievances with very low expectations, though it is a step in the right direction. However, one area that the two sides will likely be able to agree on is climate change.

The Hang Seng Index bounced around the room to close +0.02% at 29,034 while the 200 Chinese companies listed in Hong Kong gained +0.09% as volumes declined -3% from yesterday, which is below the 1-year average. Consumer discretionary and healthcare both had strong days while energy, materials, and financials were off. Hong Kong volume leaders by value traded were Tencent, which fell -0.95%, Xiaomi, which fell -0.19%, Meituan, which fell -1.27%, Alibaba HK, which gained +0.54%, Ping An Insurance, which fell -1.23%, Kuaishou Tech, which gained +3.17%, AIA, which gained +0.1%, China Construction Bank, which was flat, GCL-Poly Energy, which fell -5.16%, and China Mobile, which gained +0.31%. Southbound Connect volumes were very light as Mainland investors bought $379 million worth of Hong Kong stocks as Southbound Connect trading accounted for 12.6% of Hong Kong turnover. Tencent was bought while Meituan was sold.

Shanghai, Shenzhen, and the STAR Board closed -0.03%, +0.99%, and +1.33%, respectively, as volumes declined -3.44% from yesterday, which is -18% below the 1-year average. The 517 Mainland stocks within the MSCI China All Shares Index gained +0.5% led by tech, discretionary, staples, communication, and industrials while financials and utilities were off. Growth companies had a strong day with cleantech, electric vehicles, battery, and liquor stocks performing well. Mainland volume leaders by value traded were Ping An Insurance, which fell -3.35%, TCL Tech, which gained +6.48%, BOE Tech, which gained +3.82%, Kweichow Moutai, which gained +0.99%, Tianqi Lithium, which gained +7.02%, liquor stock Wuliangye Yibin, which gained +0.72%, Gree Electric Appliances, which gained +3.67%, Longi Green Energy, which gained +1.3%, battery maker CATL, which gained +3.1% and broker East Money, which gained +0.59%. Northbound Stock Connect volumes were light/moderate as Kweichow Moutai and Ping An were sold while Gree and CATL were bought. Foreign investors bought $25 million worth of Mainland stocks as Northbound Connect trading accounted for 6.8% of Mainland turnover. Bonds were bought, CNY was flat, and copper was off.  

Reuters noted a USDA report placing Chinese purchases of US corn at 1.156mm tons.

Online video and entertainment company iQiyi (IQ US) is making a push into Southeast Asian markets according to a Reuters interview. IQ is facing increased competition from Bilibili and others in China so the move makes sense.

Bilibili (BILI US) announced it will relist in Hong Kong this morning, offering 25 million shares in an offering led by Morgan Stanley, JP Morgan, UBS, and Goldman Sachs.

Pinduoduo Earnings Overview

E-commerce company Pinduoduo (PDD US) reported Q4 results before the US market open. Pinduoduo has been growing market share versus Alibaba and, which shows in the strong revenue growth, number of users, and amount of goods sold. However, this growth is funded by the cost of revenues and total operating expenses, which make the company unprofitable. However, investors have focused on the company’s top-line growth rather than the company’s unprofitability. This philosophy of putting customers and growth first was evident in an interview with Miranda Shek from Pinduoduo’s investor relations team when she visited our office in September 2019. Miranda articulated the views of founder and then CEO Colin Huang, who was described as a hard-core engineer focused on growing the company and providing exceptional service to clients. This morning, Mr. Huang announced his retirement from the company after transitioning to serving as Chairman last year. The stock is off this morning pre-market on this news though the company’s financials exceeded expectations. It is possible that the company will put more attention on reining in costs under the new CEO. Mr. Huang’s letter to shareholders said he is going to focus on food sciences and life sciences. As long-term shareholders in PDD, we wish him all the best!

  • Revenue +146% to RMB 26.547B ($4.068B) versus analyst expectations of RMB 19.287B
  • Gross Merchandise Value +66% to RMB 1.667B ($255B)
  • Average monthly active users +50% to 719mm from 481mm
  • Annual spending per active buyer +23% to RMB 2,115 ($324) from RMB 1,720
  • Cost of revenues +466% to RMB 11.526B ($1.766B) from RMB 2.037B
  • Total operating expenses increased to RMB 17.069B ($2.616B) from RMB 10.89B
  • Adjusted operating loss was RMB 1.114B ($170mm) from a loss of RMB 1.336B
  • Adjusted EPS RMB 0.15 ($0.02) versus analyst expectations of RMB 0.14
  • Cash rose to RMB 87B ($13.3B) from RMB 41.1B

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.50 versus 6.50 yesterday
  • CNY/EUR 7.45 versus 7.35 yesterday
  • Yield on 1-Day Government Bond 1.60% versus 1.65% yesterday
  • Yield on 10-Year Government Bond 3.26% versus 3.26% yesterday
  • Yield on 10-Year China Development Bank Bond 3.66% versus 3.66% yesterday
  • China’s Copper Price -1.23% overnight