Still has potential to improve monetization

Investment Rating - The report maintains a "BUY" rating for PDD Holdings with a target price increase to USD 155.4, representing a 21.7% upside from the current price of USD 127.68 [11]. Core Insights - PDD Holdings reported a revenue increase of 123% YoY in 4Q23, reaching RMB 88.9 billion, which was 11% above Bloomberg consensus estimates. This growth is attributed to stronger international expansion and improved domestic monetization [11]. - Non-GAAP net profit for 4Q23 rose by 110% YoY to RMB 25.5 billion, exceeding consensus by 52%, driven by better domestic profit generation and a narrower loss from the Temu business [11]. - The company is expected to continue improving its monetization rate through increased commission rates in its "Ten Billion Subsidy" program and new advertising products [11]. - PDD's international expansion is on track to support long-term revenue and earnings growth, with adjustments made to account for rapid development in international business and domestic monetization improvements [11]. Financial Summary - Revenue projections for FY24E, FY25E, and FY26E are RMB 389.6 billion, RMB 492.4 billion, and RMB 540.1 billion respectively, reflecting significant growth rates of 57.3%, 26.4%, and 9.7% [3][14]. - Adjusted net profit estimates for FY24E, FY25E, and FY26E are RMB 91.7 billion, RMB 127.3 billion, and RMB 136.8 billion, indicating growth rates of 35.1%, 38.8%, and 7.5% [3][14]. - The company's gross profit margin is projected to be 62.5% in FY24E, slightly declining to 62.2% by FY26E [14]. Growth Metrics - PDD's revenue growth rates for FY22A, FY23A, FY24E, FY25E, and FY26E are 39.0%, 89.7%, 57.3%, 26.4%, and 9.7% respectively, showcasing a strong upward trend [8]. - The adjusted net profit growth rates for the same periods are 185.8%, 71.8%, 35.1%, 38.8%, and 7.5% [8]. Profitability Ratios - The gross profit margin for FY22A was 75.9%, expected to decrease to 62.5% in FY24E and further to 62.2% in FY26E [8]. - The operating margin is projected to be 23.4% in FY24E, increasing to 27.1% in FY25E before slightly declining to 26.8% in FY26E [8]. Valuation Metrics - The P/E ratio for FY24E is estimated at 14.8, decreasing to 10.5 by FY25E and further to 9.7 by FY26E, indicating a potentially attractive valuation [3][8].