Investment Rating - The investment rating for the company has been downgraded to "Hold" [6] Core Views - The company's Q1 2025 total revenue was 95.7 billion RMB, a year-on-year increase of 10.2%, but below the consensus estimate of 103.9 billion RMB. The non-GAAP net profit was 16.9 billion RMB, corresponding to a non-GAAP net profit margin of 17.7%, down 17.6 percentage points year-on-year, and also below the consensus estimate of 26.8% [1] - The underperformance in earnings is attributed to increased investments in domestic e-commerce to address market share disadvantages and improve the merchant ecosystem, as well as aggressive investments in overseas e-commerce to accelerate the transition to a semi-managed model [1][2] - The company has launched a "100 billion support" plan that may continue to impact profitability in the short to medium term, alongside geopolitical risks that add uncertainty [1] Domestic E-commerce - In Q1 2025, the company's online marketplace service revenue grew by 14.8% to 48.7 billion RMB, outperforming the consensus estimate of 13.5% growth. However, transaction service revenue increased by only 5.8% to 47 billion RMB, falling short of the expected 56 billion RMB due to aggressive merchant support and commission reductions [2] - Management shared specific initiatives for merchant support, including the "10 billion reduction" plan and the "100 billion support" plan, which aim to stabilize sales and reduce operating costs for small and medium-sized merchants [2] - The company expects that the adjustment in commercialization levels and the establishment of a healthy merchant ecosystem will take time, leading to continued pressure on revenue growth and profit release in the short term [2] Overseas E-commerce - During Q1 2025 to Q2 2025, the company's overseas e-commerce business, Temu, is transitioning its merchant supply model from fully managed to semi-managed to mitigate tariff risks. However, fluctuating policies are expected to negatively impact its fully managed business in the U.S. [3] - The company anticipates that Temu will require further investment to help quality merchants establish overseas warehouse capabilities and explore growth opportunities in non-U.S. regions, delaying the timeline for profitability [3] Profit Forecast and Valuation - The profit forecast for 2025-2027 has been adjusted downwards, with non-GAAP net profit estimates reduced by 37.2%, 25.3%, and 20.3% to 80.1 billion RMB, 106.5 billion RMB, and 127.7 billion RMB respectively [4][19] - The new target price based on SOTP valuation is set at 102.3 USD, down from 144.5 USD, with valuations for domestic e-commerce, Duoduo Maicai, and Temu at 74.6 USD, 4.9 USD, and 22.8 USD respectively [4][24] - The valuation multiples have been adjusted downwards due to lower visibility on profit growth during the investment period and increased competition in the sector [4][24]

Core Insights - The article discusses the logistics improvements in the remote city of Genhe, Inner Mongolia, which has been historically underserved in terms of e-commerce delivery due to its extreme cold and geographical challenges [2][7][8] - Pinduoduo has introduced a new logistics model that eliminates shipping costs for merchants sending goods to remote areas, significantly enhancing delivery efficiency and accessibility for local consumers [4][10][12] Group 1: Logistics and E-commerce Developments - Pinduoduo announced the elimination of logistics transfer fees for remote areas, allowing merchants to send goods to a central transfer warehouse, which then ships to final destinations, thus reducing costs and delivery times [10][12] - The introduction of a transfer warehouse in Shenyang has improved delivery times to Genhe, with the two-stage shipping process now taking less than three days [10][12] - The "thousand billion support" plan by Pinduoduo aims to promote e-commerce in western regions, leading to increased availability of goods for consumers in Genhe [3][8] Group 2: Local Impact and Consumer Behavior - The number of packages delivered in Genhe has increased significantly, with local delivery personnel reporting that their vehicles are now consistently full, indicating a rise in e-commerce activity [3][4] - Local residents have adapted to using e-commerce platforms like Pinduoduo for their shopping needs, with one consumer noting they receive multiple packages each month, showcasing a shift in purchasing behavior [12] - The extreme weather conditions in Genhe, including long winters and heavy snowfall, have historically hindered logistics, but recent changes have allowed residents to access a wider range of products without leaving their homes [2][6][7]