Saturday, 13 February 2021

Will Pinduoduo Inc (PDD) Keep on Growing?

PINDUODUO (PDD. NASDAQ) – Together, More Savings, More Fun! 


Pinduoduo returns more than 500 per cent in the last one year. 

Despite only started in 2015, Pinduoduo is now the second-largest e-commerce platform in China, only behind Alibaba. Pinduoduo has been enjoying strong growth, with 3Q20 revenue jumping by 89% yoy to RMB 14.209 Billions. The company now has 731 million active buyers on its platform. 

Pinduoduo emphasize on team purchase model to promote interactions between users to increase volume of sales while giving more savings to the users.  Many of Pinduoduo current crop of sellers were originally on Alibaba's Taobao platform. 

By continuously expanding the range of products available, the online platform attracts new merchants and brands selling everything from toothbrushes to Rolls-Royce cars!


PDD operates China's largest online marketplace for agricultural products, and is the only major tech company in China to make improving agriculture a stated strategic priority. 

In my opinion, this is definitely one of the biggest potentials of PDD. 

In China, most farmers due to their lack of direct access to consumers, rely on middlemen who rip them off and reduce their profits. PDD helps farmers by teaching them how to sell to consumers directly on its platform eliminating the needs of multiple middlemen. PDD also educate farmers and offers them smart AI-generated farming suggestions to raise agricultural productivity and quality.  

Pinduoduo “DuoDuo Mai offers next-day, self-pickup grocery service. Buyers can place an order for groceries before 11 pm and pick up their orders from 4 pm onwards the following day. There are designated pick-up points for convenient access. As China’s largest agricultural e-commerce platform, Pinduoduo works with millions of farmers, merchants and logistics providers. The platform first gathers information on the types and availability of local agricultural produce, then curates a list of items to be offered to shoppers each day.


Refer to PDD's 3rd quarter unaudited results here

While all good things are being aforesaid about Pinduoduo, the company is still loss making. 3Q20 operating loss was RMB 1,296.7 million (USD 190.8 million). However, this is a much-improved figure compared operating loss of RMB 2,792.0 million in the same quarter in 2019. 

Despite its loss-making status now, Pinduoduo has been increasing its revenue qoq and yoy with close to 90% increase in revenue in the latest quarter. 

What is more remarkable is Pinduoduo’s strong gross margin profile. In an article from seeking alpha in Jan 2021, it states:

“Over the past ten quarters, Pinduoduo's gross margin has fluctuated between 72% (Q1 '20, where the pandemic heavily impacted operations) and 85.7% (Q2 '18). Alibaba's gross margin sits at about 44%, while JD's hovers at 8.7%. As long as Pinduoduo can maintain a >70% gross margin over the course of the next eight to twelve quarters, as revenues could be set to nearly triple, its earnings picture will dramatically improve. Even if expenses rise, it's likely that the total expenses' growth rate will lag gross profit's rate with these margins.”

That said, cash position is strong. Net cash provided by operating activities was RMB 8,321.8 million (US$1,225.7 million), compared with RMB2,618.2 million in the same quarter of 2019, primarily due to an increase in online marketing services revenues. 

TTM cash flow from continuing operation is RMB 22.8 billion (USD 3.4 billion). 

Cash, cash equivalents and short-term investments were RMB 45.6 billion (USD 6.7 billion) as of September 30, 2020, compared with RMB 41.1 billion as of December 31, 2019.


Dec. 21, 2020,  Pinduoduo Inc announced that a global institutional investor will purchase close to US$500 million of new shares through a private placement as the agriculture-focused technology platform pursues its strategic priority of raising farm productivity and improving food security and quality.

Pinduoduo expects to use the proceeds to strengthen its balance sheet and make strategic investments. The share issue follows an oversubscribed convertible note-and-equity offer last month, in which the company raised a total of US$6.1 billion, including overallotment.


The shares of Pinduoduo is not cheap. PDD’s market cap is close to USD 240 Billion valuing a whopping of more than 55x the equity value in the most recent quarter. Price to TTM Sales is ~38x. 

For comparison and information sake, 

- Singapore’s Sea Limited (PB ~182x, PS~40x)

- Alibaba (PB~11x, PS~7x)

- (PB~15x, PS~1.8x)

- Tesla’s (PB ~35x, PS~25x)

- Zoom (PB ~83x, PS~65x). 

As grocery shopping shifts rapidly online, Pinduoduo is investing in creating a low-cost, next day logistics infrastructure suited to handle perishables. 

Farmers now have increase knowledge of smart agriculture technology and  direct access to consumers, thereby earning better margins while consumers pay lower prices! 

Pinduoduo future in agriculture e-commerce is huge in China’s billions population. 

PS: I am invested in PDD. 

Sunday, 31 January 2021

Keppel Exiting Rig Business – What it means?

Keppel announced on Thursday that she will exit the right-building business. Keppel Offshore and Marine. (KOM) will be split into three companies. 

1) Operating Co – An asset and people light company focused on design, engineering and procurement; fabrication to be subcontracted to third parties;

2) Rig Co – To charter/manage Keppel Corp’s rigs with the ultimate aim to sell all rigs; to be dissolved thereafter; 

3) Development Co – To complete construction of Keppel Corp’s order book; to be dissolved thereafter. 

This is not unexpected as Keppel has been dragged down by its rig business in recent years following the oil crisis, writing down assets worth hundreds of millions. 

In my previous article, I had cited almost exactly the strategy that Keppel is doing today. 


“Otherwise, there are also possibility of selling KOM businesses in parts if not wholly, such as disposal of Rig business, Floatel business, FPSO business, Marine business, Renewable business, Proprietary Designs, Repairs business, Defunct KrisEnergy? etc.” 


For more about my previous article: 

Rolf’s Thoughts: How Is Keppel Going to Monetize S$17.5 billions and Revamp It’s O&M Business?


KOM has net order book of SGD3.3 billion with more than 80 percent of which is in the renewables and gas solutions. Approximately 60 per cent is gas business today. Hence, I believed that KOM will definitely want to increase its share of Offshore Wind and Solar business. The way forward is to be Developer of Renewable Assets, as I also mentioned in my previous earlier article. 

Developer of Renewables 

The developer acts more like a consultant with extensive knowledge of the sectors, as well as familiarity with state regulation, and have high level connections in government, state power/electricity companies and financial institutions. 

Keppel has most of these pre-requisites.  

The developer of renewable assets will assess a land suitable to be developed into Offshore Wind Farm or Solar Farm. Feasibility studies will be conducted. E.g. cost of development; how much electricity it will be able to produce i.e. revenue; how to develop it with major suppliers; assess connectivity etc. 

Then, he/she will find investors to own the Wind or Solar farms. Capital is normally in billions USD. Typically, the state and major financial institutions will acquire become the major stakeholder. The developer themselves can also own a major stake in these “farms” or just a very small or no stake, acting purely as a consultant or project management company, doing the subcontracting to major Wind Turbines or Solar companies. 

Hence, the developer can be completely asset light. 


The disposal of rig business will mean that Keppel is entering into a non-competitive nature with SCM. KOM and SCM are two world’s largest oil rig builders, combining these two giants in the oil and gas sector will mean almost complete monopoly in this segment of business. 

KOM exiting Rig business is strategically clever. This  move can facilitate the Merger of Keppel and SCM without having the anti-competition watch dogs blocking the deal. 


Will Keppel Offshore & Marine and Sembcorp Marine Merge? 

To Merge Sembcorp Marine and Keppel O&M is NOT up to Temasek and Shareholders alone? Anti-competition Authorities may REJECT!

If KOM and SCM is merging, and with Keppel going to dispose all the yards, SCM main construction yard will be the Mega Tuas yard. SCM can then keep some smaller yards for repairs and conversion. SCM currently has Rig and FPSO EPC capabilities. Keppel has FPSO conversion capabilities. Both have shipbuilding and repairs capabilities that can easily be further merged to reduce cost. 


Investors and shareholders always welcome cost cutting to maximise profits. Yet, this is cruel to KOM’s more than 10,000 employees. Many heads will roll eventually. Yards will also be all sold eventually unlocking assets. 

KOM only wanted to retain Operating Co – that is people with expertise and subcontracting to third parties. Most who work in the yards, with production expertise will have to bid farewell in a matter of time, leaving behind few with more knowledge who can help to manage the subcontracting process. 

However, total exit within a short time is not possible. It will have to be done in transitional manner over the next few years. Rig Co still need to sell or charter those rigs, that will take a long time. Development Co will also still need time to complete existing construction projects. 

The morale of employees in KOM will be very low. What motivations will the employees in Rig and Development Co have? Perhaps monetary incentives or promise to relocate to other Keppel’s companies or Op Co. But this will only be extended to a smaller percentage of the employees. 

Project and engineering people will start to look for jobs. The departure of good project and engineering people will mean existing construction projects adversely affected, with project budget ballooning. 


Following Keppel’s announcement of 2H2020 losses and her new strategy, share price tumbles more than 10 per cent, closing at SGD5.01. Price to book is 0.85 based on the most recent quarterly result. 

The important question: Will I buy into Keppel shares? 

The answer is No, for now. 

Transition of a business, especially downsizing will always cause great short term adverse effect to the business. Although it looks promising in the longer term, the business will take several years before it turns good again. And we have to wait and see if it really turns good. Better to put the money into many other companies that are doing better than in Keppel now. Maybe small allocation or for trading purposes is ok. 

Tuesday, 26 January 2021

Rolf’s Portfolio Updates – Jan 2021


Since my last update (click here), I increased my shares allocation from 70 to 75% of my total investment portfolio and pared down precious metal holdings from 18% to 13%, mainly selling silver to realise some profits. 

I am a believer of economic recovery from next year and beyond and hence more allocation into stocks. 


I reduced my Energy portfolio as I sold off CNOOC fearing on USA sanction.  CNOOC does have lots of undertakings Internationally and hence they will definitely be more affected by Sinopec. I also took profits off XOM, as fundamentals of the company looks weakened lately. 

Added Renewables into my portfolio of more than 10% with US listed ETFs Invesco WLDRL Clean Energy and Invesco Solar, and HK listed Chinese firms GCL-Poly Energy, Goldwind and Xinyi Solar. I also categorised China Electric Vehicles manufacturers XPENG and NIO as renewables. 


Increased allocations into SEA Limited as support to SG company and also have faith in her potential of growth. Increased stakes in Airbnb and bought into Comfort Delgro as vaccination recovery stocks. 


Reduce stakes in Amazon, Apple and Microsoft, first to take some profits and secondly to re-allocate more funds into Renewables. 


Accumulated some more small position in Pinduoduo as I believe her agriculture business will boom one day. Likewise, I added more of Mapletree Industrial Trust due to potential of growth and dividend play. Sold Viatris with profits and CISCO at loss with overall very slim profit.




Like many other investors, I am riding on the rising wave of stocks recovery. 

Hence, my Portfolio is doing extremely well seeing a sea of “Greens” and exhibiting very good realised and paper profits thus far. Comparing to one year ago in Jan 2020, my Overall Investment Portfolio increased by ~40% comparing to same period last year, and close to 10% since the start of the year. Note that the 40% increase also includes savings that was invested. 

Considering that I am doing investment every month since Covid outbreak, (in dollar cost averaging method to manage timing risk), I am very happy with the result of my investment. 

But the questions remains. How long can stock keep rising?