Saturday, 13 February 2021

Will Pinduoduo Inc (PDD) Keep on Growing?

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

Source: https://investor.pinduoduo.com  


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!


SMART AGRICULTURE “DuoDuo Maicai” 

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.


FINANCIALS

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.


LATEST NEWS

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.


SUMMARY

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)

- JD.com (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. 

@QUOTE

“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.” 

@UNQUOTE

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?


FROM OIL AND GAS TO RENEWABLES 

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. 


NON-COMPETITION WITH SEMBCORP MARINE (SCM) FACILITATES MERGER

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. 

Read:

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. 


COST CUTTING 

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. 


CONCLUSION

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

PORTFOLIO – MORE ALLOCATION INTO SHARES

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. 


FROM OIL AND GAS TO RENEWABLES

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. 

OTHERS – INCREASED SEA LIMITED, AIRBNB & COMFORT DELGRO

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. 

TECH US 

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

BUY AND SELL 

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.




 

 














CONCLUSION

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? 






   


Friday, 22 January 2021

How We Sold Two Properties In One Month and Very Close to My Asking Price!

Towards the close of last year, I decided to put two of our properties on sale. One Freehold (FH) Condo and one HDB. Both properties have three bedrooms + additional small room. 

This week, we exercised options for both properties. 


REASONS WHY WE ARE SELLING

First of all, the property market has been the hottest in recent times despite one of the worst crisis ever. This means selling will be fastest and price will be better. Of course, I know the theory of sell high, buy high as well and I already consider that. 

Secondly, we are reaching that kind of age, that this is probably our last chance to be able to get a “stretchable” home loan. 

Thirdly, both properties were more than two decades old. I feel that as properties get older, it is more difficult to sell, with the exception of “Landed”. 

Fourthly, all this while, I have always wanted to own a landed property as I knew that land is scarce in Singapore. READ: Regret Not Buying a Freehold Landed Property 10 years Ago! Frankly, after deep thoughts and comforting from my wife, I don't think that I truly regretted my decision of not buying a landed ten years ago. I had chosen a condo back then because of the facilities, and good environment! My family enjoyed the facilities and my kids have many friends growing up within the condo. Furthermore, I also had lighter mortgage, helping me to grow my investment portfolio to where it is today. 

Last but the most important reason of selling, is that our 3 bedroom house are becoming increasingly more difficult to house the eight of us.  

REASONS WHY WE HATED SELLING

We love our current house. It is quite a good size of close to 1300 sqft. I reckon our apartment is one of the best units in our condo. Our balcony has splendid view, high floor and non-west facing. The house is regular shaped in layout. The condo is tranquil as we do not have too many units here and yet the environment is spacious, covered with lots of greens and with extensive facilities and a huge pool. Above all, my kids’ schools are not too far away! MRT is also within less than 10 min walk. 

Our HDB is located at one of the most convenient precinct in Singapore and short walk to MRT. For many years, we have never had a pause in rental income collection, and consistently giving us 7 to 8 percent or more rental yield. 

HOW THE MARKETING AND SELLING GOES? 

Asking Price 

For the condo, we indicated the asking prices higher than market rate but in the same range of the advertised asking pricing of others. For the HDB, because I knew that it can be more difficult to sell due to tenancy, and hence I indicated a lower asking price than all the rest selling in the vicinity and yet with much better renovation condition. 

For our condo, our asking price is set at: 

- 11 percent above bank valuation. 

- 7 percent above my initial target closure price

- PSF of 15% higher than the last condo transacted pricing.  

For HDB, our asking price is set at: 

- 8 percent above the last transacted pricing in the same block. 

- 3 percent above target closure price

- Sold at valuation by HDB

For both our properties, I have also combed through Property Guru, SRX, 99.co. to see the asking / transaction pricings and the units on sale. Without a doubt, in terms of asking price and renovation conditions, our units are definitely one of the best comparing apple to apple. 

Viewings Can be Frustrating

Due to the reasonable pricing and good renovation, plus December clearing leave period, viewing requests had been overwhelming.  

For our condo, the first viewing took place the same day the ad was posted. Several neighbours also signalled interests and came for viewings. Initially, viewings were almost every day or every other day. Later I reduced to 2-3 times a week. 

It can be very frustrating as strangers are walking in/out your house. And each time, you have to packed your house prior to viewing. I also use paper to cover our family photos on frame attached to walls, as I do not like strangers to see it. We will always go out during the viewings. 

For HDB, it was our agent and tenants arranging, so things are simpler. Our tenants only allowed for 1 day a week viewing and our agent is complaining because there are just too many requests with too little viewing slots. At one time, there were 13 groups of viewings in one day. 

Offers to Purchase (OTP)

For the condo, I already received an offer at a mere 4% below asking price during the first week of viewing. This was 6% above bank valuation and 3% above my comfortable selling price. The potential buyer even agree to my lease back term of 1 year. 

It is crazily good deal!  

But somehow my wife and me, and even our agent felt uncomfortable as it simply came too fast! I rejected the offer even though the cheque is at our door step! Then the next offer came at bank valuation amount, because of the buyer do not have sufficient cash we felt. Without saying, we rejected it too. 

EXERCISED OPTIONS OF SALE

Finally after just one month or so, the irresistible offer came. 

For the Condo, it was closed at : 

- 1.3% below our asking price

- 10% above bank valuation, 

- and record PSF within my condo (i.e. 14% above the previous highest recorded psf). 

And best of all, the buyers agreed to lease back to us for 1 year + option of 6 months. In fact, my condo buyers are so afraid that I will back out or sell to another buyers and kept chasing me to sign the OTP. 

For the HDB, it was closed at : 

- 3% below our asking price

- At HDB valuation

- 5% above the last transacted price of the same size within the same block. 

SELLERS NOT KNOWING “WHERE THEY STAND”

As I also started my property shopping and viewings, I knew of many houses already marketed for more than a year with no takers. It can be demoralising when you are serious seller. But some sellers are seriously too greedy, even when they have genuine intentions to sell.  

I knew my neighbours who are serious sellers because of their kid’s school being far away. They marketed for one year or more and finally gave up selling and started renovating their house, because there were no good offers. Their asking price is way too high, with their unit being original condition and low floor. 

It can be extremely dreadful when you try so hard to sell your house, going through the hassle of many strangers viewing your house with no buyers.  The poor agent is even more pitiful! It is a total waste of everybody’s time! 

SELLING A HOUSE IS NOT AS EASY AS YOU THINK

Closing a property sale is definitely not easy and it is unlike like stocks that is so much more liquid. It takes a lot of time and effort. It can even be very frustrating as many strangers scrutinised your house. Situation can also arise with unhappy dealings with your agent. 

Selling one house is already difficult. For us to be able to sell two within a month or so, we are so thankful. 

One important factor for me is that I must also be comfortable with the buyers. I hate to sell my house to arrogant and unreasonable buyers. One old uncle whose son is interested in buying our house even asked rudely to my wife if our house is leaking? I wasn’t around at that time, but was thinking, “why this stupid question?” This is because if he really think the seller will tell him, Yes, our house is leaking! Of course our house was not leaking! 

Although, we have not seen our buyers, but they are reasonable and fast to counter offer in negotiations, and both buyer groups are younger than us.  And without any specific reason, I prefer to sell to younger aged buyers. 

DO NOT SHORT-CHANGED YOUR AGENTS!!!

We had good relationships with our agents. We never short-changed our agents and pay the market rate 2% commission, even though one agreed to 1% initially, but I still pay 2%. I guess the less calculative nature of me towards the agents, has also indirectly help me to be able to sell at a higher price to reasonable buyers! They agents also worked hard for us and I appreciated their efforts! 

The icing of the cake is that we managed to lease back the house for 1 year and furthermore at a rental price that is 30% below what I use to rent out before. 

CONCLUSION

In summary, our FH property appreciate more than 40% value in ten years, and our leasehold HDB depreciated 7% in the same period, although our rental income significantly covers the shortfall.

One thing for sure, is that while we are happy, we are sure our buyers will also be happy because they have bought very good units at reasonable pricing. The good units were also vouched by many of my friends, our agents and tenants of HDB, considering the well maintained renovated conditions, layout and location of our houses. 

Next up, is the hunt for our new home sweet home…