PDD Holdings: Temu’s US Customs Clearance Problem Is Manageable; No Change to Fair Value Estimate  

Independent media WeChat account Wai Mao Jia reported on May 28 that a substantial amount of Temu's (PDD's overseas e-commerce platform) and Shein’s merchandise were stuck at US customs, as 15 US customs brokers that Temu and Shein cooperated with were suspended due to compliance issues. Assuming Temu could rectify the customs reporting of the merchandise to clear the customs or cooperate with other customs brokers in a short time, we expect an immaterial impact on our 2024 earnings forecast and fair value estimate. However, assuming Temu takes a quarter to solve this issue, we estimate a negative 4% impact on PDD’s 2024 non-GAAP EBIT. That said, we still expect a limited impact on both our long-term estimates and valuation, as Temu should be able to rectify the customs reporting issue eventually. PDD’s share price closed 1% higher on May 29 after this news and we think the market is expecting a negligible impact from this incident. We maintain narrow-moat PDD’s fair value estimate of $230 per ADS and think the shares are undervalued.