Pinduoduo Inc. (PDD) is expected to achieve GAAP net profit in 2021, thanks to the Double 11 Shopping Festival, which saw a record high in China's e-commerce GMV in 11M2020. China's e-commerce GMV maintained a growth rate of 11.5% YoY in 1M2020-11M2020, outpacing the growth rate of total retail sales in China. As of November 2020, online purchasing penetration was 25.0%. Key points include: 1) Chinese regulators have sent a signal of strengthening supervision of the internet sector, with no punishment for community group-buying business of internet giants at this point, implying their business development still complies with the Ant-Monopoly Law. 2) Equity Research has maintained revenue forecasts for 2020 to 2022. 3) We have raised 2022 forecast due to the strengthening supervision signal. The company has strengthened its balance sheet and bottom line. Through fund-raising actively in recent months, the 2020 to 2022 outlook may better than previously expected. We expect that the losses in 2020 will further narrow, and the company may swing into GAAP profit. We raise target price to US$198.00 and maintain investment rating as "Accumulate". There is increasing scrutiny on the internet sector, and further investigations across the e-commerce industry are possible, resulting in uncertainty in the short term. Our TP represents 23.4x 2021F EV/IGP or 19.5x 2021F EV/EBITDA.
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