"Retail + Technology" paves the way for long-term sustainable growth
We believe that weak macroeconomic and recurrent epidemics may be a drag on Meituan's 4Q21 and 1H22 income growth. Meituan's business strategy has been upgraded from "takeout + platform" to "Retail + Technology". We believe that this upgrade will help it expand its accessible market, and its extensive on-demand distribution system will serve as the cornerstone of the infrastructure to contribute to the success of the new strategy. With strong executive power, Meituan maintains a leading position in the current three core business areas (takeout, inbound wine travel and retail). We believe that while considering cost and competition, its operating leverage will continue to promote the profitability of its core business. Taking into account the additional investment related to the new business, we have lowered the non-IFRS net profit forecast for 2021 DCF 2023 from-15.2 billion / + 1.4 billion / + 21.6 billion to RMB-17.5 billion /-10.3 billion / + 8.7 billion, and reduced the target price based on the DCF valuation method by 8% to HK $280. "Buy".
Takeout: designed to improve long-term operational efficiency
We believe that Meituan focuses on achieving high-quality growth in the takeout business to better meet the needs of users and improve operational efficiency, thereby alleviating the pressure on long-term labor costs. We expect Meituan 4Q21's takeout revenue / operating profit to increase by 18.6% to RMB 25.5 billion / 1.4 billion compared with the same period last year, and the sector's operating profit margin will increase by 1.4% to 5.5% compared with the same period last year, mainly due to the optimization of the subsidy strategy that focuses more on the core member user base. Looking ahead to 2022, strong order growth in non-dinner scenarios (such as afternoon tea and midnight snacks) is expected to continue to drive overall order growth, while the increased share of advertising revenue will help support long-term unit economic improvement. Taking into account the increase in the cost of takeout riders, we predict that the annual compound growth rate of takeout revenue / operating profit from 2021 to 2023 is 28% and 48% respectively.
Wine travel to the store: facing short-term disturbance and macro adverse factors
We expect the weak macro-economy to be a drag on the expansion of the inbound wine and travel business in 2022, but more diversified businesses, continued expansion of life services, and increased user participation in low-line cities are expected to support revenue growth in the sector. We expect the operating profit margin of the arrival business to remain stable in 2021-2023, which will be a slight drag on the profit margin after the end of the epidemic. We forecast that the annual compound annual growth rate of revenue / operating profit of wine travel to the hotel from 2021 to 2023 will be 35% and 34% respectively.
New business: bring more business into the investment map
By investing in retail business, Meituan has successfully expanded its user base and accessible market scale. We expect Meituan to continue to invest in the retail business to strengthen infrastructure deployment and technical strength. We forecast an operating loss of RMB 39.7 billion / 34.9 billion / 23 billion for this sector.
Risk tips: 1) increased competition; 2) the loss of new business exceeds our expectations.