Core views

In the second quarter of 2023, Meituan achieved total revenue of 67.96 billion yuan, a year-on-year increase of 33.4%, and non-GAAP net profit of 7.66 billion yuan, an increase of 272.2% year-on-year. Both revenue and profit sides exceeded Bloomberg's unanimous expectations. The home delivery business grew steadily this quarter, and its profit contribution continued to increase. With the gradual recovery in the market share of Meituan-to-Duan wine travel compared to Douyin, the market's confidence in Meituan's basic market has been restored. In the long run, Douyin's impact on local life in Meituan is limited. In terms of new business, Meituan still needs to make trade-offs between scale and loss reduction. Preferential selection is still in the first tier of the community group buying circuit. As an important starting point for Meituan to enter the physical e-commerce circuit, it still has great potential in the future.

occurrences

In the second quarter of 2023, Meituan achieved total revenue of 67.96 billion yuan, a year-on-year increase of 33.4%, and non-GAAP net profit of 7.66 billion yuan, an increase of 272.2% year-on-year. Both revenue and profit sides exceeded Bloomberg's unanimous expectations.

Brief review

The home delivery business is growing steadily, and the profit contribution continues to increase. In the second quarter, Meituan's core local business achieved revenue of 512 billion yuan, an increase of 39% over the previous year. Among them, revenue from the takeaway business is expected to increase by more than 30% year on year. This quarter, the proportion of orders prepared for takeout reached a high single digit, and the peak daily order volume exceeded 5 million, and there is still a lot of room for development in the future for low customer unit prices; in addition, the company has driven an increase in demand for non-immediate new demand from high-frequency, high-quality users through marketing activities such as high-demand. In the future, the company will make better use of various product management tools such as shelf models and prepared meals to fully meet consumer needs. The number of Meituan flash sales orders and active users continued to grow rapidly this quarter. The peak daily order volume once again exceeded 11 million orders. The demand side also contributed in turn to an increase in the richness of the supply side of the platform. The number of active Meituan flash sales merchants increased by 30% year-on-year. Overall, the scale growth rate and market share of flash sales in the second quarter continued to lead the competition, and business growth gradually changed from demand driven to supply driven. On the profit side, the door-to-door business surpasses in-store wine travel and continues to be the main source of Meituan's profit contribution. Considering the increase in user mentality and rider cost optimization, we remain optimistic about the home delivery business UE in 2023.

In-store wine travel: Rebuilding confidence and focusing on dynamic changes in market share and profit margins. In the second quarter, Meituan-Dan-Dian Liquor Travel GTV increased by more than 120% year-on-year. The number of annual active merchants and annual transaction users reached record highs. The strong growth in Daodian Liquor Travel was due to the rapid recovery in offline consumption, as well as to the company's adoption of a more active operation and sales strategy. On the merchant side, the company has strengthened direct sales teams in sinking cities, lowered the entry threshold for merchants, and promoted more merchants to go online. At the same time, it also ensured that core merchants have price competitiveness in Meituan through merchant incentives, and provided customized operation and service support for core merchants. In addition, the company is also further strengthening the mentality of users, creating popular marketing scenarios through special prices, group purchases, and live broadcasts to meet users' needs for growing crops and stocking up goods. The wine travel business showed a stronger growth trend than the in-store business, and both overnight and ADR achieved significant year-on-year growth.

In terms of the competitive landscape, since 2023, with the gradual recovery of Meituan's market share relative to Douyin, the market's confidence in Meituan's basic market has been reshaped. In the long run, Douyin's impact on Meituan's local lifestyle is limited. In the future, Meituan may be expected to usher in a double recovery in market share and profit margin.

In terms of new business, Meituan still has to make trade-offs between scale and loss reduction. In the second quarter, Meituan's new business (new caliber) revenue was 16.8 billion yuan, an increase of 18% over the previous year, achieving operating losses of 5.1 billion yuan. The loss ratio increased by 18 pct to 30% year on year. Meituan Preferred's trading volume and revenue continued to grow year on year this quarter, but absolute losses declined slowly. With further improvements in operating efficiency, Meituan Preferred's absolute losses are expected to be greatly optimized in 2024. Although Meituan Preferred's strategy has shrunk, it is still in the first tier of the community group buying circuit. As an important starting point for Meituan to enter the physical e-commerce circuit, Preferred still has great potential in the future.

Meituan Grocery Shopping also recorded steady year-on-year growth this quarter and achieved higher market share. The company has enriched supply, increased direct harvesting of fresh products, continued to increase the share of standard products and private brands in transaction volume, and increased front-end warehouse density in major operating cities to further improve distribution efficiency and user experience.

Profit forecast and valuation: We expect Meituan's FY23-24 revenue to be 282.4 billion yuan and 357 billion yuan respectively, growth rates of 28% and 26% respectively, and non-GAAP profits of 20.792 billion yuan and 35.822 billion yuan respectively. According to the segment valuation method, the door-to-door business and the in-store wine travel business were valued at HK$127.10 and HK$58.87 respectively. The target price was HK$185.97, maintaining the “buy” rating.

Risk warning: South African shareholders' holdings reduction risk; repeated domestic epidemics affected the recovery of local life; business data for the third quarter fell short of expectations; the profit margin of in-store wine travel fell beyond expectations; the high growth momentum of Douyin to shop wine travel was difficult to disprove in the short term, which may have a potential impact on the basic market of Meituan-to-dian wine tourism; the volume of community group purchases has increased less than expected, reducing losses and lowering expectations; the competitive pattern of community e-commerce has intensified; other new business investments have exceeded expectations; potential Internet policy regulatory risks; the Fed's interest rate hike process has exceeded expectations and continues to suppress Hong Kong stocks Overall performance; uncertainty about the development of Sino-US relations; RMB exchange rate exceeding Expected depreciation; other overseas risk factors affecting the overall performance of the Hong Kong Stock Exchange.