This report is read as follows:

The increase in consumer demand for low-price supply will help Meituan to continue to increase takeout market share by virtue of distribution efficiency. The high demeanor of the short-term arrival business industry weakens the competition to a certain extent, and remains optimistic about the long-term competition pattern.

Profit forecast and investment advice: we continue to be optimistic about the long-term development and follow-up performance growth of the company. It is estimated that Meituan's 2023E/2024E/2025E operating income will be 2764max, 3469max, 424.9 billion yuan, an increase of 26%, 26%, 22%, and an adjusted net profit of 285max, 364, 45.9 billion yuan, an increase of 908%, 28%, 26%, respectively. We raised the target price of Meituan (3690.HK) 181.3HKD to maintain the "overweight" rating.

The overall performance exceeded expectations and the gross margin improved significantly. 2023Q2 Meituan achieved 67.97 billion yuan in revenue, up 33% from a year earlier, higher than Bloomberg's consensus, driven by substantial growth in core local businesses.

The increase in gross profit margin (6.8pcts) was mainly due to the adequate supply of capacity in the takeout and flash buying business and the improvement in gross profit margin in the commodity retail business. Sales expense rate increased 3.8pcts, mainly because the company increased trading user incentives, advertising expenses and employee welfare expenses to meet demand. Adjusted net profit surged 272% to 7.66 billion yuan, with a corresponding net profit margin of 11.3%, far exceeding Bloomberg's consensus expectations.

The strategy of rising and sinking low-price supply promotes the rapid growth of core local businesses. Core local business revenue increased by 14% to 26.4 billion yuan over the same period last year, of which takeout users' demand for low-cost meals increased, and the company reduced the price belt to meet demand through a variety of marketing activities and encouraging small and medium-sized businesses to move in. in the future, it is expected to increase the market share by virtue of performance and cost-effective advantages. The number of Meituan flash purchase users and purchase frequency have increased, mainly because the platform has accelerated its penetration into the sinking market, driving the demand side by increasing merchant pools and categories, and at the same time increasing merchants' willingness to invest in marketing. the transaction volume of the hotel and wine travel business has increased by more than 120% compared with the same period last year, and the number of annual active merchants and annual trading users have reached an all-time high. the main reason is that the sinking of the platform encourages small and medium-sized businesses to settle in and help them drain them in the form of live marketing.

The growth rate of new business revenue has slowed and the loss has narrowed. Segment revenue growth slowed to 18 per cent, but the operating loss rate improved to 31 per cent month-on-month. Sub-business point of view: 1) Meituan preferred: trading volume and income continue to grow, but the lower-than-expected market growth leads to a decline in business growth. 2) Meituan buys vegetables:

Revenue grew steadily compared with the same period last year, and the market share further increased, thanks to the increase in supply richness, and it is optimistic that the encryption of the front position will lead to the improvement of distribution efficiency and order volume in the future.

Catalyst: with the advantage of reducing cost and increasing efficiency on a large scale, the market share continues to increase;? Risk hint: main business competition risk; consumption recovery is less than expected risk; systemic risk