Core views

In the fourth quarter of 2023, Meituan achieved total revenue of 73.696 billion yuan, a year-on-year increase of 22.6%, and achieved non-GAAP net profit of 4.375 billion yuan, an increase of 428% year-on-year. Both revenue and profit levels exceeded Bloomberg's agreed expectations. Affected by the low base, the growth rate of takeout orders achieved rapid growth this quarter. The revenue growth rate was lower than the order growth rate. Flash sales continued to show strong growth. GTV for on-site wine tours achieved rapid growth, and profit margins declined, but future profit margins may still be better than previous market expectations. In the long run, Douyin's impact on Meituan's local lifestyle is limited, but it is expected that the process of recovering Meituan's market share and profit margin will not happen overnight. In terms of new business, Meituan Premium is expected to accelerate loss reduction this year, thereby increasing Meituan's overall profit elasticity. As an important gripper for Meituan's entry into the physical e-commerce circuit, Preferred Choice still has great potential in the future.

occurrences

In the fourth quarter of 2023, Meituan achieved total revenue of 73.696 billion yuan, a year-on-year increase of 22.6%, and achieved non-GAAP net profit of 4.375 billion yuan, an increase of 428% year-on-year. Both revenue and profit levels exceeded Bloomberg's agreed expectations.

Brief review

The basic market for the home delivery business is stable, and profitability remains resilient. In the fourth quarter, Meituan's core local business achieved revenue of 55.131 billion yuan, an increase of 26.8% over the previous year. Among them, the revenue growth rate of the takeaway business was less than 20%, and the unit volume growth rate was higher than the revenue growth rate, mainly due to the decline in AOV. Looking ahead to 2024, although the growth rate of takeout orders has slowed down due to store diversion and macroeconomic factors, the growth rate of takeout orders will remain elastic in the future as macroeconomics and consumption continue to recover. Although AOV still has downward pressure in the short term, it is expected that the share of low customer unit price orders such as packed meals will increase limited, and AOV changes will have limited impact on UE. It is expected that the profitability of the takeaway business will remain resilient. It is expected that flash sales revenue will continue to grow rapidly this year. The growth rate of orders is much higher than the growth rate of takeout orders. Looking at the long term, the flash sales business is expected to open up room for growth in the home business. In terms of the competitive landscape, the home delivery business is based on a stable rider fulfillment system, and profits are dependent on scale effects. The barriers are significantly higher than in-store wine trips. Douyin takeout and Douyin hourly delivery have very limited impact on Meituan. Douyin's acquisition of Hungry or its behavior has had little impact on Meituan's takeout base market, and it has more of an emotional impact. Douyin Horizon is currently facing similar problems to Douyin Takeout. It has not tested the bottleneck of contract fulfillment, but the supply side is still greatly limited.

In-store wine tours: Pessimistic expectations are fully taken into account, and attention is paid to dynamic changes in market share and profit margins. Meituan's on-site wine tourism revenue continued to grow rapidly in the fourth quarter, and GTV achieved three-digit growth. Douyin Local Life personnel adjustments in the fourth quarter caused the market to worry that the competition between Meituan and Douyin in local life may last longer, thus affecting Meituan's profit margin recovery process. After the third quarter report, the market already included more pessimistic profit margin expectations. On the margins, the actual profit margin level may be more positive. We still need to pay attention to Douyin Local Life's movements in 2024 and its dynamic impact on market share and Meituan's profit margin. In the long run, Douyin will have limited impact on Meituan's local lifestyle. In the future, Meituan may be expected to experience a double recovery in market share and profit margins.

The new business is expected to accelerate loss reduction and increase profit flexibility. In the fourth quarter, Meituan's new business (new caliber) revenue was 18.6 billion yuan, up 11% year on year, achieving operating losses of 4.8 billion yuan, and the loss rate improved by 12 pct to 26% year on year. Since this year, the market has been more positive about Meituan's loss reduction expectations. Measures such as closing and closing positions, downsizing personnel, and reducing subsidies have helped Preferred Choice accelerate loss reduction, thereby increasing Meituan's overall profit elasticity. Although Meituan's strategy has shrunk, it is still in the first tier of the community group buying circuit. As an important gripper for Meituan's entry into the physical e-commerce circuit, Preferred Choice still has great potential in the future.

Profit forecast and valuation: We expect Meituan FY24-25's revenue to be 32.0971 billion yuan and 375.523 billion yuan respectively, with growth rates of 16% and 17%, respectively, and non-GAAP profit of 33.332 billion yuan and 52,872 billion yuan respectively, up 43.34% and 58.62% year-on-year. Maintaining a “buy” rating, the target price was HK$117.77, corresponding to 20X PE in 2024.

Risk warning: The second quarter guidance fell short of expectations; the profit margin of inbound wine tourism fell short of expectations; uncertainty in the long-term competitive pattern of on-site wine tourism; the high growth momentum of Douyin wine tourism was difficult to verify in the short term, and the on-site wine tour tug of war exceeded expectations; community group purchase orders fell short of expectations, loss reduction was low; the competitive pattern of community e-commerce intensified; other new business investment exceeded expectations; potential Internet policy regulation risks; low expectations for the Fed's interest rate cut process, which continued to suppress the overall performance of the Hong Kong stock market; excessive uncertainty about the development of the RMB exchange rate; Expected depreciation; risk of South African shareholders reducing their holdings; others Overseas risk factors affecting the overall performance of the Internet in Hong Kong stocks.