Meituan reported FY4Q23 revenue of Rmb73.7bn (+22.6% YoY, vs. our forecast of Rmb72.46bn), with operating profit of Rmb1.76bn, turning from loss to profit year-on-year, and adjusted net profit of Rmb4.38bn (+427.6% YoY), beating expectations.
Solid core local commerce business and enhanced content production and marketing. In FY4Q23, core local commerce revenue increased 26.8% YoY to Rmb55.1bn, and operating profit increased 11.1% YoY to Rmb8.0bn, with an operating margin of 14.5% (-2.1pct YoY). The YoY decrease in operating profit was mainly due to seasonal factors, higher subsidy rates, and a decrease in average order value. The platform iterates on high-order-value products such as the " God Grabber " and the "Must-Order List," strengthening content ecosystem optimisation and improving the ability to reach effective marketing. The platform improves product supply, and the purchase frequency of users steadily increases, with the instashopping transactions in 4Q23 increasing by 25% YoY.
High user stickiness of Instashopping and rapid growth in the travel and hotel business. Meituan Instashopping maintains strong growth as the high user stickiness drove an increase in purchase frequency and spending, with order volume increasing by more than 40% YoY. The number of active merchants for Instashopping increased by 30% YoY, further improving the quality and diversity of platform supply. The transaction volume of in-store, hotel, and travel businesses increased by more than 100% YoY, with the annual number of active users and merchants increasing by 30% and 60% respectively. The domestic hotel transaction amount in 2023 increased by 100% YoY, and the in- store business effectively reached consumers, with the volume of special group purchase orders growing rapidly. Meituan announced an organizational restructuring, with Meituan's platform, in- store, to-home, and basic R&D all being led by Wang Puzhong. We believe this adjustment will facilitate the synergy of in-store and to-home businesses, concentrating resources to consolidate core advantages and cope with market competition.
Narrower losses of new businesses. In 4Q23, the revenue from new businesses increased 11.5% YoY to Rmb18.6bn, and the operating loss narrowed by 24.1% YoY to Rmb4.8bn, with the operating loss ratio down to 26.0%. The operational efficiency of Meituan Select has increased. We believe the platform will focus on improving user experience and enhancing the pricing ability of Meituan Select products. Meituan Maicai was fully upgraded to Xiaoxiang Supermarket, expanding its operating range. Its transaction amount in 2023 increased by 30% YoY, with product supply diversification and improved supply chain efficiency.
Maintain BUY. By enriching the proportion of small and medium-sized businesses and exploring deeper into lower-tier markets to develop incremental users, alongside special offers and live streaming content to enhance the cost-effectiveness mindset among users, we believe Meituan will continue to solidify its core competitive barriers. We raise our adjusted net profit forecasts from Rmb28.5bn to Rmb31.7bn in 24E, and from Rmb43.2bn to Rmb45.8bn in 25E, while introducing an adjusted net profit forecast of Rmb56.3bn for 26E. We maintain our BUY recommendation.
Risks. Slower-than-expected recovery of consumer demand, slower-than-expected growth of new initiatives, and intensified competition.