Key points of investment
23Q4 Meituan achieved revenue of 73.7 billion yuan (YoY +22.6%, QoQ -3.6%), exceeding expectations by 1.4%. Net profit under non-IFRS of 4.37 billion (YoY +427.6%, QoQ -23.6%) exceeded expectations by 50.9%, and non-IFRS margin of 5.9% (YoY +4.56 pct, QoQ -1.55%). We estimate that we achieved revenue of $3324/3954/454.1 billion in 24-26, non-IFRS profit of $359/54.5/73.3 billion, and a segmented valuation method of RMB 676.6 billion, target price of HK$118.0, and a current price space of 26.4%, maintaining a “buy” rating.
23Q4 revenue and profit both exceeded expectations
23Q4 Meituan achieved revenue of 73.7 billion yuan (YoY +22.6%, QoQ -3.6%), exceeding expectations by 1.4%, mainly due to core local commercial revenue exceeding expectations. Net profit under non-IFRS was 4.37 billion (YoY +427.6%, QoQ -23.6%), exceeding expectations by 50.9%, and non-IFRS profit margin 5.9% (YoY +4.56 pct, QoQ -1.55%). Profit exceeded expectations mainly because core local commercial profits exceeded expectations and losses from new businesses exceeded expectations.
Core local business: Takeout exceeded expectations. Arrivals in 24 are expected to usher in OPM's inflection point of 23Q4. The core local business achieved revenue of 55.1 billion yuan (YoY +26.8%, QoQ -4.4%), which is 1.5% higher than the consensus estimate. The judgment is mainly due to takeout and in-store revenue exceeding expectations. It achieved operating profit of 8 billion yuan (YoY +11.1%, QoQ -20.6%), exceeding expectations by 5.2%, and operating profit margin of 14.5% (YoY -2.05pct, QoQ -2.95pct), with takeout and flash sales profits exceeding expectations.
Takeout & flash sales: Takeout in the fourth quarter exceeded expectations. The takeout outlook for '24 is more positive than before. We estimate that Q4 takeout+ flash sales revenue reached 43.2 billion dollars (YoY +19.3%, QoQ -3.3%). Of these, the total number of orders delivered reached 6.05 billion (YoY +25.2%, QoQ -2.2%), exceeding expectations by 1.1%, mainly due to flash purchase orders exceeding expectations. Total distribution revenue of $21.9 billion (YoY +10.9%, QoQ -4.6%) was slightly lower than expected by 0.9%.
1) Takeout: We estimated takeout revenue of 38.2 billion yuan (YoY +18.8%, QoQ -4.2%), exceeding expectations by 2.2%.
It is estimated that the total number of takeout orders reached 5.28 billion (YoY +24.7%, QoQ -3.6%, average of 57.38 million orders per day), in line with expectations. Revenue growth was slower than unit volume growth, mainly due to the reduction in AOV and tax benefits for the same period in '22. The estimated average revenue per unit reached 7.24 yuan, or -4.8% compared to the same period.
We estimate that takeout OP reached 4.67 billion (average order value: 0.88 yuan, YoY -12.6%, QoQ -21.2%), which slightly exceeded the consensus expectation of 0.3%. OPM is 12.2% (YoY -1.1 pct, QoQ -3.2 pct). Profits slightly exceeded expectations, mainly because marketing investment was better than expected.
2) Flash sales: We estimated flash sales revenue of 4.99 billion (YoY +23.4%, QoQ +34.9%), and estimated that the total number of flash sales orders reached 770 million (YoY +28.3%, QoQ +9.3%, an average of 8.3 million orders per day). It is estimated that the average OP of flash purchase orders was -0.16 yuan, and losses increased slightly from month to month, mainly due to investment in brand marketing, flash sales were basically in a break-even state. We are optimistic about the competitiveness of Meituan flash sales in the trillion instant retail market, including the potential for order volume growth and profitability. Flash shopping is an important growth business for Meituan.
Judging from the consumption data for January-January '24, the overall recovery was moderate. We expect the company's 24Q1 takeout revenue to be 34.7 billion, an increase of 17.8% year over year. Takeout orders are expected to increase 17% in '24, slightly exceeding previous expectations. From a profit perspective, considering the still high AOV base in Q1 last year, it is estimated that the average profit per order was 1.16 yuan, which is still lower than the previous year. Looking at the whole year, despite macroeconomic uncertainty, stable profits can be ensured by increasing the monetization rate and reducing subsidies, and it is expected that the total amount of takeout OP will maintain steady growth. Looking at the long-term, we believe that demand for food and beverage is steady, the competitive pattern for takeout is clear, and there is still room for improvement in penetration.
In-store wine tourism: GTV in the fourth quarter exceeded expectations, OPM is in line with expectations, and is expected to usher in an OPM inflection point in 24. We estimate 23Q4 revenue of 12 billion yuan (YoY +64.7%, QoQ -7.6%), which is 4.6% higher than the consistency forecast. Revenue surpassed expectations mainly because GTV exceeded expectations, partly offset by a decline in the monetization rate. It is estimated that GTV increased by more than 160%, and the decline in the monetization rate was mainly due to policies such as rebates. The estimated operating profit of Q4 was 3.43 billion yuan (YoY +11.2%), and OPM was 29% (QoQ -2.5pct), which was basically in line with expectations. The month-on-month decline in OPM was mainly due to increased investment in low-tier BD personnel.
The competition between the two sides is expected to become more rational in '24, OPM is approaching an inflection point, and the market share is stabilizing. We observed that Douyin Life Service did not adopt an aggressive competitive strategy after changing the person in charge. Judging from recent sample data, discount rates from Douyin to stores have stabilized, and there has been no increase in strength. Facing competition in a rational state, Meituan may also adopt a rational investment pace. We estimate that in 24Q1, Meituan's in-store revenue increased 26.7% year-on-year, and OPM remained flat month-on-month. OPM is expected to improve compared to Q1 in '24, and OPM is approaching an inflection point. From a market share perspective, we estimate that Douyin's market share in stores remained around 40% until '25, Meituan's market share stabilized, and the pattern gradually stabilized. In the medium to long term, the small and medium businesses that Meituan excels at are more difficult to enter, and they compete with leading Douyin chain merchants by being “heavy.” In the future, the two companies may return to their respective circles of competence, and competition will become more rational.
New business: Community group buying strategy adjustments, with the goal of drastically reducing operating losses of 23Q4 and new business revenue of 18.6 billion dollars (YoY +11.5%, QoQ -1.1%), which is basically in line with expectations. Operating loss of 4.8 billion dollars (YoY narrows 24.1%, QoQ narrows 5.5%), loss was 4.4% better than expected, and operating loss ratio 27.5% (YoY +10.7pct, QoQ -0.27%). It was determined that the loss was superior to expectations mainly because the preferred loss was better than expected.
According to financial reports, the strategy was adjusted in '24. The goal is to drastically reduce operating losses. The business will focus on market share and focus more on core competitiveness and user experience. We estimate that losses from new businesses will narrow to 3.1 billion month-on-month in 24Q1, and full-year losses are expected to narrow from $202 billion in 23 to $10.5 billion in 24. We believe that the strategic adjustment of the community group buying business not only helps release overall profits, but also reveals that management's capital allocation is becoming more rational, which is conducive to focusing more on core business.
Profit exceeded expectations, mainly due to gross margin performance exceeding expectations, partly offset by sales expenses control being weaker than expected to offset net profit of 4.37 billion (YoY +427.6%, QoQ -23.6%), higher than consistent expectations of 50.9%, non-IFRS profit margin 5.9% (YoY +4.56 pct, QoQ -1.55%), profit exceeded expectations, mainly due to higher than expected gross margin and management and R&D expenses.
23Q4 Meituan achieved gross profit of 25 billion yuan (YoY +47.6%, QoQ -7.4%), super consistent expectations of 3.0%, and gross margin of 33.9% (YoY +5.75 pct, QoQ -1.37 pct). It was determined that the gross margin exceeded expectations mainly because delivery cost optimization exceeded expectations.
Sales expenses of 16.7 billion (YoY +55.3%, QoQ -1.1%), cost control was weaker than expected by 12.7%, and sales expense ratio 22.7% (YoY +4.8 pct, QoQ +0.6 pct). Sales expenses exceeded expectations, and the judgment was mainly due to increased subsidies for takeout and in-store delivery.
R&D expenses of 5.4 billion (YoY +3.5%, QoQ +2.0%), 8.6% better than agreement expectations, R&D expenses rate 7.4% (YoY -1.36 pct, QoQ +0.4pct); administrative expenses of 2.7 billion (YoY +10.2%, QoQ +6.4%), better than compliance expectations of 6.2%, and administrative expenses of 3.7% (YoY -0.41pct, QoQ+0.35pct). R&D and administrative cost controls were better than expected, and cost reduction and efficiency continued.
Investment advice
We estimate that in 24/25/26, the company achieved revenue of 3324/3954/454.1 billion yuan, non-IFRS profit of 359/54.5/73.3 billion yuan, and 24/25/26 profit corresponding to the current stock price PE of 14.9/9.8/7.3. If losses from new businesses are not taken into account, the 24-year core local commercial operating profit is 44.4 billion. Assuming a tax rate of 15%, the net profit of core local businesses in 24 corresponds to 14.2 times the current stock price PE. We gave the takeaway business a 24-year 18-fold PE valuation, the 24-year flash sales business a 24-year PE valuation, and a 24-year profit valuation of 13 times PE. After deducting losses from the new business, we arrived at a reasonable market value of 1.922×18+245×3.5+155×13-105 = 676.6 billion yuan = HK$735.4 billion (RMB: HKD exchange rate of 0.92), with a target price of HK$118.0, with a current price space of 26.4%, maintaining a “buy” rating.
Currently, due to the moderate recovery of takeout, the inflection point of in-store OPM, and adjustments to the community group buying strategy, the company's valuation has rebounded somewhat. In the medium to long term, the company's future development may still exceed expectations: 1. Takeout & flash sales penetration rate, frequency, market share, and profit margin have increased beyond expectations. The increase in penetration rate is mainly in the sinking market. The increase in frequency is mainly due to the transformation of low-frequency users to high-frequency users. The increase in market share mainly comes from the scale effect of the fulfillment system, and the increase in profit margin is mainly due to the increase in advertising monetization rate and the decline in subsidy margins. 2. The competitive pattern of in-store business is gradually stabilizing, thus driving profit margins back to a steady state.
Risk warning
1) Consumption recovery fell short of expectations; 2) Douyin's in-store business development exceeded expectations; 3) New business losses exceeded expectations.