Overall: Both revenue and profit sides exceeded expectations. On the revenue side, 23Q4 revenue was 73.7 billion yuan (yoy +22.6%), which slightly exceeded expectations. On the profit side, adjusted operating profit for 23Q4 was 3.2 billion yuan, and the operating profit margin improved by 4.3% (1.4% in 22Q4) year-on-year, mainly due to an increase in core local commercial profits and a further narrowing of new business losses. The adjusted net profit was 4.4 billion yuan, and the net profit margin was 5.9% (1.4% in 22Q4), an improvement over the previous year. Looking ahead to performance, we expect takeout and in-store delivery to continue to grow rapidly in 24Q1, and we prefer to further reduce losses.
Core local business: User consumption stickiness has increased, and the number of orders has maintained rapid growth. 23Q4 revenue was 55.1 billion yuan (yoy +26.8%), adjusted operating profit was 8 billion yuan, and profit margin was 14.5%, a year-on-year decline. By specific business:
1) Takeout: Q4 orders increased steadily, and UE was pressured by the downward trend in AOV. On the operating side, the 23Q4 takeout and flash sales business had a total of 6 billion orders (yoy +25%). We estimate that takeout orders also increased 24.7%. On the demand side, the number of annual food and beverage takeout transaction users continues to grow, and medium- and high-frequency users and their purchasing frequency are steadily increasing. On the supply side, the scale of “meal preparation” has expanded to meet consumers' demand for cost performance, and the supply of high-customer unit price products such as “sharpshooter,” “one-person meals,” and “must-order lists” has been enriched. On the revenue side, considering the high structural base of AOV, the month-on-month decline in 23Q4 AOV, and the impact of VAT taxation, we comprehensively estimate that the revenue growth rate is lower than the order growth rate. On the profit side, combined with the effects of the above changes in revenue growth and the year-on-year increase in subsidies, we estimate that the average OP has declined slightly.
Strategically, the company is strengthening two key capacity building: ① product display, optimizing the content ecosystem through different forms of content production capacity such as images, text, video, and live streaming; ② marketing plans, upgrading and simplifying the takeaway membership system, continuously improving the shelf model and strengthening popular marketing capabilities to stimulate consumer demand. Looking ahead, we expect AOV to be uncertain under macroeconomic influence in '24, which will affect revenue and profit-side performance. This is partly offset by factors such as unit volume growth, reduced subsidies, and increased advertising monetization efficiency due to increased user stickiness. The profit growth rate is expected to be lower than the order growth rate.
2) Flash sales: Q4 orders grew rapidly, and supply-side penetration continued to strengthen. On the operational side, flash order volume increased by more than 40% in 2023, and we estimate that 23Q4 flash order sales also increased by 28%. On the demand side, the frequency and spending amount of flash sales users continues to grow. On the supply side, the number of annual active flash sales merchants increased by nearly 30% year-on-year, and the platform's supply quality and diversity have been improved. It has cooperated with about 400 brands, and Meituan Lightning Store covers more than 200 cities. On the revenue and profit side, we estimate that the 23Q4 flash sales revenue growth rate slightly exceeded the order growth rate, and the average order loss narrowed year-on-year. Looking ahead, we expect that the 24Q1 flash order growth rate will still exceed the takeout growth rate. Short-term brand mentality will strengthen continuous penetration on the user side, and the average profit from long-term flash orders is expected to achieve more flexible space than takeout.
3) In-store wine tours: Competition is slowing down, profit margins are stabilizing, and synergy is improving due to organizational structure adjustments. On the operating side, in 2023, the transaction amount of in-store, hotel and travel business increased by more than 100% year on year, and domestic hotel transaction amount increased by more than 100% year on year. On the demand side, trading users increased by more than 30% year over year in 2023. On the supply side, active merchants grew by more than 60% year over year in 2023. Strategically, enhance platform supply and improve live streaming capabilities, iterate on “Hotel+X” products, and use the advantages of in-store catering to provide diversified packages. On the revenue and profit side, we estimate that due to factors such as in-store competition and slowing market expansion, the revenue growth rate may be significantly lower than GTV's growth rate, and OPM still declined year-on-year. Looking ahead, the 24Q1 low-tier city direct management model continues to be promoted, in-store live streaming subsidies continue, and OPM is flat month-on-month. Looking at the year-round dimension, along with the synergy between slowing competition, instant delivery after organizational restructuring, and in-store wine travel, the gap between revenue growth and GTV growth will narrow, investment ROI will increase, and profit margins are expected to improve.
New business: The preferred 24-year target is to drastically reduce losses, and the break-even balance of the new business is expected to accelerate. 23Q4's new business revenue was 18.6 billion yuan (yoy +11.5%), operating loss was 4.8 billion yuan, and the loss rate was 26%, all optimized over the same period last year.
1) Meituan Preferred: The operating efficiency of Preferred in 2023 has improved, but the loss amount and loss rate are still significant.
The company said in '24 that compared to market share, it focuses more on building core competitiveness and improving user experience, and plans to increase product price increases and reduce subsidies, with the goal of drastically reducing operating losses. Operating losses are expected to have narrowed sharply year over year in 24Q1. 2) Other businesses: In 2023, the transaction amount of Xiaoxiang Supermarket increased by about 30% year-on-year, and the number of users, average customer unit price, and purchase frequency all increased steadily. The restaurant management system achieved positive cash flow in 2023, and Fast Donkey achieved cash flow balance in 2023. It is expected that all new businesses other than Premium will achieve break-even in 2024.
In view of macroeconomic uncertainty, slowing competition, and accelerated loss reduction in new businesses, we have adjusted some of our business assumptions. We forecast the company's earnings of 2.22/3.99/6.44 yuan per share for 23-25 (the original forecast was 2.07/3.77/6.29 yuan per share for 23-25 years), using a segmented valuation to give the takeaway business 3.7x PS, estimated revenue of 165.2 billion CNY in 24 years; the new business only considers community group purchase valuations, maintaining 0.6x P/GMV. The company's reasonable valuation is estimated at 104.1 billion CNY in 24 At HKD 1014.6 billion, the target price was HKD 162.72, maintaining the “buy” rating.
Risks suggest policy control, increased market competition, consumption recovery falls short of expectations, and new business growth falls short of expectations