Incident: The company released its 23rd annual report. The company achieved operating income of 276.74 billion yuan for the full year of '23, an increase of 25.8% over the previous year; achieved adjusted net profit of 23.253 billion yuan. Among them, the company achieved operating income of 73.696 billion yuan in 23Q4, an increase of 22.6% over the previous year, and achieved adjusted net profit of 4.4 billion yuan, an increase of 427.6% over the previous year.
Local core businesses are growing steadily, the supply side is rich, and strategies continue to be iteratively optimized: in 2023, the revenue of the core local business segment increased 28.7% year over year to RMB 206.9 billion. Operating profit increased 31.2% year over year to RMB 38.7 billion. Among them, in the fourth quarter, segment revenue increased 26.8% year over year to RMB 55.1 billion. Operating profit increased 11.1% year over year to RMB 8 billion. The company continues to iterate its business strategy, expand the large-scale coverage of ready meals, continue to iterate high-customer unit price products, and strengthen display methods such as pictures and live broadcasts. As consumption rebounded, 23 hotel business transaction amounts increased by more than 100% year over year. We believe that after 22 years of pain and 23 years of intense competition in the industry, Meituan's core local business is still stable as the cornerstone of profit moat.
The new business conveys confidence to reverse losses, and the leading value is expected to be demonstrated: in 2023, revenue from the new business segment increased 18.0% year over year to RMB 69.8 billion. The operating loss narrowed to RMB 20.2 billion, and the operating loss ratio improved to 28.9%. In the fourth quarter, revenue from the new business segment increased 11.5% year-on-year to RMB 18.6 billion. The division's operating loss narrowed 24.1% year over year to RMB 4.8 billion. Among them, the community group buying business is the main source of losses. The main reasons are: 1) the growth in scale fell short of expectations, making it difficult to drastically reduce the cost of each contract; and 2) fierce competition made it more difficult to increase the price increase rate of products and reduce subsidies.
Financial reports show that in the future, the company will reduce losses from new businesses by changing strategies. In the past, Meituan Preferred invested more costs through large subsidies and logistics chain construction. Currently, infrastructure construction is becoming more mature, and subsidies are expected to slow down. We believe that the sources of losses that affected Meituan's profitability in the past are expected to be significantly mitigated in the future, and the company's value as a leader in the local lifestyle and commercial complex is expected to be fully demonstrated.
Investment advice: We expect the company to achieve revenue of 3363.76/3938.55/453.489 billion yuan in 2024-2026; net profit to mother of 261.11/410.63/484.33 billion yuan; EPS 4.19/6.59/7.77 yuan. The corresponding PE was 21.07 /13.40 /11.36 times, respectively, maintaining the “gain” rating.
Risk warning: risk of competition in the industry; macroeconomics falling short of expectations; risk of riders' social security increasing costs; risk of new business falling short of expectations, etc.