24Q1 revenue and profit both exceeded market expectations: 24Q1 revenue reached 73.3 billion yuan (YoY +25%), operating profit margin 7.1%, adjusted net profit of 7.5 billion yuan (YoY +36.4%), adjusted net profit ratio of 10.2%, and both revenue and profit exceeded market expectations. Mainly due to a 28% increase in takeout units over expectations and a drastic reduction in community group purchases. The gross margin and R&D cost ratio continued to be optimized, and the sales cost ratio improved month-on-month. On the cost side, the company's gross margin increased by about 1 percentage point over the same period last year, thanks to the improvement in gross margin of the community group purchasing business. The sales cost rate was 19%, up 1.2 percentage points from the previous year, but decreased by 3.7 percentage points from the previous year. The year-on-year increase was mainly due to an increase in user support and marketing promotion activities. The month-on-month decline was due to more refined supplementary stickers. 24Q1 realized operating cash inflows of $6 billion, with cash and cash equivalent holdings and short-term financial investments of $50.8 billion and $87.8 billion respectively.

Continued improvement in core local commercial profits: 24Q1 core local commercial revenue of 54.6 billion yuan (YoY +27.4%), operating profit of 9.7 billion yuan (YoY +2.7%), operating profit ratio 17.8%. 24Q1 instant delivery transaction number 5,465 million orders (YoY +28.1%), with an average of 60 million orders per day. Among them, Meituan Takeaway has driven a rapid increase in orders through Magic Master activities and member supplements; Meituan Flash has maintained a rapid growth trend, mainly due to the sharp increase in the number of transaction users and the rapid increase in transaction frequency. By the end of the first quarter, 7,000 Lightning Stores had been exclusively provided for customers, which is a step increase compared to more than 5,000 at the end of last year. The transaction amount of in-store, hotel and tourism businesses increased by more than 60% year on year, and the number of annual transaction users increased by more than 57% year on year. The company is focusing on holiday demand and continuously launching cost-effective products to enhance the user experience.

New business losses continued to narrow, focusing on high-quality development: 24Q1 new business revenue of 18.7 billion yuan (YoY +18.5%), operating losses narrowed year-on-year to 2.8 billion yuan, and the operating loss rate narrowed to 14.8%. The company will continue to provide merchants with more diversified marketing tools and online solutions to provide consumers with more cost-effective products and services. After implementing organizational structure adjustments in the first quarter, the company will iterate the operational growth model to promote collaborative influence between various businesses and promote close cooperation among all participants in the ecosystem. Operating losses narrowed sharply year-on-year in the first quarter of 2024. Management believes this trend will continue, and losses are expected to be around 90-10 billion dollars throughout the year.

Raise the target price to HK$135, purchase rating: We believe that Meituan's dominant takeaway business will maintain 70% of the market share, is the absolute leader, and can increase the average UE profit through continuous refinement operations, reduced subsidies, capacity structure adjustments, and increased commission rates. The local lifestyle business is expected to maintain its leading position in the local lifestyle industry based on Meituan's ecological advantages and benefits. Combining the above views, we believe that Meituan's future profit contributions will be further released, and the ROI of the new business will gradually increase. Combined with the current general valuation of Hong Kong stock Internet companies in the 10-15 times range, they are paid 23 times and 15 times the PE valuation of Meituan's take-out and on-site wine tourism businesses over 24 years to arrive at a target price of HK$135 to maintain the purchase rating.

Risk warning: Competition in local life intensifies, takeout profits and new businesses fall short of expectations, etc.