Incident: Meituan announced 2024Q1 results. 2024Q1, the company achieved operating income of 73.28 billion yuan (yoy +25.0%), net profit of 5.37 billion yuan, profit of 3.36 billion yuan for the same period last year, adjusted net profit of 7.49 billion yuan, and profit of 5.49 billion yuan for the same period last year.

Comment:

Core local businesses grew strongly, and losses from new businesses narrowed markedly. 2024Q1, the company achieved revenue of 73.28 billion yuan, an increase of 25.0% over the previous year, of which:

Core local commercial revenue was $54.63 billion, up 27.4% year over year. According to the monetization model split, delivery services amounted to $21.07 billion, up 24.6% year on year; commissions of $20.3 billion, up 26.7% year on year; online marketing services of 10.31 billion yuan, up 33.1% year on year; and other services and sales of $3.22 billion, up 33.1% year on year. The core local business achieved significant growth, mainly due to: (1) the launch of branded satellite stores, the expansion of the scope of food preparation business, and the improvement of popular marketing strategies, which led to a significant increase in the number of annual food and beverage takeout users; (2) the penetration rate of Meituan flash shopping among food and beverage takeout users accelerated, driving an increase in user experience and purchase frequency; (3) the number of merchants participating in the in-store business increased rapidly, and the number of domestic hotel nights and transaction amounts increased strongly year-on-year.

Revenue from new business was $18.65 billion, up 18.5% year over year. According to the monetization model, commissions were $620 million, up 45.7% year on year; online marketing services were 80 million yuan; other services and sales were 17.94 billion yuan, up 17.5% year on year. In the first quarter, by improving warehouse operations, the company reduced the average fulfillment cost and improved the product price increase rate and marketing efficiency, which drastically narrowed operating losses both month-on-month and year-over-year.

2024Q1, the company's operating profit was 5.21 billion yuan (profit of 3.59 billion yuan for the same period last year), and the operating profit margin was 7.1%. Among them, core local commercial operating profit was 9.70 billion yuan, an operating profit margin of 17.8%, a year-on-year decrease of 4.3 percentage points; new business operating profit - 2.76 billion yuan (loss of 5.03 billion yuan in the same period last year), and an operating loss rate of 14.8% (loss rate of 32.0% for the same period last year).

The improvement in overall operating profit margins is mainly due to an increase in transaction amount due to an increase in the number of transactions, as well as an improvement in the operational efficiency of commercial retail business.

We believe that with 2024Q2-Q4, as the company continues to go deep into the industry value chain and explore innovative business models, the food and beverage takeout business is expected to better meet consumers' demand for cost performance, flash sales and in-store wine tourism businesses are expected to seize more growth opportunities in the low-tier market; the operating efficiency of the new business is expected to be further improved.

There was a slight increase in gross margin and a steady increase in rates. 2024Q1, the company's main operating cost was 47.58 billion yuan, with a gross profit margin of 35.1%, an increase of 1.3 percentage points over the previous year. The increase in gross margin was mainly due to an improvement in gross margin in the retail business; sales expenses of 13.89 billion yuan, a sales expense ratio of 19.0%, an increase of 1.2 percentage points; R&D expenses of 5.0 billion yuan, a decrease of 1.8 percentage points over the previous year; management expenses of 2.3 billion yuan, a year-on-year decrease of 0.3 percentage points. Management expenses were relatively stable year-on-year, and the decline in R&D expenses was due to improvements in operating leverage during the reporting period. The increase in the sales expense ratio is mainly due to changes in business development, business environment and strategy, leading to an increase in transaction user incentives, promotion and employee remuneration expenses.

The number of instant delivery transactions grew at an accelerated pace, and cooperation with business partners was further deepened. 2024Q1, the number of instant delivery transactions by the company was 5.465 billion, an increase of 28.1% over the previous year. As can be seen, (1) in the first quarter, the order scheduling system and operation were greatly improved, and the peak number of orders on packed meals reached a new high; (2) the growth of advertising merchants in the instant delivery business was strong, indicating that the company's marketing solutions can better help merchants obtain customers efficiently. On the other hand, Meituan flash sales continued to maintain a high growth momentum.

2024Q1, the company is vigorously expanding the new supply model. There are already about 7,000 “Meituan Lightning Warehouses”, and its share of orders has further increased. We believe that thanks to the experience the company has accumulated in past business iterations, the company's cooperation with all participants in the ecosystem has been further deepened, helping the company explore more growth opportunities.

Profit forecast and rating: The company has broad room for growth in the domestic local lifestyle market. We expect the company's net profit to be 26.58 billion yuan, 38.54 billion yuan, and 49.23 billion yuan respectively. Corresponding to the current share price PE is 25X, 17X, and 13X, respectively, maintaining a “highly recommended” rating.

Risk warning: (1) the consumption demand of the food and beverage takeout business falls short of expectations; (2) the improvement in the operating efficiency of the new business falls short of expectations.