2Q24 Adjusted net profit was higher than market expectations

The company announced 2Q24 results: revenue increased 21% year-on-year to 82.25 billion yuan, exceeding market expectations by 2.3%; adjusted net profit of 13.61 billion yuan, exceeding market expectations by 31.5%, and adjusted net interest rate of 16.5%, mainly benefiting from core local commercial profits exceeding expectations and loss reduction in new businesses exceeding expectations.

Development trends

The 3Q24 takeout order volume and in-store wine travel GTV growth rate are expected to be steady. 2Q24 Meituan continued to optimize platform supply to meet current consumer trends. Core local commercial revenue increased 19% to 60.68 billion yuan, and the number of orders delivered immediately increased 14% year over year in the 2nd quarter to 6.2 billion orders. We estimate: 1) 2Q24 takeout orders increased 12%, takeout revenue also increased 15%, or mainly benefited from user subsidies such as God Member and the contribution of meal preparation. The peak daily order volume for prepared meals broke through 8 million in the 2nd quarter. We expect 3Q24 takeout orders and revenue to increase by 12% and 15% respectively; 2) 2Q24 flash sales are driven by the expansion of multiple categories and scenarios, and we expect 3Q orders to continue to grow at a rate of 35%; 3) The company announced that 2Q24 wine travel orders will also increase by more than 60% due to the peak consumption season, and the number of annual trading users will also increase by nearly 35%. We expect 3Q24 GTV to increase 30% on the basis that the base gradually normalized during the same period last year. Overall, we expect core local commercial revenue to increase 19% to 68.9 billion yuan in 3Q24.

The 2Q core local profit performance was impressive, and it is expected that the 3Q will continue to improve year over year. 2Q24 core local commercial operating profit also increased 37% to 15.2 billion yuan, exceeding our expectations by 20%, while OPM increased from 22% to 25.1% year over year. We estimate that 2Q24 takeout UE was affected by a combination of factors such as rider cost improvements, subsidy optimization, increased advertising revenue growth, and a month-on-month narrowing of AOV declines due to improved delivery efficiency. It is expected that 3Q24 takeout UE will continue the year-on-year upward trend but the increase will be less than 2Q. We expect the on-site wine tourism business to continue to improve month-on-month with 3Q24 OPM or internal resource integration, cost reduction and efficiency. We expect 3Q24 core local commercial operating profit of 13.7 billion yuan, corresponding OPM of 19.9%.

The reduction in losses in new businesses continued to exceed expectations. Revenue from the new 2Q business increased by 24% to 21.57 billion yuan, and operating losses all narrowed to 1.3 billion yuan compared to the same period last month, which was better than our expected loss of 2 billion yuan. It mainly benefited from Meituan Preferential's continuous loss reduction through adjustments such as improving the average price of parts, closing positions, and contraction subsidies. We expect 3Q24's revenue from the new business to increase by 24% to 23.2 billion yuan. The operating loss of the new business narrowed from 5.1 billion yuan in the same period last year to 1.86 billion yuan. The rate of loss reduction was slightly affected by the retail business's summer cold chain investment.

Profit forecasting and valuation

We raised our adjusted net profit forecasts for '24 and '25 by 7.2% and 3% respectively to $43.3 billion and $52.4 billion, mainly taking into account that the company's local core commercial profit exceeded expectations and continued loss reduction in new businesses. We maintained our outperforming industry rating and raised our SOTP-based target price by 12.3% to HK$146, corresponding to an adjusted price-earnings ratio of 18/16 times in 24/25 and an upward margin of 42%. The current share price was traded at 13/11 times the adjusted price-earnings ratio for 24/25.

risks

Increased competition; macroeconomic uncertainty; returns on investment in innovative businesses fall short of expectations.