Non-IFRS earnings up 77.6% YoY to RMB13.6bn, beat consensus/our estimate, thanks to improved food delivery efficiency and significant cut on new initiatives losses. Despite the macro headwinds, the Company continues to gain operational efficiency from cross-selling and abundant rider supply. Reiterate BUY, target price lowered to HK$136.3.
Key Factors for Rating
2Q24 revenue beat consensus by 2.3% YoY to RMB82.3bn thanks to robust on- demand delivery transactions growth supported by higher user frequency, on the back of abundant courier supply as well as management's effort to cross selling from different businesses segment.
Non-IFRS net profit up 77.6% YoY to RMB13.6bn, beat consensus/our estimate, thanks to improved food delivery efficiency and significant cut on new initiatives losses. Sales and marketing expense ratio decreased by 3ppts YoY and 1ppt QoQ attributable to enhanced marketing efficiency in key holidays, while R&D expense ratio also dropped 1.5ppts YoY and 0.3ppt QoQ, leading to a Non-IFRS OPM expansion by 8.2ppts YoY and 7.4ppts QoQ.
Core local commerce revenues increased by 18.5% YoY to RMB60.7bn in 2Q24 on the back of weak domestic economy, while the Company actively manages its business by expanding merchants supply and launching marketing campaigns to meet diversified demand.
New initiatives and other revenue in 2Q24 increased by 28.7% YoY to RMB21.6bn, driven by Meituan Select, "Xiao Xiang Supermarket" and "Kuai Lv". Operating loss narrowed 75% YoY to RMB1.3bn, thanks to improved operating efficiency, raising mark-ups, and closure of underperforming warehouses.
Earnings change: We revised down our 2024/25/26E revenues by 0.9%/4.8%/7.6% to factor in lower ticket size in food delivery business on the back of weak domestic economy, while adjusting up net profit for 2024/25/26E by 10.6%/4.2%/4.6% reflecting companies' initiatives on improved marketing efficiencies and operating leverage and loss reduction for new initiatives.
Key Risks for Rating
Intensifying competition in food delivery and in-store market that might need incremental marketing expenditure with margin pressure; regulatory risk relating to social security expenses associated with new type of employment (riders); softer consumer spending due to macro weakness resulted in lower ticket value.
Valuation
We reiterate BUY and revised down our target price from HK$140.73/share to HK$136.3/share with updated FY24-26 earnings. For the DCF valuation, our WACC 11.73% as risk free rate unchanged at 5.0% as Beta increased to 1.443 while CNY to HKD exchange rate was raised to 1.09, while we factor in 2% share elimination after share repurchasing program by the end of 2Q24.