Performance summary: Meituan announced 24Q2 results. In 24Q2, Meituan achieved revenue of 82.3 billion yuan, +21.0% yoy, better than market expectations of 80.4 billion yuan. Adjusted net profit of 13.6 billion yuan, +77.6% yoy, significantly better than market expectations of 10.3 billion yuan, mainly due to increased core commercial OPM and accelerated loss reduction in new businesses.

Comment:

The integration of core local businesses is accelerated, and they are optimistic that the synergy effect will drive the improvement of GTV+'s operating efficiency.

1) Arrived at home: The number of Meituan instant delivery transactions reached 6.2 billion in 24Q2, +14.2% yoy. The growth rate was basically in line with market expectations of 15.3%. According to the National Bureau of Statistics, January-June service retail +7.5% yoy (January-June +10.0% yoy), 24Q2's zero catering revenue +5% yoy. Under the influence of macro consumption, Meituan's takeout business still showed resilience, and the number of users and purchases increased. “Cooking a Good Meal” performance was strong. The peak number of orders in a single day broke through a record high of 8 million orders. AOV is expected to decline slightly, showing Meituan's ability to meet users' cost-effective needs. At the same time, “preparing meals” effectively increases order density and further increases the supply abundance of riders. We expect takeout delivery costs to be further optimized, and along with the increase in advertising monetization rate and subsidy efficiency, the takeout UE is expected to be 1.8-1.9 yuan this quarter. Flash sales also achieved strong growth this quarter. AAU has grown steadily, and the frequency of orders is growing faster. Flash sales are expected to increase by 34.7% yoy. By deepening cooperation with leading brands in various categories, introducing brand stores, implementing support measures for merchants, expanding “Meituan Lightning Warehouse”, and self-operated procurement strategies such as “crooked horses delivering wine”, flash shopping continues to improve operations and marketing strategies to meet the diverse needs of consumers. Flash sales are expected to be slightly profitable this quarter, and there is plenty of room for improvement in order volume and efficiency.

2) In-store wine tourism: The on-site wine tourism business performed strongly in 24Q2. The number of orders increased by more than 60% year-on-year, and the number of annual trading users and annual active merchants reached a record high. Meituan launched initiatives such as “Meituan Group Purchase” and “Special Price Group Purchase” to effectively meet users' demand for cost-effective products and deep discounts, and promote an increase in the number of trading users and order volume. The number of nights and transaction amounts among domestic hotels has increased steadily, meeting the diverse preferences and service needs of consumers through strategies such as “Stay+X” packages, strengthening supply capacity in the low-star sector, and mutual cooperation with members of the High Star Hotel Group. The core commercial operating profit for this quarter exceeded expectations. We think it comes more from on-site wine tourism, especially the improvement of on-site business opm. Currently, competition with Douyin has stabilized, and both sides have their own priorities. We expect the 24Q2 Opm for Meituan's on-site wine tourism business to be 34%.

Sector integration: Following the organizational restructuring at the beginning of the year, the integration of home and in-store businesses accelerated, integrated various aspects such as data and manpower, R&D and marketing internally, and accelerated collaboration across business sectors. We believe that “God Member” will play a key role in the collaborative integration of core local business sectors. 24Q2 Meituan expanded the “God Member” system to more categories of in-store wine tourism in pilot cities, and launched it nationwide in July. While deepening cooperation with a wider range of merchants, the needs of food and beverage takeaway consumers in other categories were explored to achieve more cross-selling opportunities. The upgraded God membership system has covered more than 2.5 million stores, including hotels and travel merchants, and brought merchants a significant increase in order volume and user size. The integration of the 24Q2 sector is not obvious on the performance side. We expect 24H2 to further observe the effects after organizational restructuring, and we are optimistic that sector synergy will further increase GTV and operating profit margins.

The new business achieved healthy growth and efficiency improvements, and the loss reduction exceeded expectations. New business 24Q2 revenue +28.7% yoy to 21.6 billion yuan, operating loss 1.3 billion yuan (market forecast 2.1 billion yuan), a significant improvement of 2.8 billion yuan compared to 24Q1 and 5.2 billion yuan compared to 23Q2, reflecting Meituan's ability to execute efficiently. The loss reduction is mainly due to Meituan Preferential improving product quality and strengthening supplier cooperation, improving operational efficiency, thereby increasing the average price of parts and the product price increase rate, and optimizing resource allocation. Little Elephant Supermarket has also made significant progress in terms of products, operations, and fulfillment, achieving leading growth and efficiency improvements. Other new businesses achieve healthy growth and improved efficiency, helping to strengthen the ecosystem and unlock more financial value in the future. Looking ahead to 24Q3 and 2024, we believe that Meituan's new business will continue to make efforts on the operational and marketing side, continuing the trend of losing money.

Profit forecast: We expect the company's revenue for 2024/2025/2026 to be 335.7/387/440.7 billion yuan, respectively, and adjusted net profit of 41.1/59.3/72.2 billion yuan. Referring to comparable companies in the industry, Meituan's core local commercial profit in 2024 was given 17x PE, corresponding to a target price of HK$150 per share. We maintain our overall judgment on the company and maintain a “recommended” rating.

Risk warning: the risk that consumption recovery falls short of expectations; the risk that the competitive pattern will deteriorate again due to Douyin's increased investment in local life; the risk that losses from new businesses fall short of expectations.