Results for the 2nd quarter of 2024: Revenue of 82.3 billion yuan (RMB, same below), up 21% year over year, higher than our agreed expectations of 19%/18% growth with core business/new businesses increasing 19%/29%.

The adjusted net profit was 13.6 billion yuan, with a net interest rate of 16.5%, an increase of 5.3 percentage points over the same period last year. The adjusted operating profit margin of the core business was 25%, better than our expectations of 21%, up 3.3 percentage points from the previous year, due to the decline in distribution costs and user subsidies and changes in revenue structure; the loss rate of the new business was 1.3 billion yuan, a loss rate of 6.1%, which was significantly narrower than the 2 billion yuan loss we expected, mainly due to the improvement in preferential operating efficiency.

Performance highlights: 1) Takeout revenue grew faster than order volume. Thanks to increased advertising monetization and user subsidy optimization, AOV decreased slightly by about 3%. We estimate that UE increased month-on-month, and that delivery cost optimization was due to seasonal advantages and improved capacity structure. 2) Flash purchase orders increased by about 35% year-on-year, and UE increased slightly month-on-month. 3) The growth rate gap between GTV (+~ 35% year on year) and revenue (+15% year over year) has narrowed, the competitive pattern of core categories has improved, and the operating profit margin is about 33%, and the recovery is accelerated from month to month. 4) Preferably continue to narrow the loss to 2 billion yuan.

The company's various business growth remained steady in the second half of the year, meeting the diverse needs of users through diversified products. The company's revenue/adjusted operating profit growth in 2024 is expected to be better than the previous forecast of about 1.2%/8%. Among them, core commercial revenue is expected to increase by 20% in 2024, mainly driven by an increase in the advertising monetization rate of takeout/flash sales businesses, and the GMV growth rate of the in-store business remains 35%, driving in-store commissions and merchant advertising. Revenue from the new business is expected to increase by 23%, driven by businesses such as Little Elephant Supermarket/Fast Donkey and the increase in the price increase rate for selected SKUs. The adjusted operating profit for 2024 is expected to exceed 40 billion yuan (previously 37.4 billion yuan), of which core commercial profit reached 48.5 billion yuan, an increase of 25% over the previous year. Driven mainly by takeout monetization and subsidy optimization, UE further increased, and the new business loss is expected to be 8 billion yuan (originally 9 billion yuan).

Valuation: We raised our 2024/25 net profit by 7.5%/2%, and we expect a net profit growth rate of 70%/20% in 2024/2025. The business is steady, and we will continue to release profits. We adjusted the valuation method to correspond to a 20% increase in net profit in 2025, 0.8 times PEG, and raised the target price to HK$136 (previously HK$129) to maintain the purchase.