As Meituan adjusts product supply to meet changes in demand, the growth rate of 2H24 timely delivery orders should remain at the same level as 2Q24.
It is expected that the operating profit of on-site wine tourism will grow at an accelerated pace, and Meituan Preferred's loss will narrow further.
Reiterating the “Buy” rating, the SOTP target price was raised to HK$193.00.
The English version of this Hong Kong Stock Connect report was released by Huaxing Securities (Hong Kong) at 9:50 a.m. on August 30, 2024.
The Chinese version was reviewed by Zhao Bing (Securities Analyst Registration Number: S1680519040001) of Huaxing Securities. If you would like to further discuss the views expressed in this report, please contact your sales representative at Huaxing Securities.
Timely delivery sector: covering food and beverage takeout and flash sales. The 2Q24 sector's order volume increased 14.2% year over year, and according to management, the growth rate of flash order volume was nearly 3 times that of food and beverage takeout. We estimate that the total revenue growth rate of timely delivery 2Q24 was about 17% year-on-year, mainly due to: 1) the increase in advertising revenue contributions, with food and beverage takeout and flash sales accounting for about 2% of GTV (total transaction amount); and 2) the reduction in subsidies, which are included in revenue credits. According to our estimates, the total profit from timely delivery is also at a healthy level, supported by reduced subsidies, reduced sales and marketing expenses, and economies of scale. Flash sales were once again profitable this quarter. Looking ahead to 3Q24, we expect that the growth rate of orders in the timely delivery sector will remain at a similar level in 2Q24, and that the AOV (average customer unit price) deflationary pressure may ease as the high base period exits. In our view, this means that revenue growth in the third quarter will exceed the growth rate of order volume, and profit per order will continue to expand due to Meituan's strong operational strength and improved delivery efficiency. We expect the year-on-year growth rate of 3Q24 timely delivery revenue/order volume to be 17.5%/14.6%, respectively, and 18.7%/17.1% in 2024, respectively. We also forecast a 36.8%/36.2% year-on-year increase in timely delivery profit for 3Q24/2024.
In-store, hotel and travel business: Order volume in the 2Q24 sector increased 60% year over year. We estimate that operating profit margins increased from close to 30% in 4Q23 and 31% in 1Q24 to 34%, thanks to stabilizing competition in the industry. Meituan has added more light food, snack food, and alcohol when providing in-store wine travel products. We now forecast that in 3Q24/2024, the year-on-year growth rate of in-store wine tourism revenue will be 25%, and the operating profit margin will remain at 34%/32.6% during the same period.
New business: The loss in the 2Q24 sector narrowed to RMB 1.3 billion. Excluding Meituan Preferred, the sector's business turned losses into profits during the quarter due to certain seasonal advantages, while Meituan Preferred's losses also dropped sharply. We now expect the sector's operating loss for 3Q24/2024 to be RMB 1.8 billion/ $8 billion, taking into account the continued narrowing of Meituan Preferred's losses and some seasonal fluctuations in other businesses, such as Meituan Bike and Motorcycles.
The “Buy” rating was reaffirmed; the SOTP target price was raised to HK$193.00 (previously HK$180.00). Our new target price is based on 15 times the 2024 core local commercial profit (unchanged) and 0.8 times the 2024 P/GMV (unchanged) for the new business. We now forecast a 28% year-on-year increase in core local commercial operating profit in 2024 (up from 16% previously) due to improved profit prospects for food and beverage takeout, flash sales, and in-store wine tours. Risk warning: Competition intensifies, macroeconomic weakness continues, regulations are being tightened, and losses in new businesses are narrowing and slowing down.