3Q24 outlook: Good policies boost confidence, recovery in consumption helps release favorable policies, boosts market confidence, and is also expected to guide a gradual recovery in consumption. Meituan, as a leader in local lifestyle services, may show stronger growth flexibility; improving in-store competition in the short term combined with improvements in the company's own operating efficiency helps release flexible performance. We expect the company's 3Q24 revenue to be 92.1 billion yuan, yoy +21%, non-IFRS net profit of 11.2 billion yuan, yoy +96%; the company's 24-26 revenue is 327.3/382.2/442.1 billion yuan, and non-IFRS net profit is 40.2/58.8/75.2 billion yuan, corresponding to the closing price on October 10, the 24-26 PE is 26.4/18.1/14.1x, respectively. Exchange rate assumptions (people (USD to HKD) to 1.09, with a target price of HK$235.6 (previous value: HK$169.0) based on the SOTP model, maintaining a “buy” rating.

Home delivery business: The supply side is still deepening. Operating leverage releases profit flexibility 3Q24 Meituan Takeout continues to deepen on the supply side. According to the late LatePost, the meal preparation business had accumulated 0.12 billion users as of August '24, which is close to 1/4 of Meituan's total users; the new models “satellite stores” and “collective stores” help merchants reduce costs and increase efficiency. Meituan uses deepening the supply chain and meeting “cost performance” needs as a starting point to increase the penetration of declining users and the frequency of consumption per capita. We expect Meituan's 3Q24 instant delivery order volume to reach 7.1 billion orders, yoy +15%, with takeout orders of 6.1 billion, yoy +12%. On the profit side, the company has room for optimization in multiple dimensions such as refined subsidies, improved advertising monetization, and enhanced operational efficiency, which can continue to use operating leverage to release profit flexibility. It is estimated that 3Q24 takeout UE will reach 1.32 yuan (1.1 yuan for 3Q23). The flash purchase business is still in the investment stage of cultivating user mentality. It is estimated that 3Q24 flash order volume yoy +32%, revenue yoy +35%, and UE will lose little.

In-store business: Consumption is gradually being normalized, and the synergy effect brings about an inflection point of competition. We expect the company's in-store business 3Q24GTV to increase by 30% year-on-year, mainly driven by an increase in the online rate and category expansion. At the same time, under the strategy of GTV as an assessment after write-off, the gap between GTV and revenue will also narrow. We expect 3Q24 in-store revenue yoy +23%. Looking back, consumption returned to normalization. During the 11th National Day, according to the Ministry of Culture and Tourism, the average number of visitors to the National Day was 110% in 2019, while Meituan Life Service spent +41.2%, and the average daily spending of visitors YOY +69.6%. Consumption gradually picked up or laid the foundation for long-term GTV growth in stores. The linkage between the company's home and in-store business enhanced the synergy. OPM rebounded for 2 consecutive quarters. We believe that competition may have reached an inflection point. The company's own subsidy efficiency improvements and category optimization have also boosted OP to continue to be on an upward trajectory. It is estimated that the 3Q24 in-store OPM will be 36%.

New business: Preferably continue to implement efficiency improvement and loss reduction

The revenue of the new 3Q24 business is expected to be +26%, and the preferred business continues to improve efficiency and reduce losses. Among them, the company's self-operated Xiaoxiang supermarket continues to expand, focusing on high-quality growth, and losses narrow month-on-month. The overall OP loss of the new 3Q24 business is expected to narrow to 1.8 billion yuan.

Risk warning: Competition in the local lifestyle market has intensified, the market growth falls short of expectations, and the company's profit falls short of expectations.