Overall: Both revenue and profit sides exceeded expectations. On the revenue side, 24Q1 revenue was 73.3 billion yuan (yoy +25.0%), and Bloomberg's agreed forecast was 69 billion yuan. Mainly, core local commercial revenue exceeded expectations. On the profit side, adjusted operating profit for 24Q1 was 6.9 billion yuan (Bloomberg's agreed forecast was 5.2 billion yuan), and the operating profit margin was 9.5% (7.5% for 23Q1 and 4.3% for 23Q4), both of which improved month-on-month, mainly due to a month-on-month increase in core local commercial profits and a further narrowing of new business losses. Adjusted net profit of 7.5 billion yuan (Bloomberg's agreed forecast was 5.8 billion yuan), and net profit margin was 10.2% (9.4% in 23Q1 and 5.9% in 23Q4).

Core local business: High revenue growth and month-on-month improvement in operating profit. 24Q1 revenue of 54.6 billion yuan (yoy +27.4%), Bloomberg's agreed forecast was 50.7 billion yuan; adjusted operating profit of 9.7 billion yuan, Bloomberg's agreed forecast was 8.4 billion yuan; operating profit margin was 17.8%, a year-on-year decline, and an increase from month to month. By specific business:

1) Takeout: Order volume growth is impressive. On the operating side, the 24Q1 takeout and flash sales business total 5.465 billion orders (yoy +28.1%). We estimate that takeout orders also increased by 24%. On the demand side, the number of annual transaction users and transaction frequency in the food and beverage takeout business have increased significantly. On the supply side, the platform responded positively to meet users' cost performance needs and launched a “branded satellite store” to provide high-quality and cost-effective food and beverage takeout services; the peak daily order volume for “packed meals” reached a new high in the first quarter. On the revenue side, considering the high structural base of AOV, 24Q1AOV declined year-on-year, while improved advertising monetization efficiency and subsidy optimization offset the negative impact of the AOV decline on revenue to a certain extent. On the profit side, combined with the effects of the AOV changes mentioned above, the increase in advertising monetization rate, and subsidy optimization, we estimate that the average OP per unit has declined slightly, and excellent unit volume performance has driven OP growth. Looking ahead, we expect AOV to be uncertain under macroeconomic influence in '24, but the decline in AOV is expected to decrease in the second half of the year, the unit volume growth rate will maintain steady growth, and advertising monetization efficiency may continue to improve. In terms of profit, along with rider cost optimization and subsidy reduction, operating profit for the full year of 24 may be better than previously anticipated.

2) Flash sale: User mentality is strengthened, advertising monetization rate is increased. On the operational side, we estimate that 24Q1 flash purchase orders increased by nearly 60%. On the demand side, flash shopping users' purchasing frequency and number of trading users have increased dramatically. On the supply side, there were about 7,000 lightning warehouses at the end of the first quarter, and the penetration rate of low-tier cities continued to accelerate, and the categories continued to expand. On the revenue and profit side, considering the year-on-year decline in AOV and the active intention of merchants to advertise, we estimate that the revenue side growth rate may be slightly lower than the unit volume growth rate. The transaction volume for the first quarter was affected by some high-margin categories, and we estimate a small profit on the profit side. Looking ahead, we expect the number of flash sales orders to continue to grow rapidly in 24Q2. Supply and demand are expected to drive business growth in both directions through the continuous expansion of supply category coverage and a shift in consumer mentality to “convenience” on a daily basis.

3) In-store wine tours: Profit margins have been steadily restored. On the operating side, the in-store, hotel and travel business achieved strong growth in the first quarter, with a sharp year-on-year increase in the number of overnight stays and transaction amounts among hotels in China. Strategically, the product side continues to iterate to meet users' cost performance needs, the platform side further consolidates the share of low-tier cities, and high-tier cities continue to break through. On the revenue and profit side, we estimate that due to factors such as in-store competition, slowing market expansion, and the macro market environment, the revenue growth rate may still be significantly lower than the GTV growth rate. OPM still declined year-on-year, but OPM rebounded month-on-month as in-store competition slowed down. Looking ahead, we expect further synergy in the home and in-store businesses along with organizational restructuring, and OPM is expected to recover steadily in the second half of the year.

New business: Significant loss reduction and improved operational efficiency. 24Q1 new business revenue of 18.7 billion yuan (yoy +18.5%), operating losses narrowed to 2.8 billion yuan, and the loss rate improved to 14.8%. 1) Meituan Preferred: The business strategy has been optimized, and more attention is paid to operational improvement and high-quality growth. On the one hand, the product price increase rate has been increased, and on the other hand, the average cost of fulfillment has been reduced by improving warehouse operations and improving marketing efficiency, which has led to a sharp narrowing of operating losses month-on-month and year-over-year. 2) Other businesses: The first quarter progressed well. The vast majority of new businesses not only achieved leading positions in scale, but also improved operational efficiency.

We adjusted some of our business assumptions. We forecast the company's 24-26 earnings per share of 4.80/6.64/7.38 yuan (the original forecast was 3.99/6.44 yuan per share for 24-25 years), using a segmented valuation to give the takeaway business 3.3x PS, with an estimated revenue of 165.4 billion CNY in 24 years; the new business only takes into account community group purchase valuations and maintains 0.6x P/GMV. The company's reasonable valuation is 9587 billion CNY in 24 100 million HKD, target price 154.00 HKD, maintaining a “buy” rating.

Risks suggest policy control, increased market competition, consumption recovery falls short of expectations, and new business growth falls short of expectations