Meituan, a major Chinese internet services company, dated August 29, 2024. Here’s a detailed summary with elaborations on the key points:
Company Performance Overview
- Q2 2024 Results: Meituan reported strong financial performance in Q2 2024, with revenue reaching RMB 82.2 billion, a 21.0% year-on-year (YoY) increase. This growth was driven by a 28.7% YoY increase in revenue from new initiatives, including Meituan’s online supermarket and B2B raw material supply business.
- Profitability: Non-GAAP net profit surged by 77.6% YoY to RMB 13.6 billion, exceeding expectations. This was largely due to gross profit margin (GPM) expansion and a significant reduction in operating losses from new initiatives. The company also benefited from improved operational efficiency in its Meituan Select business.
Business Segment Performance
- Core Local Business: The core local business, which includes food delivery, in-store, hotel, and travel services, saw an 18.5% YoY increase in revenue to RMB 60.7 billion. Operating profit from this segment grew by 36.8% YoY to RMB 15.2 billion, with an operating profit margin (OPM) of 25.1%. Despite a weak macroeconomic environment, the number of instant delivery orders increased by 14.2% YoY. However, the average order value (AOV) dropped by 3% YoY.
- New Initiatives: Revenue from new initiatives was RMB 21.6 billion, up 28.7% YoY. The operating loss in this segment was significantly reduced by 74.7% YoY to RMB 1.3 billion, mainly due to better product profile optimization and geographical coverage in Meituan Select.
Outlook for Q3 2024
- Expected Growth: For Q3 2024, Meituan is expected to continue its strong growth trajectory, with anticipated revenue growth of 20.5% YoY. The core local business is forecasted to grow by 19%, while new initiatives are expected to see a 25% increase in revenue. Non-GAAP operating profit is projected to grow by 82.6% YoY, driven by lower subsidy ratios and improved delivery costs.
- Share Buyback: In 2Q24, Meituan repurchased 2.1% of its outstanding shares and announced an additional US$1 billion share repurchase plan on August 28, 2024.
Investment Recommendation
- Rating and Target Price: The report reiterates an “Add” rating for Meituan with a revised target price of HK$178, up from the previous target of HK$159. This increase reflects the company’s better-than-expected margin expansion and narrower losses in new initiatives.
Key Risks
- Risks Identified: The report highlights key risks, including slower-than-expected on-demand revenue growth and increased competition in the in-store business, particularly from Douyin.
Financial Projections
- Revenue and Profit Growth: Meituan’s revenue is projected to grow from RMB 276.7 billion in FY23 to RMB 334.8 billion in FY24, and further to RMB 461.7 billion by FY26. Non-GAAP EPS is expected to increase by 15.6% in FY24, with a continued upward trajectory in the following years.
Conclusion
The report presents a positive outlook for Meituan, driven by its strong operational performance, strategic share buybacks, and continued growth in both core and new business segments. The company’s ability to optimize costs and expand margins is expected to support its stock price appreciation.
