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Meituan (3690 HK) Company Update Summary

Core Content Overview

This document is an equity research update from CMB International Securities on Meituan, a leading Chinese online platform. It provides a comprehensive analysis of Meituan's financial performance, strategic initiatives, and future outlook, with a focus on its 1Q21 results and expectations for 2Q21E and beyond. The report also includes financial summaries, key ratios, and valuation data, along with a target price and investment recommendation.

Main Points and Key Information

1Q21 Performance Highlights

• Revenue Growth: Meituan's revenue increased by 121% YoY in 1Q21, 4% above consensus.
• Net Loss: Adjusted net loss was RMB3.9bn, better than the consensus of RMB4.0bn.
• Segment Performance:
  • Food Delivery: Revenue up 117% YoY, operating margin +5.4%.
  • In-store, Hotel & Travel: Revenue up 113% YoY, operating margin +42%.
  • New Initiatives: Revenue up 137% YoY, EBIT loss at RMB8bn.
• User Growth: Meituan Select contributed half of the QoQ net adds of transacting users, with 59mn net adds in 1Q21.
• Insurance Costs: Management indicated that the cost of rider insurance is manageable, with the market overreacting to the issue. The cost is estimated at RMB0.05 per order, and insurance coverage may be shared among multiple parties.
• Order Growth: Management guided that food delivery orders in 2Q21E are expected to grow 53-57% YoY, with operating profit margin higher than 2Q20.

2Q21E Outlook

• Groceries Segment: Expected to see wider losses due to cold chain enhancement, intensified competition, and regulatory pressures.
• Meituan Select: Expected to book a RMB7.5bn-8.0bn loss in 2Q21E.
• Investment in New Initiatives: Expected to continue, especially in 2Q21E and 3Q21E, due to strategic focus and market conditions.

Investment Recommendation

• Rating: BUY (maintained).
• Target Price: HK$383.0, implying 8x FY22E P/S.
• Previous Target Price: HK$401.0.
• Upside/Downside: +44.5% from current price HK$265.

Financial Summary

Shareholding and Performance

Shareholding Structure

• Tencent: 19.7%
• Sequoia Capital: 6.7%
• Baillie Gifford: 4.8%

Share Performance (3-mo)

• Absolute Return: -17.8%
• Relative Return: -18.3%

Market Cap & Price Performance

• Market Cap (HK$ mn): 1,667,099
• 52-Week High/Low (HK$): 460.0 / 132.6
• 12-Month Price Performance: Chart provided (not included here)

Valuation and SOTP

• SOTP Valuation: HK$293.1bn
• Enterprise Value (EV): HK$285.0bn
• Valuation Methodology:
  • Food Delivery: EV/Sales 6.5x
  • In-Store & Travel: EV/EBIT 30x
  • Hotel: EV/EBIT 30x
  • New Initiatives: EV/Sales 8x
• Price Target (HK$): 383.0

Key Ratios

Strategic Outlook

• New Initiatives: Continued investment is expected, especially in 2Q21E and 3Q21E.
• Groceries Expansion: Intensified competition and regulatory changes are expected to widen losses in the groceries segment.
• Commission System: The new tiered commission rate system is anticipated to optimize order structure.
• User Growth: Meituan Select is a significant contributor to user growth, with half of the QoQ net adds.
• Market Reaction: The market may have overreacted to insurance costs, and the company is expected to manage them effectively.

Analyst Certification and Disclosures

• The research analyst certifies that the views expressed are their personal views and not influenced by compensation.
• No trading activity was conducted by the analyst or their associates within 30 days of the report's issue.
• The report is not an offer to buy or sell, and CMBIS is not liable for any losses from reliance on the report.
• Investment decisions should be made independently, and investors are encouraged to consult a financial advisor.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10%.
• SELL: Potential loss of over 10%.
• OUTPERFORM: Industry expected to outperform the market benchmark.
• MARKET-PERFORM: Industry expected to perform in line with the market.
• UNDERPERFORM: Industry expected to underperform the market.

Summary

Meituan delivered strong 1Q21 results, with 121% YoY revenue growth and adjusted net loss of RMB3.9bn, which was better than expected. The company's food delivery and in-store, hotel & travel segments showed solid performance, with operating margins improving. However, the groceries segment is expected to face increased losses in 2Q21E due to cold chain investments, intensified competition, and regulatory pressures.

The investment recommendation remains BUY, with a revised target price of HK$383.0, reflecting a sector de-rating. The SOTP valuation is HK$293.1bn, and the target price implies 8x FY22E P/S. The new tiered commission system is anticipated to help optimize order structure and improve profitability.

Overall, Meituan is expected to continue its strategic investments in new initiatives, while its core segments are on a positive growth trajectory.