To The Moon

• Meituan's $MEITUAN-W(03690)$ stock has risen 45.5% since I last covered it on January 18, 2024.

• I believe it's a good time to revisit Meituan, particularly given its Friday closing price of HKD102.10, which is approaching the resistance level I mentioned at HKD107.91in my previous article.

4Q2023 Earnings Review:

• Revenue surged 22% year-over-year to RMB 73 billion in the latest quarter, while operating income reached RMB 1.7 billion compared to a loss of RMB 731 million in the corresponding period last year. Both revenue and operating income surpassed street expectations.

• However, the operating margin dropped to just 2.39% in 4Q2024. Operating margin was substantially higher in previous quarters at 6.12% (1Q2023), 6.93% (2Q2023), and 4.39% (3Q2023).

• The Core Local Commerce continues to bolster Meituan's valuations, as evidenced by:

1. The number of On-demand Delivery transactions increased by 25% year-over-year to 6 billion. Previous transaction volumes over the last three quarters were 4.2 billion (1Q2023), 5.4 billion (2Q2023), and 6.1 billion (3Q2023).

2. The Core Local Commerce revenue increased by 26.8% year-over-year in 4Q2024.

• The supposedly high-growth driver, Meituan's New Initiatives, continued to disappoint:

1. The year-over-year growth in 4Q2024 was only 11.5%.

2. Despite New Initiatives accounting for 25% of total revenue, it incurred an operating loss of RMB 4.8 billion, in contrast to an operating profit of RMB 8 billion seen in Core Local Commerce.

3. Simply put, more than half of the operating profit from Core Local Commerce was used to offset the losses in New Initiatives.

4. However, the operating loss was narrowing to RMB 4.8 billion compared to an RMB 6.3 billion loss in the same quarter a year earlier.

5. It is uncertain when New Initiatives will turn profitable.

Technical Analysis:

• We still consider HKD 107.91 as an immediate resistance, and the stock may take a breather once it reaches this level.

• The next significant resistance will be at HKD 183.20. However, the stock might encounter resistance at HKD 144, which corresponds to the twelfth Fibonacci number.

Source: Tiger PC App

Conclusion:

• Meituan’s greatest risk lies in investor sentiment, as we haven't observed a significant fundamental change in Meituan, whether the share price was trading at HKD61 or HKD102.

• Meituan stock serves as a proxy for the Chinese economy, given that its revenue primarily originates from China.

• Meituan was once an investment darling like PDD, but its earnings growth has trailed behind PDD due to its core China-based business strategy.

• Its most recent successful beyond mainland China venture to date is the KeeTa takeout delivery service launched in Hong Kong last year. KeeTa has since grown to become Hong Kong's No. 2 food delivery platform.

• Meituan investors may need to exercise patience, as Meituan often prefers to thoroughly prepare itself before venturing overseas.

• Considering TikTok's attempts to seize Meituan’s market share across various fronts, Meituan may still prioritize allocating its resources within China to combat intense local competition.

• It's important to note that Bytedance is not yet listed, and therefore its financial statements have not been made public. As a result, market participants may be overestimating its local life services’ growth and profitability.

• We maintain a constructive outlook on Meituan. Its current forward PE ratio stands at 18.36x, which still appears attractive considering its 5-year average forward PE ratio of 27.25x.