To The Moon

• Meituan's $MEITUAN-W(03690)$ stock rose 3.6% following its better-than-expected earnings release on June 6.

• Year-to-date, Meituan has returned 42.6%, making it one of the better-performing stocks listed on the HKEX.

1Q2024 Earnings Review:

• Total revenue grew 25.01% year-over-year (YoY), the highest in the last three quarters.

• Operating income increased by 45.28% YoY to 5.2 billion yuan, with an impressive quarter-over-quarter (QoQ) growth of 196.3%. The significant growth in operating income was driven by cost-cutting measures in the New Initiative segment.

Source: Bloomberg, Tiger Brokers

Source: Bloomberg, Tiger Brokers

1) Core Local Commerce:

• This segment constitutes 74.5% of total revenue.

• YoY growth stood at 27.38%, the highest in the past three quarters.

• However, operating income for this segment grew only 2.69% YoY, indicating intense competition in local commerce.

• Operating margin declined to 17.8% in the latest quarter from 22% in 1Q2023.

2) New Initiative:

• This segment accounts for 25.5% of total revenue.

• YoY revenue growth was 18.55%, the highest in the last four quarters.

• Operating loss reduced by 45% YoY from -6.3 billion yuan to -2.7 billion yuan.

• Operating margin also improved significantly to -14.8% in the latest quarter from -32% in 1Q2023, marking the strongest quarterly margin since 1Q2021.

• New Initiative may achieve profitability sooner than previously anticipated.

Technical Analysis:

• Meituan's stock recently tested the 127.2% Fibonacci extension level at HKD107.91.

• However, it appears to be a buy setup in retrospect rather than a technical breakdown.

• I reckon Meituan's stock may have found its interim low around HKD107.91 and is poised to continue its uptrend.

• 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.

Conclusion:

• Operating income growth from Core Local Commerce may slow due to fierce local competition. However, New Initiative is likely to continue delivering better-than-expected growth and achieve profitability sooner.

• Rumors suggest Meituan is preparing to launch its KeeTa app in the Middle East, starting with Riyadh. Overseas expansion is crucial for sustaining revenue growth as a growth stock.

• Meituan remains one of my favorite Chinese stocks, and investors are eagerly anticipating its overdue overseas expansion story, which could prompt analysts to reevaluate the stock.

• You may find my previous articles on Meituan here, and here.