To The Moon

Q1 2024: Smashing Expectations

I believe Meituan-W continues to present an intriguing opportunity in the Chinese e-commerce sector. The company recently released its Q1 2024 results, and the numbers are nothing short of impressive. Meituan reported a robust revenue growth of 26.3% year-over-year, reaching a whopping RMB 75.4 billion. This exceeded market expectations, showing that $MEITUAN-W(03690)$ is adept at maintaining strong momentum even in a competitive landscape.

Meituan riders exemplify the company's expansive delivery network

Profitability on the Rise

What's particularly noteworthy is Meituan's improved profitability. The company's adjusted EBITDA for Q1 2024 increased by 39.7% year-over-year to RMB 7.2 billion, with an adjusted EBITDA margin of 9.5%, up from 8.6% in the same period last year. This improvement is a positive sign for investors, indicating the company's ability to scale efficiently.

Strategic Expansion: The Secret Sauce

One aspect that investors might overlook is Meituan's strategic expansion into new business areas. For instance, Meituan's foray into grocery delivery through the Meituan Mini Program disrupts traditional retail and positions them for a significant share of the future online grocery market. While these investments have pressured margins in the short term, they're positioning $MEITUAN-W(03690)$ for long-term growth in diverse markets.

Meituan's quarterly growth in revenue and profitability

From a stock performance perspective, Meituan-W was trading at HKD 118.20 as of July 2, 2024, showing a 6% increase since the Q1 results announcement. This suggests that the market has responded positively to the company's recent performance. Based on my analysis, Meituan-W has a target price of HKD 140, representing a potential upside of 18% over the next 12 months.

Competitive Edge in a Crowded Market

While Alibaba and ByteDance offer similar services, Meituan's established network of delivery riders and focus on in-store services create a competitive edge. Looking ahead, I believe $MEITUAN-W(03690)$ is well-positioned to benefit from the ongoing digitalisation of China's service industry. The company's diverse offerings provide multiple avenues for growth, and its strong market position in food delivery and in-store services gives it a solid foundation.

However, potential investors should be aware of the intensifying competition in China's tech sector. Geopolitical tensions and potential regulatory changes in the tech sector are additional factors for investors to consider. Companies like $Alibaba(09988)$ and ByteDance are increasingly encroaching on Meituan's territory, which could pressure margins in the future.

A Justifiable Valuation

In my assessment, Meituan's current valuation, coupled with its strong growth and improving profitability, makes it an attractive investment option. Meituan's forward P/E of 24.5 is slightly above the industry average of 22, but justified by its superior growth prospects. As always, thorough due diligence is crucial. Investors should closely monitor Meituan's upcoming Q2 2024 results, expected in August, for further confirmation of these positive trends.

Meituan's Forward P/E Ratio vs. Industry Peers

While past performance doesn't guarantee future results, Meituan's current financials and market position make it a compelling stock to consider in the Chinese e-commerce space.

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