To The Moon

$Meituan(03690)$ 

Meituan delivered a fantastic 3Q22 report card to shareholders last week. Thanks to the strong demand for meal deliveries amid Covid controls and strong execution, Meituan’s 3Q22 revenue increased by 28% to RMB 62.6bn, while adjusted net profit was Rmb3.6bn, beating market consensus of RMB 760m by quite a wide margin!

Food delivery setting off the flywheel engine!

Core local commerce revenue grew 25% YoY to RMB 46.3bn, benefiting from a strong demand rebound in July and August, though demand has fallen sharply since September when Covid controls tightened again. In particular, Food delivery daily order volume grew 14% yoy to 49.7m in 3Q22 and revenue growth was much higher given higher Average Order Value (“AOV”) and lower subsidies.

Meituan allocated more resources to higher frequency users, and also onboarded more restaurants in the breakfast, afternoon tea and late-night snacks categories. With more diverse demand served across different scenarios, using optimised marketing tactics, refined operation and diversified campaigns, Meituan’s food delivery achieved much healthier unit economics, with operating profit increasing 124.6% yoy to RMB 9.3 bn. Premium restaurants contributed a higher portion of orders.

Meituan Instashopping also maintained high growth momentum, with daily order volume up 46% yoy to 4.95m in 3Q22. The peak daily order volume even reached a new high of 9.7m on Chinese Valentine’s Day in August! Meituan Instashopping is still in the high growth stage and expected to continue growing

Hotel and in-store GTV rebounded in July and August due to relaxed Covid policies. However, GTV growth slowed significantly in September when Covid lockdown measures tightened again. Hotel room nights were flat yoy in 3Q22 and recorded a decline in September yoy.

Strong growth momentum for New Initiatives!

New initiatives revenue increased 40% YoY to Rmb16.3bn in 3Q22, driven mainly by the strong growth of goods retail business such as Meituan Select. EBIT losses were flat qoq at RMB 6.8 bn.

Meituan Select continued to focus on high quality growth and upgraded its brand positioning to ‘Next-day Supermarket. Losses increased slightly qoq to Rmb5.7bn in 3Q22 (vs Rmb5.4bn in 2Q22), primarily due to recovered business scale especially in July-August and cold chain investment during the summer, but Unit Economics continued to improve sequentially.

Meituan Grocery continued to record strong order growth, and its GTV increased over 80% yoy in 3Q22. It expanded products to broader categories and selections, while increasing the supply of local and seasonal products. AOV decreased qoq due to less stock-up demand from consumers as the Covid situation eased, but losses from Meituan Grocery narrowed given improved operating efficiency.

Unshakable leadership position

This is the second quarter Meituan achieved positive adjusted earnings! In the short-term, Meituan believes the Covid situation is unlikely to improve in December and could be marginally worse than in recent weeks. However, business should likely rebound once controls ease given strong pent-up demand in the service industry and low online penetration. Competition is rational and entry barriers are high for local services, hence Meituan’s leading position in China is likely unshakable. With Meituan’s strong economic moat in China’s local service market, it will be a key beneficiary from China’s reopening.

@Daily_Discussion @TigerStars