To The Moon

On May 25, Meituan released its Q1 2023 earnings report. According to the conclusion of the previous article, "Whether it can be a turning point for fundamentals remains to be seen in the Q1 2023 quarterly report." Today, we will analyze the Q1 2023 earnings report and detect the future trend by deconstructing the earnings report. $Meituan(03690)$ 

Analysis of earnings: Revenue increased by 26.7%, adjusted profit reversed year-over-year and increased 3.3 times year-over-year, net profit reversed year-over-year and year-over-year, Q1 performance exceeded expectations.

On May 25, Meituan released its Q1 2023 earnings, with revenue of 58.6 billion yuan and Q4 2022 revenue of 60.1 billion yuan, up 26.7% year-over-year and down 2.5% sequentially; adjusted net profit of 5.491 billion yuan, compared with a loss of 3.586 billion yuan in the same period last year, and adjusted net profit of 830 million yuan in Q4 2022, a year-over-year turnaround and a significant increase of 3.3 times sequentially. In Q1, net profit of RMB 3,358 million far exceeded market estimates of a loss of RMB 210.4 million, compared to a net loss of RMB 5,702 million in the same period last year and a net loss of RMB 1,080 million in Q4'22, a turnaround year-over-year and year-over-year.

Overall, Meituan's Q1 2023 earnings report exceeded expectations, and the fundamental inflection point in Meituan's performance appears to have been confirmed from the financial figures, especially as evidenced by the year-over-year turnaround in adjusted profit and the 3.3x jump in YoY profit, while operating profit was RMB 3.586 billion, almost equal to Q1's net profit, indicating that the results were achieved mainly by the main business This shows that the results were achieved mainly by the main business.

However, the gold content of this point of earnings report needs to be further deconstructed and analyzed in terms of revenue and profit.

(a) Revenue analysis: Not just a recovery, revenue grew on all fronts, with core local business up 25.5% and new business up 30.1%.

According to the revenue composition disclosed in the earnings report, we can analyze it from two dimensions: one is from the business perspective, that is, the four business areas of delivery, commission, online marketing and others; the other is from the business area perspective, which is divided into core local business and new business, among which the core local business is mainly: takeaway, group purchase, hotel, air ticket, travel and other businesses; while the new business is mainly: Meituan Preferred and Meituan Buy, restaurant supply chain (Quick Donkey), online car, shared bicycle, restaurant management system and other new businesses.

(1) From a business perspective. Delivery services contributed RMB16.9 billion in revenue, up 18.8% year-over-year, commission revenue was RMB16.2 billion, up 32.1% year-over-year, online marketing services revenue was RMB7.8 billion, up 10.9% year-over-year, and other services and sales generated revenue of RMB17.7 billion, up 39.1% year-over-year.

Looking at the year-over-year changes in the 4 major business segments, Meituan's revenue growth was across the board.

(2) From a business segment perspective. (a) Revenue from core local commerce was RMB 42.9 billion, up 25.5% year-over-year. However, costs grew by only 13.5%, and operating profit doubled directly. (b) In the second segment, new business revenue grew 30.1% year-over-year to $15.7 billion in the first quarter, while costs grew only 1.1% and operating loss narrowed 40.5% year-over-year to $5 billion.

So, in terms of revenue analysis, Meituan's performance in Q1 2023 has not just recovered, but has achieved all-around growth on the revenue side, cost reduction on the cost side, and very good growth momentum.

This is also evidenced by the operating data disclosed in the earnings report. In particular, instant delivery orders for core local commerce grew 14.9% year-over-year to 4.267 billion units, and orders for national multi-person dine-in packages for core local commerce grew 53% year-over-year in 2022. In Meituan's grocery shopping, transaction volume grew more than 50% year-over-year in the first quarter of 2023. Meituan Premium has maintained its industry leadership and continued to improve operational efficiency, reaching 450 million cumulative users by the end of March.

So, Meituan's recovery and growth is indeed all-encompassing, but is this sustainable? The key is to compare with the pre-non-epidemic period, and this part will be analyzed in the context of historical financial performance.

(2) Profit analysis: Costs and expenses achieved a year-on-year growth rate decrease and a ringgit decrease, with a clear trend of cost reduction and efficiency increase, and a trend of operating efficiency turning better.

By analyzing the consolidated income statement in the financial report (as shown in the chart below), we can find that the cost reduction is obvious and the operating efficiency is improved significantly. The details are as follows:

(1) In terms of cost and gross profit, Meituan achieved a gross profit of $19.817 billion in Q1 2023, an increase of 84.52% year-over-year and 17% sequentially, of which, cost of sales in Q1 23 was $38.8 billion, an increase of 9.29% year-over-year and a decrease of 10.2% sequentially. It can be seen that the growth rate of direct costs is lower than the growth rate of revenue, and the scale effect of the company begins to manifest.

(2) In terms of expenses, general administrative expenses were NT$1.994 billion, a decrease of 14% year-over-year and 18.61% sequentially, which shows that the cost reduction in general administrative expenses is continuous and reflects the company's habitual strategy of cost reduction and efficiency enhancement; sales and marketing expenses were NT$10.433 billion, an increase of 14.59% year-over-year and a decrease of 3.1% sequentially; R&D expenses were NT$5.047 billion, an increase of 3.44% year-over-year and a decrease of 3.1% sequentially. R&D expenses were RMB5,047 million, an increase of 3.44% year-over-year and a decrease of 3.72% sequentially. It can be seen that the company's cost and expense control is very satisfactory, the year-on-year growth rate is controlled, and the chain growth rate is down significantly, and the operating leverage efficiency is further improved.

(3) From the perspective of operating profit, due to the growth of revenue and reduction of cost, the company achieved an operating profit of RMB 3.586 billion in Q1 23, turning a loss to a profit both year-on-year and year-on-year.

(4) In terms of net profit, finance income achieved year-over-year and sequential growth, reflecting the efficiency improvement of the Company's cash management. The low growth of finance cost year-on-year and the decrease of ringgit shows that the effectiveness of finance cost management of the company has started to become better; and with the capital market stabilizing, the investment profit and loss has expanded year-on-year, but the ringgit has become better, so it brings the further improvement of the net profit of the company, and the net profit of the company in Q1 was 3.358 billion yuan, a substantial loss to profit year-on-year and ringgit.

In summary, the company's cost and expense control is excellent, most of the cost and expense items are slightly increased year-on-year, and the chain of decline, thickening the profit, and the trend of further improvement, reflecting the strong profitability of Meituan after the improvement of operating efficiency.

(iii) Historical financial performance analysis: revenue growth entered the 20%+ range, net profit loss turned to profit, and Meituan is about to enter a large-scale harvest period.

After consulting wind to obtain historical financial data, the current revenue growth rate of tomorrow has begun to fall into the 20% + growth space. Considering the gradual topping out of the Internet dividend, the growth rate of local life will tend to grow at a medium rate in the future, with growth drivers including: further enrichment of local life scenarios, further activity in transaction volume, and further consolidation of new business, therefore, 20%+ revenue is normal, and for the current Internet industry, 20% growth rate is obviously higher than the overall industry growth rate.

From the performance of net profit in previous years, the loss of Meituan is mainly due to large-scale expansion, as Meituan's business stabilizes, Meituan will focus more on operating processes and management optimization, through the optimization of operational efficiency, increase revenue growth, in addition to listen to the control of costs and expenses, reduce costs and expenses, relying on the characteristics of the marginal cost of the Internet tends to 0, Meituan's net profit will enter the Harvest period.

(iv) Fundamental value analysis: Meituan's fundamental inflection point is confirmed

According to the above analysis of Q1 2023, Meituan's revenue increased by 26.7% year-on-year and decreased by 2.5% YoY; however, its gross profit increased by 84.52% YoY and 17% YoY, and its major expenses increased slightly YoY and decreased YoY, and some expenses decreased both YoY and YoY, which led to a significant loss to profit in net profit. Therefore, there is a reason to believe that Meituan's earnings are based on revenue growth and cost optimization, which is a real growth beyond expectation and trend change for the better, so Meituan's fundamental inflection point has been confirmed.

Look for further growth in Meituan's performance in the future, and the market's perception of Meituan will change substantially!

Third, the trend analysis: technical support, bullish fundamentals, bullish valuation.

From the technical side of the trend, there is currently an obvious support level at the price of 125, the previous period is constituted 3 heavy bottom, May 25 continued to probe the bottom, but the afternoon back to the top of 125, so the support level of support is obvious. At present, after a significant decline in the front, and nearly 1 year of oscillation, the technical side has the basis for the rise, down there is resistance, but the pressure above for there is reason to believe that almost consumed, and MACD shows multiple bottom divergence, therefore, the technical side is bullish.

Fundamentals have been analyzed above, the performance of all-round recovery growth, fundamental inflection point confirmation, the fundamentals of bullish.

From the valuation side, the current market value of the company 7865 billion Hong Kong dollars, 23 years Q1 net profit of 3.358 billion yuan, 23 years Q1 adjusted net profit of 5.491 billion yuan, Q1 gross profit of 198 billion, assuming that net profit can be optimized to 50% of gross profit, given 30 times PE, the estimated market value can reach 1.2 trillion, the valuation side is bullish. And relative valuation according to PSband, the current Meituan in the lowest level of historical valuation, valuation side bullish.

IV. Key Conclusions

(1) Meituan's revenue has achieved all-round recovery growth at business level and domain level, which is a solid growth under the stable business scope, and it is not a big problem to maintain 20%+ growth rate in the next 3 years.

(2) Meituan's net profit has turned from a substantial loss to a profit, mainly due to revenue growth, and along with a slight increase in costs and expenses year-on-year and a decline in the chain, operating efficiency has further improved, and is expected to further improve in Q2.

(3) Meituan has achieved an all-round recovery and growth in fundamentals, confirming the inflection point of fundamentals.

(4) Meituan is bullish on technical, fundamental and valuation fronts, with an estimated reasonable market capitalization of $1.2 trillion and an upside of roughly 50%+ at present.

This article is an exchange of insights, not investment advice, please be careful decision-making.

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