Date of Report
Thursday, 03 October 2024

Broker Name
UOB Kay Hian

Benefiting from Easing Competition
Meituan is expected to benefit from reduced competition in its core segments, particularly in-store, hotel, and travel (ISHT) services. This easing of competitive pressure is projected to stabilize Meituan’s margins in these areas, allowing the company to focus on further strengthening its market position and boosting profitability.

Solid Revenue Growth Forecast
For 3Q24 and full-year 2024, Meituan’s revenue is forecast to grow at a solid rate of 22% year-on-year (yoy), driven primarily by its core local commerce business. Specifically, core local commerce revenue is expected to grow 21% yoy in 3Q24 and 22% yoy for the entire year. The company is also expected to achieve mid-high 30% yoy EBIT growth in this segment, further supporting its strong financial performance.

On-Demand Services Continue to Thrive
Meituan’s on-demand services, which include food delivery and Meituan Instashopping, are expected to maintain steady order volume growth of 14-15% yoy in 3Q24. Food delivery order volumes are projected to grow in the low teens, while revenue growth will outpace order volume by approximately 3 percentage points. The company is also forecasting breakeven for Meituan Instashopping in 2024, driven by strong merchant demand and marketing investments.

ISHT Segment and New Initiatives
The ISHT segment is projected to see gross transaction value (GTV) and revenue growth of 40% yoy in 3Q24, with mid-20% yoy growth expected for 2H24. Additionally, Meituan’s new initiatives are expected to grow revenue by 25% yoy in 3Q24, with adjusted EBIT losses narrowing significantly compared to the same period in 2023.

Valuation and Target Price
UOB Kay Hian maintains a “BUY” rating for Meituan, with a higher target price of HK$235.00. This valuation is based on an 18.3x 2025 forecast price-to-earnings (PE) ratio, reflecting Meituan’s strong earnings growth potential. The company’s core local commerce segment is valued at 19x 2025F PE, while the new initiatives segment is valued at 16x 2025F PE.

Catalysts for Share Price Growth
Key catalysts for Meituan’s share price growth include continued market share expansion in the food delivery segment and increased penetration in the fresh groceries segment. Additionally, synergies between its core businesses and new initiatives are expected to contribute to the company’s overall growth.

Timeline for Growth
Investors can expect significant growth for Meituan throughout the second half of 2024, driven by ongoing market expansion and strong performance in its core local commerce and on-demand services segments. The company’s ability to maintain its growth trajectory will be crucial to sustaining its positive outlook.

Investment Outlook
Meituan’s strong revenue momentum, easing competition, and focus on profitability make it a compelling investment opportunity. With robust growth in both its core and new business segments, Meituan is well-positioned to deliver solid financial performance and continued shareholder value in the coming years.