Earning Alert: 1Q22 results above market expectations, expecting slower 2Q22 revenue due to Covid impact
- 1Q22 revenue increased by 25% to Rmb46.3bn, above market expectations of 23%
- Adjusted net loss was Rmb3.6bn, narrower than consensus’ c.Rmb 4.5bn loss
- Factoring in prolonged Covid impact, we revised down FY22F and FY23F revenue by 11% and 13%
- Maintain BUY with a revised TP of HK$226
1Q22 results highlights
– Revenue increased by 25% y-o-y to Rmb46.2bn, above consensus.
– Segment-wise, food delivery revenue increased by 17% y-o-y to Rmb24.2bn, driven by a 16% increase in gross transaction volume; In-store, hotel and travel segment revenue increased by 16% to Rmb7.6bn; New initiatives revenue increased by 47% to Rmb14.5bn.
– Operating profit of food delivery jumped by 41% to Rmb1.6bn, with the margin expanding to 6.5%, from 1Q21’s 5.4%, mainly driven by higher order value and increased number of transactions.
– Operating loss of the new business segment (including Meituan Select) was c.Rmb9bn, slightly narrower than market expectations of c.Rmb9.4bn loss.
– Adjusted net loss was Rmb3.6bn, beating market expectations of c.Rmb4.5bn loss. The smaller net loss was mainly due to (1) higher operating margin of food delivery and (2) narrower loss from new businesses
– As of Mar 22, the number of transacting users increased by 22% y-o-y to 693m and annual average transaction frequency per user increased by 22%.
Outlook
– We are cautious on 2Q22’s outlook and expect slower y-o-y revenue growth due to Covid impact. For in-store, hotel and travel segment, the company guided a double-digit revenue decline in 2Q22, disrupted by the strict Covid control measures and travel restrictions.
– Despite short-term headwinds, we believe that Meituan’s business will gradually recover in 2H22, after relaxation of Covid measures. The growth is supported by robust user growth and expanding product offerings on the platform.
– For new initiative segment, the retail related business remains as the key focus area, including Meituan Select and Meituan Instashopping. We expect losses from new business to further narrow in 2022, given cost controls and slower investment expansion amid macro and Covid uncertainties. We remain confident that Meituan as a leading local service provider will be able to ride on growing demand for “everything home” and generate sustainable growth.
– Factoring the prolonged Covid impact on travel and consumption activities, we have lowered our FY22 and FY23 revenue by 11% and 13% respectively. We forecast Meituan to record adjusted net loss of Rmb7,042m for FY22 and adjusted net profit Rmb14,391m for FY23 (vs previous forecast of Rmb11,911m net loss for FY22 and Rmb10,883m net profit for FY23), to reflect tighter cost control and narrower loss from new business.
– We derived our TP of HK$226 based on a SOTP valuation: (1) Food delivery: 5x FY22F P/S (HK$106); (2) In-store, hotel and travel: 25x FY22F earnings (HK$58); (3) New initiatives and others: 5x FY22F P/S. (HK$63). Maintain BUY.