Resilient during the Omicron lockdown
? Meituan reported that 1Q22 revenue grew by 25% yoy to Rmb46.3bn, slightly better
than we expected, due to resilient food delivery revenue growth.
? The non-GAAP net loss was Rmb3.6bn, narrowing by 7.8% yoy, in line with our
expectation.
? Management guided flattish adjusted EBITDA yoy in FY22F.
? Management said that food delivery order volume was expected to remain flattish yoy
in 2Q22F and that revenue was expected to grow by 9–10% yoy.
? Reiterate Add with a new DCF-based TP of HK$220, as we expect its investment in its
retail business and other new initiatives to drive long-term growth.
Resilient 1Q22 results
Food delivery revenue grew by 17.4% yoy to Rmb24.2bn in 1Q22, driven by an increase
in both order volume (15.8% yoy) and average order value (AOV). The food delivery
operating profit margin (OPM) reached 6.5% in 1Q22, up from 5.4% in 1Q21, driven by
the increasing AOV and lower subsidy levels. Hotel and in-store business revenue grew
by 15.8% yoy to Rmb7.6bn in 1Q22, driven by 30% yoy gross transaction value (GTV)
growth. Its OPM improved to 45.6% in 1Q22, from 41.7% in 1Q21. Hotel room nights
dropped by single digits yoy in 1Q22, mainly due to the Omicron outbreak since Mar.
High-star hotels accounted for 17.4% of total room nights, hitting a historical high. New
initiatives revenue grew by 47% yoy to Rmb14.5bn in 1Q22, driven mainly by retail goods
business expansion. The loss ratio of new initiatives also narrowed to 62.3% in 1Q22,
from 81.6% in 1Q21. The number of annual active users grew by 21.7% yoy to 693m,
and the number of active merchants grew by 26.6% yoy to 9m in 1Q22, indicating
Meituan’s improving user base and user stickiness.
Continued margin improvement for the food-delivery segment
During the Omicron outbreak, Meituan launched community group meals to aggregate
demand and delivery capacity under delivery restrictions. It also deployed autonomous
delivery vehicles to deliver food, groceries and other orders in residential areas, hospitals
and universities under the lockdowns in Shanghai and Beijing. We believe the Omicron
outbreak has enabled Meituan to improve the efficiency of its delivery system. In 1Q22,
1P orders continued to be profitable, but there was still an over Rmb1.5 gap between
delivery revenue and costs, indicating room for 1P margin growth. In Apr, because of the
stricter pandemic control measures in multiple cities, order volume growth was slightly
negative. But the volume drop recovered in May, and in the last two weeks of May,
volume growth returned to positive territory. We expect the 2Q22F subsidy level to be
lower yoy as fewer orders are placed, especially in the top-tier cities, where the subsidy
rate is usually high. We expect 2Q22F AOV to be high since the restaurants that remain
open under lockdown usually have higher ASPs. Management expects food delivery
order volume to be flattish yoy in 2Q22F, revenue to grow by 9–10% yoy because of
fewer subsidies and higher AOV, and the food delivery OPM to improve yoy in 2Q22F.
Reiterate Add with a new DCF-based TP of HK$220
We cut our EPS forecasts for FY22–24F by 24.0%, 20.9% and 8.6%, respectively, to
factor in the possible continued pandemic impact. We reiterate Add with a new DCFbased TP of HK$220 (WACC: 10.2%, beta: 1.0x, RFR: 3.0%). But in the longer term, we
are confident about Meituan’s development, as we expect its investment in its retail
business and other new initiatives to drive long-term growth. Positive catalysts include
quicker-than-expected stabilization of the pandemic situation and improvement in the
macro economy. Key risks: 1) more intense competition in the online retail market, 2)
slower lower-tier market development, 3) management risks, 4) a further impact from a
pandemic rebound, and 5) any risks related to the existing VIE structure.