Margin improvement in all segments
- Meituan reported total revenue grew 16.4% yoy in 2Q22, in line with our expectation.
- Non-GAAP net profit reached Rmb2.0bn in 2Q22, up from a net loss of Rmb2.2bn in 2Q21 and Rmb3.5bn in 1Q22, above our expectation, due to better margins.
- Meituan largely improved its cost and expenses control in 2Q22, with the operating margins of all its business segments expanding.
- Recovery signs started in Jun and accelerated in Jul and Aug. We now expect total revenue to grow by 28% yoy in 3Q22F with a non-GAAP net profit of Rmb500m.
- Reiterate Add with a higher DCF-based TP of HK$240.
2Q22 results above our expectations
Meituan reclassified its revenue reporting into two segments in 2Q22. Local commerce
includes food delivery, instant delivery, in-store and hotel, B&B, etc. The new initiative
segment includes Meituan Select, Meituan Grocery, B2B business, etc. Local commerce
revenue grew by 9.2% yoy in 2Q22, reflecting resilient growth in the food delivery sector
and a strong growth trend in the instant shopping sector. In-store and hotel revenue
dropped by 18.6% yoy in 2Q22 due to the Covid impact. The new initiative segment
maintained strong revenue growth of 40.7% yoy in 2Q22. Its GPM expanded by 2.0ppts
yoy to 30.6% in 2Q22, driven by increasing average order value (AOV), lower subsidies
and improving unit economy of new initiatives. Non-GAAP operating profit reached
Rmb2,681m in 2Q22 (5.3% OPM), up from an operating loss of Rmb3,468m in 2Q21, since
the selling and marketing expenses ratio fell from 24.8% in 2Q21 to 17.6% in 2Q22.
Large growth potential of instant shopping business
Annual active customers (AAC) grew by 8.9% yoy to 684.7m in 2Q22, and the number of
active merchants jumped by 18.5% yoy to 9.2m. The annual order number per user
increased strongly by 16.2% yoy to 38.1 in 2Q22, reflecting improving user frequency.
Meituan’s business has been resilient under the serious Covid situation. Instant shopping
reached a daily order number of 4.3m in 2Q22, and management expects it to reach 10m
orders per day in 2025. Management expects instant shopping order volume and revenue
growth to be higher than that of food delivery in the future, reaching a similar unit economy
of the food delivery sector (Rmb1/per order) in the medium term. AOV of instant shopping
is Rmb70–80 now, and management expects it to reach Rmb100 in the future.
Management said instant shopping achieved 270m orders and Rmb1,770m in revenue
(Rmb6.6 per order) in 2Q22. We expect the instant shopping commission rate to be 8–9%.
OPM improvement for all segments
The local commerce OPM improved to 22.5% in 2Q22, from 13.8% in 2Q21. Food delivery
order volume grew by 4.8% yoy in 1H22, with revenue growth higher than volume growth,
given better AOV and lower subsidies. The food delivery OPM improved both qoq and yoy
in 2Q22. Management said food delivery order volume growth improved to 10% in Jun, low
teens in Jul and 20% yoy in Aug, and hit the new high of 80m daily orders in Aug. We
expect the food delivery OPM to fall qoq in 3Q22F, given the lower AOV and higher
subsidies for seasonal reasons. The loss from new initiatives fell to Rmb6.8bn (Rmb5.4bn
for Meituan Select) in 2Q22, from Rmb9.0bn in 2Q21 and Rmb8.5bn in 1Q22 through
improving AOV, order density, supply chain and logistics capability. We expect the net loss
ratio for new initiatives to improve in 2H22F.
Reiterate Add with new DCF-based TP of HK$240
We raised our FY22–24F EPS forecasts by 6.6–57.8% to reflect better-than-expected
margins. We reiterate our Add rating, since we believe Meituan still has huge room to
improve its order numbers and margins. A key catalyst would be stronger-than-expected
margins. A key risk is weaker-than-expected revenue growth due to a sluggish economy.