Meituan - 4Q24 results in line, Keeta Saudi loss guidance raised on faster-than-expected expansion
- FY24 adjusted net profit surged by 125% y/y, in line with consensus
- Keeta Saudi expansion is outpacing expectations, with daily order volume surpassing Hong Kong after 6 months of launch
- Lowered adj. earnings by 9%/5% in FY25/26F, to reflect higher loss in Keeta Saudi expansion; Expect Keeta Saudi will reach an operating profit margin of 3-4% (from GTV level) in long term
- Meituan is trading at 17x FY25F PE, on adj. earnings CAGR of 26% from FY24-26F; Maintain BUY with revised TP of 206
Revenue increased by 20% y/y to RMB88.5bn in 4Q24, in line with market expectations. Segment-wise, core local commerce revenue increased by 19% y/y to RMB65.6bn; new initiatives revenue grew by 23% y/y to RMB22.9bn.
Gross profit rose 34% y/y to RMB33.4bn, with margin expanding by 3.9ppts y/y to 38% in 4Q24. Operating profit from core local commerce grew by 61% y/y to RMB12.9bn, with operating margin expanding to 20%, vs 4Q24’s 15%, slightly higher than market expectations of 18% thanks to better operating efficiency gain in food delivery and in-store, hotel & travel (“IHT”) businesses. Operating loss of the new initiatives segment (including Meituan Select) narrowed by 55% y/y to RMB2.2bn.
Adjusted net profit surged 125% y/y to RMB9.8bn in 4Q24, in line with market expectations, with margin reaching 11% in 4Q24 (vs. 6% in 4Q23).
Outlook
A strong set of 4Q24 results, with the company demonstrating solid execution on operational efficiency gains.
Core local commerce revenue growth momentum to sustain. We expect core local commerce revenue to grow at 17% y/y in FY25. For food delivery, management shared that the decline in average order volume (AOV) is narrowing. For hotel, instore and travel (HIT), we expect that the local life services market will remain rational and expect Meituan to maintain a 70% market share (in terms of validated GTV) onwards, as its key competitor is only expanding into categories that do not translate into revenue. In addition, local life services market is underpenetrated, with c.10% online penetration currently, which we expect to rise to c.20% by end of FY25.
Expect core local commerce operating profit to grow 19% in FY25. We expect operating efficiency gains to continue in both food delivery and HIT segment. A stable competitive landscape in China’s local life services market, will support gradual margin expansion in its IHT segment. Additionally, Meituan has provided RMB1.4bn in total for occupational injury insurance for its couriers in seven pilot regions since July 2022. Regarding the social insurance, the company plans to roll out a pilot program in a limited number of cities in FY25, with the minimal impact expected to be offset by continued operating leverage in its food delivery business.
Faster-than-expected Saudi Arabia market expansion. Management shared that Keeta has expanded into more than six cities in Saudi Arabia, with total daily order volume already surpassing Hong Kong’s 300k+. As a result, management is guiding a loss of RMB9.5bn in the new initiatives segment for FY25, compared to the consensus estimate of RMB7.2bn. Unit economics for Keeta Hong Kong is improving, and we expect it to break even by late 2025. In Saudi Arabia, management stated that Keeta has become one of the leading players with improving unit economics and expects its operating profit margin to reach 3-4% (as a % of gross transaction value) in the long term - higher than in the China market due to a higher average order value.
Committed to technological advancement. Meituan has introduced its 'LongCat' LLM and begun integrating AI into work processes and consumer services. Additionally, management shared that the company has successfully fulfilled substantial commercial orders using drones and autonomous vehicles and expects non-linear profitability improvements as technology advances in long term. Additionally, Meituan plans to launch an AI personal assistant to enhance user experience across its business lines, which will further improve customers’ moats to its platform.
Maintain BUY with revised TP of HKD206. We lowered our FY25/26F adjusted net profit by 9% and 5%, respectively, mainly to factor in increasing Keeta investment in Saudi Arabia. We now forecast adjusted net profit to grow by 19%, 33%, and 28% in FY25/26/27F. We continue to like the rational competitive environment in the local life services market and the long-term profitability potential of Keeta Saudi. We derive our TP of HKD206 (previously HKD223) based on a SOTP valuation: (1) local core commerce (including food delivery, in-store, hotel, travel, and Meituan insta-shopping): 20x FY25 core earnings (unchanged) (HKD189); and (2) new initiatives and others: 1x FY25F forward P/S (lowered from 3x to factor in the slower loss reduction from Keeta expansion) (HKD18). Our TP implied target FY25 adj. PE is 22x, in line with its historical average.
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